History of art as an investment
Last updated
Last updated
“La peau de l’ours”(Trans: The Skin of the Bear) created in 1904 was the first art fund formed in Paris by Andre Level, who brought together a collection of 145 artworks by then little-known artists, Pablo Picasso, Henri Matisse, André Derain, etc., helping to make them known. He managed to do so at ridiculous prices.
The artworks were auctioned 10 years later on the eve of World War I. Even when the world was at war and other businesses were barely managing to survive, the auction turned out to be successful not only because the investors quadrupled their investment but also because it served as a proof validating art as a financial asset, whose value was unshaken even during the most uncertain time that mankind has witnessed - The World War.
In the 1970s, the British Rail Pension Fund invested £40 million($70 million), or about 3% of its holdings at the time in approximately 2,000 works of art. This investment by a well-established institution conferred an unmatched degree of legitimacy to art as an asset class.
Though the fund's aggregate returns were less than the stock market returns of that time, it was the first very large-scale and systematic attempt to treat art as an investment vehicle.
On September 15, 2008, Sotheby's was set to auction 223 new artworks of Damien Hirst, one of the Young British Artists (YBAs). The auction was expected to make around $150M over an evening and day sale. Sotheby’s spent a whooping $240,000 to put on a lavish party for 1,500 potential buyers.
However, in a bizarre twist of fate, the morning at the auction turned out to be one of the darkest days for the Financial world. The Lehman Brothers announced the largest bankruptcy in U.S. history, marking the beginning of a financial crisis that would wipe out $16 trillion in American wealth.
The reality, however, was in Damien's favor. Despite the severe worldwide economic crisis, the auction did spectacularly well, outperforming Soththeby's highest estimate by over $50M. The auction conveyed loud and clear that people are drawn to the idea of art as an alternative asset class when financial markets are in distress.
"It was as if Sotheby’s here was a little oasis far removed from the grim news of the financial world"
- The New York Times on Sept. 16, 2008
