It was just this past June that a Jean-Michel Basquiat untitled painting from 1981 sold for a little more than $20 million, nearly 40% higher than the $14.6 million price it fetched in May 2007.
Clearly, only an ultra-high-net-worth client can make that kind of investment. For financial advisors to the super-wealthy, fine art is an asset they cannot ignore. More importantly, it is an alternative asset that constantly has to be monitored for its changing value. Keeping track of the value of such works is artnet, a company which recently launched artnet indices, which it describes as its most comprehensive indices of the modern and contemporary art markets. It allows advisors to track the performance of individual artists.
“There’s $2 trillion worth of art in high-net-worth hands,” Thomas Galbraith, director of artnet Analytics, says. Even more intriguing, he says, some $60 billion in art is traded each year. “Many studies show that advisors and their clients are heavily interested in alterative assets,” Galbraith adds. “A great many of these clients are collectors. Ninety percent of advisors don’t include the art as part of [client’s] net worth.”
Artnet is based in Berlin and New York. Its magazine, Artnet, was recently shuttered but the analytics business is going forward.
The idea behind artnet’s new indices is to show how a client’s art is performing against other assets in the portfolio. If an advisor can talk knowledgeably about art and artists that his client is particularly interested in, “it’s a way to engage with a client on an emotional level,” Galbraith says. “It’s an additional service.”
For instance, using the artnet database, a financial advisor who has a client interested in Pop Art, can create an index showing the value of works of three well-known artists in that genre, Andy Warhol, Roy Lichtenstein and Robert Rauschenberg. (Reuters reports that last year a Lichtenstein painting sold for as much as $40 million when its owner bought if for $2 million only 13 years earlier, reflecting a 1900% increase.)
“What we wanted to do was create an index that was held to the same standard as a financial index,” Galbraith says. In fact, artnet Analytics contains a database of 8 million sales and covers 700 auction houses worldwide. It can compare the performance of the impressionist or modern art markets to the performance of the S&P 500 or the Dow or any number of exchange indices.
“The methodology is transparent,” Galbraith says. According to artnet’s website, its indices use both repeat sales data, only using information from items that can be grouped as comparables. In addition, artnet includes sales from all auction houses within its price database, whereas, artnet insists, its competitor MeiMoses only includes sales from auction houses, Christie’s and Sotheby’s. The Mei Moses All Art Index tracks returns from paintings sold mainly in London and New York. According to recent report from Barclays and Ledbury Research, that index showed that fine art beat the return of the S&P 500 by about 9% last year.
The artnet index system has three stages. First, art experts group a single artist’s sales data into comparable sets based on appraisal principles and historical knowledge. Second, these groups are used to determine the artist index value for different time periods. Finally, individual artists can be grouped with others to create a larger market index, such as the artnet C50 Index, of the top 50 contemporary artists.
“The pages are dynamic,” Galbraith says. Using the British artist Damien Hirst as an example, Galbraith shows how four of that artist’s so-called “Spin” paintings have measured up. The artnet site creates a comparable set for the spin paintings that shows the title, the size, what kind of artwork it is, the auction house and both estimated and actual sales prices. Going a step further, the site can create a chart showing how Hirst’s works compared to the top 50 contemporary artists. “A financial advisor would look at this, download a report and send it off to clients,” Galbraith says.
The market sector and artist indices are updated each month, Galbraith says. And, an advisor can show how an artist’s work performed compared to any number of financial indices such as the FTSE, Hang Seng, Dow and many others. “We can also show liquidity,” Galbraith says. Liquidity in the art market translates into how many works of a particular artist are offered each year, how many sell and how many don’t sell.
The site can create single artist reports, other reports which track a specific series from an artist’s career such as Hirst’s spin paintings; multiple artists reports or analytics prepared reports, which is customized by artnet experts to show trends in the marketplace.
“We’re not looking to create impromptu art experts,” Galbraith says. Instead, artnet is looking to have financial advisors “just start the conversation” about fine art assets with their clients.