Art & finance: the latest from the barricades
Last Thursday, October 21, Deloitte sponsored its third annual ‘Art & Finance’ conference, in Paris. The overlap between the worlds of art and finance is, to the discomfort of many people in and around the art world, not insubstantial (though not yet ‘substantial’ either). Whatever the case, it is growing. A number of themes emerged at the conference, three of which are worth highlighting.
First, there was widespread agreement that the market is opaque and inefficient. The consensus of this self-selected group of art and finance enthusiasts is that something needs to be done.
Second, the next step forward would be to create a viable index that could be traded (and used to hedge against risk). A corollary, of course, is the illiquidity of the art market. I have been struck by how clever some of the methods for indexing the market are (particularly in dealing with the liquidity issue). I am equally impressed by the application of macro-economic theory to the art market. Without getting too far into methodology, however, I wonder if we have it wrong when we try to analogize standard economic models to the art market. Nobody wants to reinvent the wheel. But given the lack of identical product in the art space, I feel new methodologies will need to be explored.
The final theme to emerge at the conference was that art has become an asset class, and it should be treated as such, particularly by wealth managers. But clever arguments about asset allocation and fiduciary responsibility ran up against an uncomfortable reality: Art collectors, unlike those at this conference, on the whole do not appear to think of their art as part of their investment portfolio. The net result is an interesting tautology: Art is only an investment to those who consider it an investment.
What became very clear by the end of the conference was that there is a group of people working to build an image of art as an asset class. They are certainly onto something. They are smart. They also overwhelmingly have backgrounds in finance and economics.
Before we continue to develop art into an investment vehicle (in whatever way), let’s take a step back and think about what makes art different to other assets and markets, not what makes it similar. The art world has an extraordinary opportunity: to be the first market since the financial crisis to ‘get it right.’ I think we can seize that opportunity, but it requires rethinking—or at least, thinking critically about—the basic methods in our toolbox.