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IBS Dean examines new form of art investment

Kathryn Graddy, Dean of the Brandeis International Business School and Fred and Rita Richman Distinguished Professor in Economics, reviewed a new form of investment that has emerged regarding art pieces. In an article published on The Conversation, Graddy discussed how buying shares of art pieces can become available to the masses via this new online platform; however, there are risks in investing in art, according to Graddy. 

 

Art investment funds are not a novel idea, according to Graddy: this practice has existed for years. However, the new form of investment is through Masterworks—a platform where individuals can invest in artwork, according to their website—and it allows individuals to buy $20-increment worth of shares on art pieces. Investors, on this platform, can then sell their share of the artwork or wait until Masterworks sells the artwork and receive a pro rata compensation, according to the article. 

 

“For those thinking of purchasing art purely for investment purposes, it’s important to understand how art investment funds have traditionally worked, and whether experts believe it’s a good investment,” wrote Graddy in the article.

 

Graddy has experience in economics and art history; she has co-taught a course on economics and art history with Nancy Scott, a professor of Fine Arts at Brandeis, according to the article. Wrote Graddy, “In this course, we spend time discussing the history and profitability of art investment, both in theory and in practice.” 

 

Art investment can be traced back to a French fund which translates to The Skin of the Bear, according to the article. This art investment fund was from the beginning of the 20th century and was operated by a small number of partners. The partners each contributed identical amounts of money towards the purchase of pieces of art, according to Graddy

 

Andre Level managed the fund, according to Graddy; he was responsible for selling the paintings. Level and the artist each received 20 percent of the sale price; the investors would then split the rest of the money, according to the article. The artist received the 20 percent compensation on top of the initial sale they made on the investors. 

 

This art fund was successful, according to Graddy, causing others to try and create other art investment funds. Other art investment funds like the British Rail Pension Fund received low gains for investors and were consequently less successful than the original. 

 

“There are art funds that are still in operation, such as Anthea and The Fine Art Group, and, of course, banks and auction houses have long described investing in art as a suitable diversification strategy for the wealthy,” wrote Graddy.

 

Graddy notes it is important to look at the numbers when considering investing in art. Individuals should consider transaction fees, which may be high since those are typically seen with art, wrote Graddy. Though, according to the article, it is estimated that the performance of the stock market should not impact the amount of returns on art investment. Since there is believed to be no correlation between the two, Graddy writes this may be a beneficial way of diversifying one’s portfolio. 

 

“Caveat emptor,” Graddy wrote (Latin for “buyer beware”), “art is a risky investment.” 

According to the article, Masterworks will be like traditional art funds in the respect that investors will make money if the price of their piece of art goes up. Investors will respectively lose money if the price of the piece goes down. Graddy writes that Masterworks seems “innovative and fun” and it could be a good platform for young investors. The site is easy to manage and can provide enjoyment, according to Graddy.

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