ART TREATED AS AN ALTERNATIVE INVESTMENT

Yesterday was going through a case on the art auction valuation under matters of pinion  an article in Economist,where the UK

High court has passed the judgement against Sotheby’s the leading art auction house where Lord Coleridge claimed that the auction-house expert, Elizabeth Mitchell, was negligent when she gave an auction valuation of a treasured family heirloom. The historic gold chain of office had been in his family for generations, and the Coleridge’s (distant relatives of the poet Samuel Taylor Coleridge) believed it dated from the mid-16th century. Lord Coleridge had expected that the estimate for his rare Tudor jewel would be £500,000 or more. Ms Mitchell, however, proposed that it was from the late 17th century, and gave it an estimate of £25,000 to £35,000. This, Lord Coleridge claimed, had cost him a good deal of money. He sued for £415,000, the case is interesting and bit difficult to understand Caveat Vendor

Here are some thoughts on the why Art as an alternative Investment has become so popular and its bit complicate to understand the market, the auction houses and the pricing, the reasons the market has been lit up as

•  There is a rapidly increasing reality & perception regarding the fixed supply situation for great works of art, hence commanding high premium in pricing.
•  An immense increase in the purchasing power of the upwardly mobile Indians & NRI’s
•  Paradigm shift in the liquidity status of the new owners (as several of the art work cannot be resold as it’s been retained as permanent collection)
•  Transformation of black into a white economy leading to confidence, glamour and collectibility
• Growth of services & expertise.

Would be interesting to share the world’s best Auction Houses

• Christie’s – Founded in 1746 by James Christie
• Sotheby’s – Founded in 1744 by Samuel Baker
• Philips de Pury & Luxembourg –Founded in 1796 by Harry Phillips
• Osian  – Established in 2000 by Neville Tuli

It is very difficult to find the correct value of Art, the reason most of the hedge funds have dedicated analysts focusing on this segments, basically the determination are based on these factors :

• Production costs (legitimate expenses)
• Aesthetic value of art
• Quality and Exclusivity
• Taste and preferences
• Demand and supply

There are few Art appraisal associations to look after the art market and they are:

American society of appraisers(ASA)
Appraisers association of America(AAA)
Appraisal foundation

Since the market for art is limited the risk could not be diversified and the major risks that holds this market are Liquidity risk, monopoly risk,Hidden cost, market bubble and important one there is no track records.