Fine Art Vs. Real Estate
Today fine art has developed into an asset class that investment managers, such as Black Rock’s Laurence Fink, believe have surpassed gold to join real estate as one of the top stores of wealth. In fact, the fine art and real estate markets are growing similarly in their behavior, especially as international wealth continues to rise.
Commercial property in particular accounts for 20% of HNWIs investments, outside of their primary residence. Although investments in residential markets, which Property Industry Alliance valued at $4.2 trillion in 2011, is nearly 50 times the value of the traded global art market, the two industries have a direct relationship. Individuals who buy lavish properties also like to fill them with expensive art. The Russian oligarch, Dmitry Rybolovlev offers a great example. After purchasing a Central Park penthouse for $88 million in 2011, the ultra high-net-worth individual bought a Mark Rothko painting for $186 million. This is only one example of the heavy spending across the two luxury markets from individuals worth half a billion dollars or more, which Wealth X reported to be a 367 person community.
Its not just the extravengtly wealthy that are focusing on fine art. Portfolio managers are also investing heavily in art as a tangible assets that historically go up in value and as stores of wealth for their influx of high-net-worth clients. Interestingly, the commercial real estate and fine art markets have similar average rates of return, 7% and 5% respectively. However, both markets benefit from the “I want” physiological mindset that many collectors and real-estate tycoons fall victim to. When two UHNWIs fight for the same home or painting, prices soar and in turn so does the market, making both assets not only stable stores of wealth, but also, great investment opportunities.
“Art and real estate are very similar in that they have to be analyzed in the same fashion, no two pieces of real estate are the same and no two pieces of art are the same” said Michael Moses, co-founder of the Mei Moses Fine Art Index. Just as professionals in the commercial real estate industry must be consulted to find the right piece of investment property, art advisors must be consulted to find the artists and works with the highest potential growth. Arthena uses our art world expertise, in addition to an automated and data driven investment strategy. With Arthena, HNWIs can securely and confidently diversify their portfolios into alternative assets focusing on the luxury market.
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