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The Actuary The magazine of the Institute & Faculty of Actuaries
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The art of investing

Art as an investment is a little bit like property. It comes in individual sizes, is an illiquid asset, can potentially have large upkeep expenses and owners attach a large amount of utility to owning it. Much like property and equities over the last few years, the value of art surged during a dramatic bull run but has fared badly during the last 12 months.

So what has happened in the art market? Things were looking good back in mid-2008, as other markets were falling. The RICS UK Arts and Antiques Survey Q2 2008 reported that prices in the art world were looking stable, since high-value investors were buying art and antiques as an alternative to stocks and shares, given the uncertain economic climate.

The contemporary art market reached its peak over a two-hour period on the evening of Monday 15 September 2008 at Sotheby’s London auction house — rather ironically the same day that Lehman Brothers filed for bankruptcy. As Lehman employees walked out of their offices in a rather dazed state, a record £70.5m was spent at the ‘Beautiful Inside My Head Forever’ auction — the epic sale of a range of Damien Hirst pieces. The most expensive individual item sold was The Golden Calf, set on a Carrara marble plinth in a tank of formaldehyde, which sold for £10.3m.

The Damien Hirst sale seemed to suggest that the art world really was recessionproof. However, this soon changed. One of the first signs was an auction at Sotheby’s Hong Kong in October 2008, when 19 out of 47 prominent works failed to find a bidder. This ended a five-year period that saw the price of Asian art shoot up with records regularly broken.

In November, two big contemporary art auctions in New York at Christie’s and Sotheby’s both faced similar set backs. The Sotheby’s auction raised a lacklustre $125.1m — well below the expected amount. Bidders shunned works by such famed artists as Roy Lichtenstein, Andy Warhol and Damien Hirst. The Christie’s sale followed suit, despite lowering reserve prices at the last minute. The contemporary art market had been in a bubble for almost seven years. The bursting of this bubble was flashed across the art sector. In a sign of the times, Sotheby’s announced they were trimming staff numbers to cope with the downturn.

Falls in other art markets have not been as severe as the contemporary scene. A December 2008 auction in London of some old masters saw some enthusiastic bidding. However, the impact that the general economic downturn has had on the art world has given art lovers opportunities to pick up works that they would not have been able to before. Cash-strapped art owners have been forced to sell pieces to meet other debts. Works of art that have never been seen before at auction have surfaced over the last six months, providing an opportunity for art lovers and investors alike.

How has art compared as an investment? The last six months have seen some big losses, especially in contemporary art, as investor demand has collapsed, with falls outstripping property and equities. However, the returns on the art market over the last few years have far exceeded those of conventional markets. Maybe this implies that pension funds should be looking into even more diverse areas for returns. With the market still falling, who knows how far it could go.


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