Building a Better Art Index
You may have noticed the art market is on a bit of a tear. Two weeks ago, Edvard Munch’s “The Scream” broke the record for most expensive artwork ever sold at auction with its purchase price of $119.9 million. The previous record was set in 2010, when Picasso’s “Nude, Green Leaves, and Bust” sold for $106.5 million. Meanwhile, the broader “art market” kicked up a nice return last year while the equity market was volatile and sluggish. The widely followed Mei Moses All Art Index rose 10.2 percent for 2011, compared to a virtually flat S&P 500. In addition the most recent ten and five year compound annual returns for art, 4.6 percent and 7.7 percent, exceed S&P 500 returns of 0.0 percent and 2.9 percent, respectively, according to Mei Moses data.
You might think all of this would make art investing a pretty appealing prospect. But no. Investing successfully in art has always been a bit of a quagmire: opaque, inscrutable, unpredictable, ruled by passionate collectors and secretive insiders, a dangerous game for amateurs.
One veteran of the art world, Artnet, wants to change all that—to a certain extent. Artnet is hoping to make art investing a little more approachable and transparent with something it’s calling the Bloomberg terminal of the art market. Last week, the firm launched a new set of auction pricing analytics and a new index, which users can then slice up in a dizzying number of ways. In part, the firm says this new index will help financial advisors benchmark and monitor a client’s portfolio of art works much like they monitor the client’s other investments. Instead of keeping any talk of your client’s collection of Lucian Freud and Peter Doig paintings out of the office, you could actually integrate them into his full financial picture.
“This is a phenomenal market, it’s extremely active, there’s a lot of money in it,” says Artnet director of analytics Thomas Galbraith. “At the moment, asset managers have no way of knowing how their clients’ art is performing against their other allocations and that’s what we’ve tried to change.” He continues, “What we’ve been trying to do over the course of Artnet’s life is bring transparency to the market. Some people argue that part of the reason the past 20 to 30 years has seen such an increase in interest and activity in the art market is because that opaque market is starting to get a little bit clearer and a little bit clearer and we are part of that process.”
Artnet has long provided pricing data to industry participants and it monitors 700 auction houses around the world, 2,000 galleries and 8 million works of art, with some price data going back to the 1980s. (Artprice and artinfo also provide art data online.) With Artnet’s new analytics and index, users can track prices across three art genres—impressionism, modern and contemporary—but the firm is in the process of creating sub-indices that would track contemporary Chinese, contemporary photography, pop art and surrealist works.
Users can also track a single artist, a series of works by that artist, a single work of art, or they can create a custom index that represents a particular collector’s holdings, with each artist weighted according to his or her representation in the collection. Artnet’s new program also generates reports that examine other market variables like price volatility and liquidity. For example, you can compare average sales price to expert price estimates, the percent of lots that are sold below and above the average price, as well as sell-through rates (the number of pieces that sell in a year versus the number that don’t sell) and buy-in rates (the number of pieces that sell at auction versus those that go to auction but fail to sell).
So why does the art world need another index when it’s got Mei Moses? Artnet says it offers far greater volume of data, all of these additional metrics for measuring sales rates and pricing trends, and it provides complete transparency on its methodology. Mei Moses, says Galbraith, only measures pricing at Sotheby’s and Christie’s auctions, which creates selection bias. Artnet also claims that its methodology is better. Whereas the Mei Moses tracks prices of individual works using repeat sales data, Artnet uses the Us government guidelines that appraisers use when they price a work (called USPAP), pulling together pricing of like works, which gives them a greater volume of data to work with.
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