Art, an alternative investment to the stock market

great painters painting art

Between evolving markets and Brexit, investors are looking for other ways to invest in assets that are not dependent on government. The investment trend is to look for asset classes with shortages, such as wines, vintage cars and real estate. However, Lesworks of art have become very popular assets in recent years. In fact, with over 30 billion worldwide exchanges per year, art objects are now considered a safe haven. Despite the fact that it is very volatile in the short term and not very liquid, this asset is not correlated with financial markets, which is interesting during financial crises. Art has many arguments to please, including its very advantageous taxation, its high profitability, and its tangible side, much more reassuring than financial products.

>The art market

The art market is an over-the-counter market where works of art (paintings, antique furniture, masterpieces…) are exchanged. The supply and demand for works of art (buyers, sellers and curious people) meet in physical or digital places to gauge market value and possibly carry out transactions according to subjective and objective criteria.

Over time, art has become a commodity like any other that is traded, by mutual agreement, between economic agents.

The structure and organization of the art market is complex and can be summarized in different actors :

  1. artists (producers) who produce works of art of various qualities with a profusion of period and typological segmentation (contemporary art, Chinese art, primitive art, modern art,…)

  2. Art galleries, digital art platforms, private art exchanges and public auctions that represent the distribution ecosystem, resellers and thousands of intermediary agents (collectors, investors, art critics, auctioneers, private banks, investment funds,….)

> Refuge value (1)

In a period of high and increasing inflation, art has achieved a historical performance in all market sectors. As a general rule, when there is an uncertain market, collectors seek to buy art with an investment vision, not just to buy beautiful objects. In accordance with the Deloitte report (Luxembourg & ArtTactic Art & Finance 2016), 73% of asset managers in 2016 (compared to 58% in 2014) stated that their clients wish to include assets relating to works of art or collectibles in their assets in order to benefit from a consolidated view of their assets. In addition, in the 2016 report, 78% of asset managers (compared to 55% in 2014) said that they thought art and collectibles should be included as part of a wealth management offer.

Art guarantees to be a very safe asset, in relation to the risk involved, offering multiple options (different painting styles, variety of artists…) and is highly globalized. The art market has become much more professional in recent times, particularly due to the creation of its own index, the Mei Moses, which is supposed to give the evolution of the art market in the same way as the CAC 40 or the Footsie, but also thanks to the proliferation of art investment funds which makes its entry into the market more affordable.

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Today’s investors should consider having a portion of their portfolios

diversified in the art market. The low correlation between art and equities and traditional asset classes provides valuable portfolio diversification, resulting in higher overall returns. According to the 2016 Deloitte Art & Finance report, 72% of art collectors reported that they had purchased art for passion but also for investment purposes. In addition, there was an increase from 3% in 2014 to 6% in 2016 of clients and advisors seeking to purchase art specifically for investment purposes.

Investing in art can be very profitable, as long as it is considered as a long-term investment. Indeed, if you keep your property for more than 5 years, you can take advantage of a revaluation of up to 7.5% per year for a direct investment, and 12% on average for art investment funds. There is also a rating to evaluate the price of a work at a given time, and one for its artist. The owner will then be able to follow the course of his acquisition at any time. The world’s first database of works of art is called ArtPrice.

In terms of taxation, it is very advantageous, and it is largely for this reason that investments in art objects have increasingly won over the French.

First, works of art are entirely exempt from ISF, and are very easily transferable. There are two capital gains tax regimes when the property is resold:

  • The first is to tax 5% of the total sale amount.

  • The second is a tax on capital gains at the same rate as real estate capital gains, i.e. 19% and 15.5% social contributions. Unlike real estate capital gains, the tax regime applied to the art sector allows a deduction of 10% per year of ownership. Thus, the resale will be net of tax if the artwork is held for more than 12 years.

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To invest in art, there are of course auctions and other galleries but it takes time and knowledge to select the most interesting works. Another way to invest is through specialized art investment funds such as the Art Collection Fund or through art advisory departments that have been created in some banks such as Société Générale, which manages the Sgam AI Art Fund.

Thanks to funds and banks, investors have the ability to quickly and securely exploit the expertise and research that would otherwise have taken decades to know everything. The funds allow a combination of artistic and financial expertise with a large capital base and a team of advisors.

One of the most important funds was The British Rail Pension Fund (3) which acquired about 2500 works in the mid-1970s and posted a profitability of 11.3% from 1974 to 1999. In 2014, the art fund industry in the United States, the United Kingdom, Brazil, China, France, Russia accounted for $15.2 billion. Thierry Ehrmann, CEO of Artprice, deplores the decline of France, whose market share has gone from 60 to 3% in 50 years (4).

https://www2.deloitte.com/lu/en/pages/art-finance/articles/art-finance-report.html(1)http://www.capital.fr/finances-perso/actualites/investir-dans-l-art-peut-rapporter-gros-encore-faut-il-savoir-how-to-do-1154189 (2)
http://www.nytimes.com/1989/04/05/arts/british-pension-fund-sells-65.6-million-in-artworks.htmlu> (3)http://www.capital.fr/bourse/actualites/l-incroyable-declin-de-la-france-sur-le-marche-de-l-art-1016207u> (4)/span>

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Aymen TRIKI

Bassem TRIKI


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