QUALITATIVE AND QUANTITATIVE STRATEGIES EXPOSE OPAQUE MARKET
Within the first week of March, Christie’s and Sotheby’s grossed over $300 million in sales. These results came from the following highly anticipated events:
- Christie’s Post-War and Contemporary Evening Auction, totaling $117 million
- Christie’s Paris Sale of Hubert Givenchy’s Collection of Giacometti Objects, totaling $35 million
- Sotheby’s Contemporary Art Evening Auction, totaling $143.5 million
With Phillip’s Contemporary Art Auctions and Asian Art Week just around the corner, these three sales only account for a portion of the expected market performance in March. “Despite a slow start to 2017 and uncertainty of performance after November, the art market has yet again, taken off,” says CEO of Arthena, Madelaine D’Angelo.
A work titled “Cobourg 3+1” by Peter Doig sold for nearly $15 million during Christie’s Post-War and Contemporary sale. Doig painted a slightly smaller version of the same piece, which sold at Christie’s on March 8, 2013 for $500,000. In a period of four years, the work’s value increased by 344%, accruing $14.5 million. Whether this marks a peak for works by Peter Doig, or a benchmark as they ascend to the coveted $100 million sale, the ROI is irresistible.
Graph Based on Information from TEFAF
High returns are common in the Post-War and Contemporary sector of the art market, which is distinguished as the center for multi-million dollar prices at auction. According to TEFAF, works priced over $1 million accounted for 58% of the value in the sector but less than 1% of the number of lots sold during 2015. As in most other sectors, the bulk of transactions are in reality at much lower levels. In 2015, 90% of works sold at auction were priced below $50,000, but only made up 12% of the sector’s value. This sets up an environment where investors must predict which acquisition has the highest growth potential. How are these predictions made?
Traditionally, art advisors are the first step to discovering art with high potential for growth. But for Russian Billionaire, Dimitry Rybolovlev, taking the advice of one art advisor ended up costing him $150 million. Rybololvev acquired many masterpieces with the help of his advisor, Yves Bouvier. Several of these works went up for auction earlier this year but failed to beat prices paid. These disappointing sales resulted in accusations of price inflation, overvaluation, and fraud. The battle between the Russian billionaire and his surreptitious advisor highlight the difficulty of valuation in the art market — at least for advisors that rely on intuition and speculation.
In order to minimize risk and maximize return in the art market, art world expertise must be reinforced with quantitative research and analysis. Art fundamentally provides the opportunity for uncorrelated returns. The market is currently inefficient yet simultaneously liquid and very mature, presenting a strong opportunity for quant-driven investment.
An art fund can make money on such uncorrelated growth and quantification techniques as long as the management has expertise in what drives artworks’ underlying value. Quantitative analysis takes the subjectivity out of artwork investment, and it has the potential to grow the art market while simultaneously increasing return for the fund investors. This structure is similar to a REIT. Arthena uses this strategy to invest capital. Its innovative combination of data science and sector-specific human expertise allows for more targeted investment decisions to build funds from art market segments that have shown strong historical returns and high liquidity.
The alternatives industry has seen great success by adopting investment strategies that harmonize qualitative and quantitative analytics. Arthena uses this strategy to the make the traditionally opaque art market transparent for any accredited investor. To learn more about investing email concierge@arthena.com.
