ADVANCES IN TECH PROMOTE ART INVESTMENT

Posted on in Editorial, Lifestyle by Josh
 

 

Since 2003, the art market has more than tripled. Growth can be attributed to the growing popularity of art assets amongst financial institutions. Sophisticated family offices are all incorporating art as an alternative into their portfolios and with good reason.

“In the last several years, more art has been bought as an investment than ever before,” said Robert Mnuchin, founder of Mnuchin Gallery in New York. “Other assets seem to be less certain to people, so art, which has an international, not national identity, seems like a more comfortable place to be." Advisers, too, are deliberately involving art into their asset allocation strategies, says Phillip Ashley Klein, U.S. art and finance leader at Deloitte. A recent Bloomberg article explained that art is pitched as an investment that doesn’t move in step with stocks and bonds.

Support for art as an uncorrelated investment was bolstered at The New York Hedge Fund Roundtable, which is a non-profit organization focused on promoting ethics and best practices within the alternative investment industry. The membership consists of investors, fund managers and other industry professionals who regularly meet to discuss current issues within the industry and connect with peers.

Here are the major findings of their survey according to FinAlternatives:

-59% of respondents believe the biggest benefit of investing in art is the possibility of high returns that are not correlated to the general financial market.

-41% of respondents think investing in art is attractive given that its cyclical nature means there will always be opportunities to pick up individual pieces of art from specific artists or styles that have fallen out of favor, but which are likely to eventually become popular again.

-Asked what they believe the biggest risk of investing in art is, 41% of respondents believe it is the illiquidity of the art market, which means that the true value of an individual piece can only be determined when it is sold.

Arthena CEO, Madelaine D’Angelo, was a panel member at this year’s roundtable where she discussed the missing piece in buying art with an investment point of view - quantitative data. D’Angelo urged the market to be more transparent. By acquiring large sets of data, D’Angelo saw the opportunity to sell art funds to family offices, wealth managers and retail investors that previously lacked direct exposure to the art market.

Arthena CEO, Madelaine D'Angelo Speaking at The NYHFR

Despite art assets’ powerful seller's market, illiquidity is often voiced as a concern by investors in the art market. This misconception stems from the lack of transparency in the art market that historically guarded detailed transactions from the public. Conventional art advisers typically take a largely qualitative approach to identifying investment opportunities for their clients, reviewing a limited number of data points (like prior sales) rather than taking a market-wide view. This process can lead to unsupported acquisitions, which does not sit well with financial institutions. However, online auction houses and databases have cracked opened the inner workings of the art market, ushering in disruptive technologies.

A trustee at the Museum of Modern Art, a Whitney Museum trustee and former hedge fund manager who now runs her own family office, Anne Dias, explained to Bloomberg that “like investing, collecting is about pattern recognition; it’s about doing your due diligence, it’s about assessing intrinsic value, and it’s about knowing what and when to sell.” With big data, machine learning and AI now available, companies are capable of performing these tasks in a previously impenetrable art market.

Using uniquely engineered algorithms on a dataset of over 16.5 million historic auction sales from 80 independent international auction houses, Arthena has ushered in financial grade transparency to the opaque art market. Arthena utilizes AI investment strategies to create the first automated art market investment platform. Family offices are especially drawn to the risk and return features of Arthena products.

Start-ups at the intersection of art and tech are growing, further facilitating accessibility and transparency in the art market. Barron's reported that “a cottage industry of startups providing everything from art market data and analysis to low-cost online auctions has been providing valuable backroom services to the increasingly financially-sophisticated art buyer.” The article goes on to say, “expect more players.” The VC sums invested in art industry start-ups have increased from “$125 million to $505 million in the last three years,” according to research by Ateo Finance.

To learn more about investing in the art market supported by quantitative analytics e-mail concierge@arthena.com.

 

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