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Art as an alternative asset in your portfolio




MAIN REASONS FOR ART AS AN ATTRACTIVE ASSET CLASS


MARKET STABILITY AND VALUE ENHANCEMENT

For many reasons, the art market can be characterised as stable and robust in value. First and foremost, this is due to a long-term investment horizon, which historically is at least seven years. Secondly, illiquidity supports value stability, since a sale is usually preceded by a period of three to twelve months of intensive scrutiny. These factors, on the one hand, support the low risk of fluctuations in the value of art objects. On the other hand, it is even possible to empirically prove that the value is maintained in the long term, even to the point of steady increase in value.


The Mei-Moses index (contemporary art) of the two financial economists Jianping Mei and Michael Moses is considered to be one of the leading quantitative sources of information in the market and evaluates auction results by analyzing repeated sales in order to illustrate price developments in the art market compared to other investment areas.


DIVERSIFICATION AND SECURITY


Due to a low correlation to liquid asset classes and the separate hedging and insurance measures, art is a robust component in the portfolio.


Especially with regard to a balanced and diversified overall portfolio, the addition of art objects is a reasonable consideration. After all, the art market is characterized by a low correlation to many other asset classes.


Especially in unsteady economic times, this diversification provides a crisis-proof anchor in the portfolio. This is mainly due to the security that art investments imply, as they are always kept in particularly secure custody to protect their high value accordingly. On the one hand, this is done in highly secured bonded warehouses such as those in Geneva, Singapore or Luxembourg. On the other hand, the respective exhibition sites must also meet very high security requirements with the help of recent security technologies. In addition, the artworks are always insured at least at their replacement value. The risk of a total loss is thus excluded so to say.


EXCLUSIVITY AND PRESTIGE


The art market is traditionally characterized by its exclusivity, which results from the usually very high wealth of its buyers and the emotional character of its products. As a result, the willingness to pay and the price premiums for asset transfers are often significantly higher than in traditional asset classes. In addition to the emotional component, a high prestige factor and the representative power of art assets also drive their price development. The art market opens doors to new social contacts, insights into the world of art and promotes social status.



HOW DO YOU BENEFIT FROM ART AS AN ASSET CLASS?


The global demand for attractive art objects is constantly high. This, together with the long-term investment horizon and the illiquidity of the art market, has a very positive effect on the performance.

  • Growing art market

  • Low correlation with the capital market



INVESTMENT CRITERIA


TRADING HISTORY ON THE ART MARKET

The current and past auction and gallery prices are of central importance in the selection of works of art. Of particular interest is a constant and steady performance. Ideally, an artist should have an excellent track record, which is reflected in permanent increases in value of over 6% per year. Furthermore, a frequent and international representation in museums, galleries, festivals and biennials supports the value development of art assets. The more often a work is included in solo or group exhibitions, the more positive the effect on its value. The development of value can therefore be supported and driven forward by professional management from experienced gallery owners.


CONDITION OF THE ARTWORK

To assess the condition, art experts from the art-technological examination are called in to help. In particular, the material composition and the process of creation are analysed using the latest radiation diagnostic laboratory techniques. This way the authenticity of the work can be ensured. Furthermore, the art historical relevance of a work and artist also plays an important role in determining its value. The value increases, if there are relevant publishing materials about the artwork and if the historical context is of special significance. A most relevant reference value in this context is provided by the insurance valuation, which is carried out by insurance-internal specialist departments.


CONTINUOUS PROVENANCE

Provenance is the reconstruction of the complete ownership of an art object. The examination of provenance is carried out by external art experts from the field of art history. It helps on the one hand to ensure authenticity and on the other hand to identify of all previous owners. This is relevant, because the importance and fame of the previous owner also ensures a positive development in value. The prehistory of an art work needs to be absolutely continuous to perfectly assure its origin, authorship and dating. For this purpose, all reference materials such as purchase contracts, collection and sale contracts, etc. are examined. Exhibition and auction catalogues as well as markings on the artwork itself are used to help.



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