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Art as an asset for investment - Is the art market a place to deal in, in the first place?

Updated: Sep 14, 2020

Art has traditionally been appreciated for its beauty and the wide spectrum of contexts, dimensions and the intellectual qualities it exhibits. However, the commercialisation of art has brought another quality; art is now seen as a spur for investment, owing to the fact that, over the centuries, the commercial value of artefacts has grown significantly. The past decades have been particularly decisive in transforming art, as many financial experts realised that artworks can function as investable assets.

The popularity of investing in art is one that was born, and subsequently evolved, through periods of financial recession, especially, because art is generally ‘immune’ to the devaluation that the other financial assets are regularly subjected. Of course, this does not mean that an artwork cannot be devaluated, since the art market is one that is commonly exposed to periodical ‘trends’ that sooner or later fade, only to be succeeded by new ones. This occurs, mainly if a targeted type of artefacts satisfies the market demand.

Inevitably, one must be cautious about the artworks they opt to buy, as the availability of large inventories of similar objects may devaluate a piece of art, due to a subsequently limited – even non-existent future market demand for such articles. This signifies that the success and profitability of the art industry is one emerging through ‘negative competition’: the limited availability of a certain type of art in response to an increasing client demand, boosts the pricing of such artefacts. A characteristic example of the above occurs at auction, where the highest bid buys the work. Therefore, when purchasing rare or unique artworks, one obviously anticipates subsequent increases in their price. This becomes even more apparent, usually, once an owner puts such assets (back) to the market.

However, no matter how ‘pioneering’ one may regard art investments due to the diversification they bring to one’s portfolio, the art industry is flooded with a myriad of risks that penetrate a marketable piece of art. Within this spectrum, confidentiality has traditionally been much appreciated within the circles of the art market, for instance towards the verbal assurances of, or the ‘shake of hands’ with the art dealer, the Gallery, or the Auction House, but it is, nonetheless, a factor that has sparked controversy. This has now become a prevalent issue, as the multitude of discoveries around the circulation of stolen and/or fake art has been increasingly reaching the court room, and in many cases with unfavourable outcomes for the negligent buyer.

The realisation is that the occurrence of such situations renders the art market a risky place to deal and engage in, especially for collectors and/or investors that are unaware of the risks involved, something that is even more stressed by the fact that this international market remains significantly unregulated. Consequently, one must be cautious to make their own independent and informed choices before purchasing art, regardless of any spoken promises from the seller, as well as make sure beforehand that the artwork to be purchased is accompanied with all the relevant warranties asserting its originality and the transfer of a valid legal title.

The Art Fund Revolution

A revolutionary approach towards embracing art investments has been the ‘trading and investing into art with a shareholders approach’ through ‘investment vehicles’ like Art Funds, which bring art investments closer to the features of other assets/commodities. Art Funds are purely financial mechanisms for ‘co-investment’, and those involved are either contributing their artworks or capital interest.

The goal of such investors is to ‘exchange full ownership of art for partial ownership of a large pool of assets’, as artworks ‘represent [unique] shares’ the worth of which is designated by the fund itself based on the marketability of similar works. In this regard, Art Funds act as ‘pool resources to exploit the inefficiencies in the art market’, whilst providing a range of benefits to their members. They are run by leading investment corporations with a magnitude of financial advisors and leading art market experts at their disposal for careful market engagement.

Clearly, the expertise of the personnel in Art Funds facilitates these mechanisms’ ends, as their links in the art world enable ‘insider dealings’ for cheaper acquisitions, which they will later circulate in the market for higher interest, thus accommodating the scheme’s success and profitability. Admittedly, their emergence has been deemed as the ‘additional highly beneficial avenue down [to] which the private investor’ (in contrast to the ‘recreational investor’[1]) can invest to generate profit and diversify their portfolio.

One must be wary though, that gaining access to an Art Fund as an investor is restricted, as such schemes are usually open, only to ‘accredited investors’ meeting certain thresholds, for example, the pre-existence of links between them and the fund. As the majority of the global art market remains unregulated, this is reflected upon the structure of art funds, which are largely abiding to the same minimal standards of regulation imposed on auction houses and galleries. Admittedly, their closeness to a certain target group of investors affirms that proposition, as it implies their reluctance to come public and be more transparent as a mechanism.

On the other hand, the closeness of the leading – usually long established - art fund schemes, seems to reflect the ‘key’ to their success, as not all of these mechanisms have been equally successful. The 2008 financial crisis has been particularly critical to the share of the art market during this period and, consequently, to the ‘fate’ of art funds, as many of the schemes that were affected by it soon filed for bankruptcy and they, eventually, closed. Regardless of the failure of some of these schemes to ‘survive’, the post 2010 art industry has seen significant ‘boosts’ in its international market share, whilst the emergence of new art fund mechanisms has been an apparent consequence, particularly in China, the new contesting market in the field.

Recent Developments and Controversy

The new EU Anti-Money Laundering Directive 2018, particularly its implementation in the UK - a world top art market - marks the beginning of a new chapter towards the long-desired regulation of the international art marketplace. Importantly, the new law aims the tackling of criminal activities that facilitate the laundering of illicitly acquired, forged or fake art and the laundering of revenue from criminal activities through art. However, due to the alleged ‘longstanding’ confidentiality that traditionally inhabited the art market, those instances where most of the aforementioned practices occurred in the distant past are, practically, likely to remain unknown, unless of course their status comes to question.

The most worrying realisation about this, however, is the reach and the extent of those practices, as the discovery of such incidents connotes that their penetration in the ‘licit market’ (contrast with the ‘black-illicit market’) is one that might have been occurring for a long time, even for centuries. Therefore, the discovery of old cases concerning laundered art or laundered money through art might prove difficult, but nevertheless not impossible where the relevant links or any suspicious gaps in an artwork’s provenance still exist.

Within this spectrum, one may very well cite the concern about the over-commercialisation in art, particularly for those artefacts that are classified as cultural property, as they form part of the cultural heritage of all humanity. In this regard, art as a financial asset, inevitably, crystallises the treatment of cultural treasures to that of commodities. Undoubtedly, such items tend to outsell at auction, as their uniqueness is rarely contestable. A characteristic example of the above assertion is the sale of the ‘Male Joconda’, Leonardo Da Vinci’s painting titled ‘Salvador Mundi’, that was sold by a leading auction house in 2017, at the record-breaking price of $450.000.000 USD.

The painting portrays 'Christ as Saviour of the World'. It was recently discovered and certified by leading experts as an authentic Da Vinci (in 2007), and it has since concentrated huge controversy around it. The piece was long regarded as being a reproduction of the acclaimed Da Vinci original, which was believed to had been 'lost'. The controversy around this artwork has been evoked because of the painting's heavily repainted surface by later conservators (photo on the right), whose preservation attempts 'estranged' the painting from Da Vinci's artistic techniques, hence the longstanding perception that it was not by the hand of the old master. During the painting's last extensive restoration in the mid-late 2000s (post restoration image on the left), the cleaning of the artwork's 'overly repainted' parts revealed its badly damaged surface (photo in the middle), which explains why the painting had been overly repainted throughout the centuries.

However, not all with expertise in art have been persuaded about the artwork's attribution to Leonardo Da Vinci, whilst many claim that it was partly commissioned by him, as the artwork is most likely to had been painted by a 'skilful student' in the old master's studio. As the painting had been extensively restored, this raised burning questions about its originality as the restorer's intervention had been significant. Notwithstanding that, the record-breaking price for which it was sold in 2017 has further added to the controversy surrounding it. In this regard, one may rightfully question the impact that the sale of this painting will have for the art market in the long-term, particularly for artworks considered as cultural property.

Additionally, the disappearance of the painting from the public eye, which was supposed to have been exhibited at the new Louvre Museum in Abu Dhabi since its inaugural in 2018, has raised concerns about its whereabouts. In this regard many have claimed that it may have ended up in a free-port (specially designed storage facilities) in Geneva, or even that it may be stored in a private yacht. Admittedly, such 'hubs' have been described as 'the best museums that no-one can see'.

The academia, as well as the governments of many states known for their large depositories in artefacts (and their suffering from looters), have long been strong advocates of the opinion that those artefacts that are considered as cultural property should not be offered for sale, but rather to be exhibited in museums for the public to admire. The rationale behind this position is that, empirically, where such artefacts end in private hands, they are always subject to the possibility of disappearing for years from the public eye and/or not serving the purpose for which they were created: to be seen and to be admired. This, clearly, goes against the essence of an artwork’s purpose, as those buying art for purely investment purposes focus on the revenue their purchase will make upon a consecutive resale, and they are eventually neglecting the artistic, historic, etc. qualities that such artworks exhibit, which they usually store in specially designed venues.

An approach down to which such instances can be addressed, and the rise of controversies handled, is by lending such artworks, in return for revenue, to leading institutions worldwide, so the world can admire artworks of exquisite artistic expression that usually such assets transmit, whilst simultaneously the investor profits. Of course, the above would have been the ideal scenario in an ideal world. As reality is not always simple, realistically, not every article will be equally successful in finding its place in a museum or a gallery, and therefore be a source of revenue for its owner.

Arguably, the commodification of artefacts is an issue that will always attract controversy, as the different stakeholders involved will obviously have a wide range of conflicting interests. Who might win? Obviously, the ones with the law asserting their side. As the international art market is largely unregulated, one may be surprised with the disparity of approaches that exist in this regard.

The follow-up article to this insight on the commercialism of art and its use as a financial asset, will dive into the unregulated character of the international marketplace and will showcase how this has encouraged the flourishing of criminal activities (illicit trade in art/ art laundering, circulation of fakes/forgeries, money laundering through art) within the core of the art industry.

[1] A person who buys an artwork because of their admiration towards the aesthetic/intellectual features of the piece.


European Union Directives

Directive (EU) 2018/843 of the European Parliament and of the Council of 30 May 2018 amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, and amending Directives 2009/138/EC and 2013/36/EU

Chapters in books

Graham J-L, ‘Art Exchange? How the International Art Market Lacks a Clear Regulatory Framework’ in Valentina Vadi and Hildegard E.G.S Schneider (Eds), Art, Cultural Heritage and the Market Ethical and Legal Issues (Springer 2014) 319

Ulph J,’ The Trade in Art and Antiquities’ in Janet Ulph and Ian Smith (Eds), The Illicit Trade in Art and Antiquities (Hard Publishing 2012) 1

Worthington A, Higgs H, 'Art as an investment: Risk, return and portfolio diversification in major painting markets' in Accounting and Finance (Blackwell Publishing, 2004) 257

Journal Articles

Mamarbachi R, Day M. and Favato G, ‘Art as an Alternative Investment Asset’ [2008] SRNN Electronic Journal 1

Newspaper Articles

Jones J, 'The Da Vinci mystery: why is his $450m masterpiece really being kept under wraps?' (The Guardian, 14 October 2018) accessed 10 September 2020


'Leonardo’s Salvador Mundi makes auction history’ (Christies) accesed 8 September 2020

Holland O, 'The $450 million question: Where is Leonardo da Vinci's 'Salvator Mundi'?' (CNN, June 2019) accessed 11 September 2020

Modestini D, History of the Salvador Mundi' (Salavador Mundi Revisited) accessed 11 September 2020

Tenzer, ‘Are art 'freeports' tip of EU tax avoidance iceberg? (euobserver, 27Feb 2019) accessed 10 September 2020


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