Book review: Art as an Investment?

This week, we will be bringing to you the first in our book review series. We will start with a review of an insightful book, Art as an Investment? A Survey of Comparative Assets, written by art market expert, Melanie Gerlis, an art market expert.

Before her entry into the art market in 2005, she had spent a decade working with investment banks, private equity firms, stock exchanges and hedge funds. Therefore, it is no surprise that she initially approached the art business with the mindset that the rules of these financial player could be applied fairly easily to art, to produce a more efficient system of trading.

The author sets out to question the validity of claims about art’s capacity to generate returns that outweigh its risks. Over the last decade, there has been considerable debate over the suitability of art as an investment asset. This has pitched financially-minded professionals against the art dealing community, who spurn their sophisticated models and analytical methods.

These differing opinions set the stage for Gerlis’ discussion on the pros and cons of art as an investment, which she determines in relation to other available investments including stocks, gold, wine, property, private equity and luxury goods. Aimed at collectors and investors, this 192-page user friendly guide published by Lund Humphries in February 2014, opens up to an introduction on the risks and returns of high-end art. The author brings to bear her financial expertise and solid first hand knowledge of art and its markets. She draws on extensive research and interviews with key players in these other markets, as well as her own experience, to clarify the specifics of art  an asset class.

Gerlis kicks off her discussion on the premise that all art in the market is an asset, owing to the fact that people are willing to pay money, and that they expect to resell. She argues that art is the source of income for several intermediaries including an estimated 23,000 auction houses, as well as 375,000 art dealers, globally.

However, she argues that most analyses of the art market concentrate on the relative returns, almost regardless of the risks, including the lack of liquidity and near absence of regulatory structures. She posits that while issues of transparency and regulation continue to be the bane of serious investment, by far the biggest problem is valuation.
She explains that ‘even in the more opaque financial markets, such as private equity, there are considerably  more data points from which to create indexes, assess risk and attempt to gauge returns.’

Next week, in our continuing series of this review, we will take a closer look at more of these risks while  proferring insightful solutions to those including investors and enthusiasts who seek to understand the nature of the art commodity.

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