The global fine art market was worth more than $45bn last year and is ‘stable and robust’, according to the 2017 European Fine Art Foundation report.
In uncertain times, it offers a reassuring investment opportunity; largely immune to political change, it is less volatile than currencies or capital markets and grew by 1.7% last year, with prices around 15% higher than in the market trough of November 2012.
With wealth managers looking beyond traditional investment products, there is a strong demand from investors – 88% of private offices and 75% of High Net Worth and Ultra High Net Worth individuals want art in their portfolios, according to the 2016 Deloitte Art and Finance report – but the market can be daunting to newcomers. It has a reputation for being opaque and the major auction houses charge fees of up to 30%.
Art funds offer an opportunity to manage risk – a typical portfolio could be made up of 50% Old Masters, 25% post-war or Modern greats and 25% emerging contemporary names – but they are not liquid, and tend to have a long lock-in period. With minimum unit sizes normally upwards of $0.25m it can also be difficult for new art investors to join.
But what if there was an alternative way of investing in fine art, which solved the twin problems of a lack of transparency and a lack of liquidity?
A new art investment platform is promising a unique solution by creating an online marketplace where owners, collectors and investors can meet without intermediaries to trade in real time. It is taking the idea of art funds, where art pieces are evaluated in financial terms, to a new level by giving investors the opportunity to have fractional ownership in artwork.
Maecenas will use block chain technology to tokenise and digitally allocate single pieces, or portfolios, to several co-investors who can trade with other parties though an art exchange. While the owner retains 51% of the piece’s value, the remaining 49% can be traded, transforming the dynamics of the market and bringing much greater granularity to art investing. Prices will be market driven and faster digital transactions will create more data points than ever before, allowing investors to monitor the evolution of pieces in a way that has never been possible.
By making masterpieces as tradable as company shares, Maecenas will allow more complex financial instruments to flourish. A prime example of this would be exchange-traded art funds (ETFs), which would let more passive investors have exposure to liquid art-based financial vehicles without having to actively manage their portfolios.
Trading activity on the Maecenas exchange will create rich price data points that will become part of more tailored art indices that the industry can adopt as standard benchmarks for pricing and valuation of non-listed artworks – similarly to how FTSE or SP500 track prices of company shares.
This will democratise the fine art market, creating a secure, open global platform. Block chain technology has been used to bring greater transparency to the provenance of artworks; last spring, at the ICT summit in Luxembourg, Deloitte Touche unveiled its ArtTracktive proof of concept, which provides a distributed ledger for tracking the provenance and whereabouts of fine art works. But this is the first time block chain is being used to make art investment an easier, more transparent proposition. Lowering the barriers to entry will widen access to the market.
The fine art market has remained largely unchanged for 300 years, but why should it avoid the disruption that has affected just about every other sector?
‘The building blocks of the art market depend fundamentally on quality and trust,’ concluded the European Fine Art Foundation report. ‘Key to this are maintaining reputation and credibility to ensure longevity, stability and resilience’.
An open marketplace for fine art, accessible to all, is the best way of delivering this outcome.
Miguel Neumann is founding partner at Maecenas and chief operating officer at DX Markets