Art’s beauty is in the eye of your wealth manager

{"text":[[{"start":null,"text":"

"}],[{"start":11.48,"text":"Two decades ago, Artuto Cifuentes, a Chilean financier, used his quantitative skills to parse financial derivatives with great effect: long before 2008, he warned that a financial crisis loomed (influencing my own journalism). "}],[{"start":26.03,"text":"Now, however, Cifuentes has another mission: he is redeploying his skills to analyse art, exploring issues such as the relative return and risk profile of Jean-Michel Basquiat’s paintings. "},{"start":37.122,"text":"Complex calculations in his co-authored book The Worth of Art suggest that Basquiat not only outperforms US equities, but also works by Renoir and Matisse. "}],[{"start":46.61,"text":"Is this a good thing? "},{"start":48.289,"text":"It is an intriguing issue to ponder as Art Basel Miami Beach gets under way, amid parties, celebrity gossip and frenzied debates about artistic trends. "}],[{"start":57.78,"text":"Previously, artists and collectors have preferred to think of this world in terms of creativity, not finance. "},{"start":64.072,"text":"After all, art prices are driven by slippery cultural mores, not utility value — or, as the American sociologist Thorstein Veblen cynically observed, signals around social status. "},{"start":75.114,"text":"Those would seem to defy any spreadsheet. "}],[{"start":78.48,"text":"However, Cifuentes is not alone in looking at creativity through a quantitative lens. "},{"start":83.72200000000001,"text":"A growing number of art collectors are also focused on an investment frame as well. "},{"start":88.00200000000001,"text":"This might horrify artists. "},{"start":89.882,"text":"But such financialisation could deliver one big benefit: more transparency. "},{"start":94.462,"text":"And this is badly needed, given that the art world has been as opaque — and scandal-prone — as derivatives in decades past. "}],[{"start":102.25,"text":"This point is underscored by recent surveys. "},{"start":105.167,"text":"Take a biennial one that has been done since 2011 by the consultants Deloitte Private and ArtTactic into art “stakeholders”, such as wealth managers, family offices and brokers. "}],[{"start":115.1,"text":"The 2023 report notes that there has been “a significant shift” in attitudes to art during the past decade. "},{"start":121.05399999999999,"text":"Back in 2014, only 53 per cent of wealth managers considered art expertise part of their industry. "},{"start":127.359,"text":"However, in 2016 this leapt to 78 per cent and now stands at 90 per cent. "}],[{"start":133.51,"text":"Three-quarters of wealth managers now offer art services, compared with a quarter in 2011, while 41 per cent of collectors now cite financial value as “their primary motivation” for buying art, the highest level since the survey began. "}],[{"start":147.26999999999998,"text":"A separate annual study from UBS and Art Basel, run for a decade, echoes this theme, albeit with some difference in the details. "},{"start":154.99899999999997,"text":"This year it polled almost 3,000 high net worth individuals, who control some $2tn of wealth that could be used for art. "},{"start":162.06699999999998,"text":"Financial motives were cited as the second-biggest reason for buying art, topped only by “personal pleasure and identity” (except in Brazil and Japan, where they actually dominated). "}],[{"start":171.79,"text":"This report also noted rising “research-based” purchases, or those that happen after number-crunching rather than on impulse. "},{"start":178.494,"text":"And there has been an “explosion” in the use of credit, it adds: about half of collectors report buying art with loans and art is increasingly being used as collateral for borrowing. "},{"start":187.349,"text":"In other words, financialisation is happening on several fronts. "}],[{"start":192,"text":"Why? "},{"start":193.104,"text":"One probable reason is that wealthy individuals want portfolio diversification at a time when the outlook for mainstream assets is becoming unpredictable, due to gyrating interest rates and geopolitical risk. "}],[{"start":204.42,"text":"This may not always be as effective a tactic as people hope. "},{"start":208.03699999999998,"text":"At present, collectors — or investors — seem optimistic about the market and slightly more bullish than they are about stocks: 77 per cent expect art prices to rise next year, the UBS report says. "}],[{"start":220.75,"text":"But the rising use of credit could make art prices track the interest rate cycle more closely in the future. "},{"start":226.442,"text":"And past price performance has been very mixed. "},{"start":229.172,"text":"The Knight Frank luxury index, for instance, suggests that art prices jumped 30 per cent last year, beating most other assets. "},{"start":236.539,"text":"However, the UBS report shows that some sectors, such as non-fungible tokens, have collapsed in value recently. "}],[{"start":244.69,"text":"Meanwhile, the Deloitte report points out that the Artnet fine art index only delivered a 2.5 per cent compound annual growth rate between 2008 and 2023. "},{"start":254.557,"text":"That is lower than for the S&P 500, real estate and gold (8.5 per cent, 3.8 per cent and 4.9 per cent respectively). "}],[{"start":263.93,"text":"The second issue that is driving this financialisation is transparency. "},{"start":268.097,"text":"As the Deloitte report notes, more than 80 per cent of wealth managers believe there will be more visibility around deals, fees and sourcing in the future, due to the fast-expanding use of digital technology. "}],[{"start":279.82,"text":"Online art auctions, which proliferated during the pandemic, are one example of this. "},{"start":285.024,"text":"Others are digital registries of sales and prices and the use of blockchain technologies to establish provenance. "}],[{"start":291.26,"text":"So far the results have been patchy — some corners of the market are still highly opaque. "},{"start":296.327,"text":"But the more credible and transparent it becomes, the more likely it is to attract new investors, who will in turn expect further transparency, in a self-reinforcing cycle. "}],[{"start":306,"text":"Don’t expect this to spark much discussion in the Miami galleries this week. "},{"start":310.292,"text":"At art fairs, financialisation remains a dirty word. "},{"start":313.747,"text":"But if this trend drives more money into the art world, those artists should have reason to raise a glass to it. "},{"start":319.077,"text":"As Cifuentes says, even algorithms can create beauty. "}],[{"start":322.69,"text":""}]],"url":"https://creatives.ftacademy.cn/album/133578-1702042002.mp3"}