While the global economy is struggling in 2022 and many traditional investments are trending downwards, high net-worth individuals are still pouring money into fine art. Recently, Andy Warhol’s iconic 1964 painting ‘Shot Sage Blue Marilyn’, sold for $195 million at Christie’s, setting a new record for the most expensive artwork by an American painter ever sold at auction. Historically, fine art has had a low correlation to the broader market, making it an attractive asset class during times of market volatility.
What is fine art?
Fine Art refers to anything that is created specifically for the purpose of art, such as paintings and sculptures, as opposed to something practical (like fine china) that also happens to be beautiful. While applied and decorative arts do offer investment potential, it is Fine Art that investors tend to focus on.
Why do people invest in fine art?
Historically, fine art, particularly blue-chip fine art, has steadily increased in value over time, with some metrics showing it has outperformed the stock market over the past 30 years. Additionally, their low correlation to traditional markets makes fine art investments an excellent way to diversify your portfolio and lower its volatility.
Like with many types of collectibles, scarcity and quality are the main drivers of fine art’s value, as high-end paintings have developed into a status symbol for the wealthy. This is one of the main reasons the performance of fine art is often uncorrelated to the broader market – ultra-wealthy people still have money to spend in bear markets.
What is fractional investing?
Fractional investing is a type of investing where the investor owns a fraction of the asset, rather than the entire asset. This allows investors to buy into an asset that they otherwise might not be able to afford. For example, an investor might want to buy a share of the Mona Lisa painting, but the shares are too expensive. With fractional investing, the investor can buy a fraction of a share. This gives the investor exposure to the company without having to pay the full price for a share.
Fractional investing is becoming more popular as investors look for ways to get exposure to assets that are out of their price range. This type of investing has some risks, but it can be a good way to diversify your portfolio and get exposure to different types of assets.
Besides the benefits of diversifying portfolios without having to pay the full price for an asset, fractional investing also gives the investors the ability to sell their fractional shares if they need to raise cash quickly. Another benefit is that investors can choose to reinvest their dividends from fractional shares back into the asset (for eg. the Mona Lisa), which can help increase its value over time.
What are the risks of fractional investing in fine art?
Of course, like with any investment, there are risks. Because many fine art pieces are unique, it can be hard to come to a proper valuation due to the lack of comps. Art is also traditionally a very illiquid asset, and high-end art has a limited supply of potential buyers who can afford multi-million dollar pieces, meaning it may be difficult to access capital on short notice. Another thing to consider is that even at the high-end, there are cases of forgery and fraud, making provenance an extremely important element of evaluating a potential investment.
Also, the value of the shares may go down, which would result in the investor losing money. Another risk is that the company whose fractional shares are being purchased could go bankrupt, which would mean the investor would lose all of their investment.
How can I fractionally invest in fine art?
Platforms like Masterworks, Otis and Rally offer everyday investors the ability to purchase fractional shares in artworks by artists such as Warhol, Banksy, KAWS and more.
As their values rise, investors can sell shares on the secondary markets or hold on long-term until the asset receives a buyout offer. Additionally, Yieldstreet and StartEngine have expanded their offerings to include fine art, making the benefits of fine art investing more accessible to retail investors.
Evan Cohen
Evan Cohen is the co-founder and COO of Vincent. He spent five years as a Partner at HCVC and was the former head of Head of Blockchain and Investing at Indiegogo. He graduated from the University of Illinois Urbana-Champaign.
Originally posted 2022-09-19 15:47:38.