For better or worse, fine art is now firmly planted alongside equities, bonds, commodities and real estate as an asset class. Financial terms like “compounded rates of return” have elbowed their way into the traditional vocabulary of connoisseurship even as art’s old guard has trouble with the word “sell.” (“Deacquisition” is preferred.)
This month’s record sales left some dealers and collectors talking about irrational exuberance and a potential bubble, especially in the soaring contemporary-art market. But Evan Beard, who leads Deloitte’s art and finance practice in the United States, said he didn’t agree. “If you were seeing second-rate works selling for huge values, then you’d say there’s dumb money out there,” he said. “But the works selling for these high multiples are important works that art historians have deemed innovative and have had influence. People want to own original works of genius.”
Mr. Moses said that it was hard to describe the art market as exuberant, when overall returns — about 3.5 percent annually — have barely outpaced inflation and have trailed equities and, in recent years, even fixed income. He noted that it was contemporary and postwar works that had shown the biggest gains. “The single most surprising change in the art market is the relative increase in the value of recent art,” said David Galenson, a professor of economics at the University of Chicago who has done groundbreaking research into valuations in the art market.
While some art historians, curators and dealers bemoan the emergence of fine art as just another economic asset class, “art and money have always been joined by an umbilical cord of gold,” Professor Galenson said. “The Renaissance ideal has gone the way of the dodo bird. I say, Get over it. Steven Cohen doesn’t make any pretense of being an art history major. Maybe he’s the Andy Warhol of collectors.”
In a recent survey of art professionals by Deloitte, 76 percent said collectors viewed art, at least in part, as an investment — up from 53 percent two years ago. And 72 percent said their clients’ primary reason for buying art was related to the “social and networking scene” and the status associated with buying art, compared with 59 percent in 2012.
Given the money involved, it probably shouldn’t be surprising that bankers are treating art like any other asset class, which, in turn, is helping drive up prices and create a more liquid market. More banks are lending against art as collateral. Some are even starting to create collateralized debt obligations with art as the underlying asset — much as bankers packaged subprime mortgages before the financial crisis.
So let me get this straight, bankers are giving out gigantic loans secured against art that will be worthless before my generation is in the ground? Imagine the face of a banker in 2050 who learns that his debtor has defaulted on a loan, and all the repo man has come back with is this indistinguishable piece of garbage:
I’m sure he’ll take great comfort that, at the turn of the century, someone thought Robert Ryman was so brilliant that they paid $15 million for this, even if no one in 2050 has ever heard of Robert Ryman.
This signals a huge opportunity enterprising art fraudsters to commit even more expensive frauds than usual by selling worthless paintings back and forth until the price is artificially inflated, and then borrowing against them and embezzling the principal. “Oops, my business went bust. As promised, here’s that painting I promised you in return. Except the art guy was wrong- it’s not actually a Shiraga. My kid made it when his class was learning fingerpainting.”
In fact, a cynical person might suggest that ill-gotten gains were the point all along.