The Forgotten Hard Asset: Art

12/12/2012 6:15 am EST

Focus: ALTERNATIVE INVESTMENTS

For centuries, art has been one of the most dynamic (and beautiful) hard assets, but the lack of transparency in the sector has kept many investors away. However, technology has changed the art world for the better, says Jacob Pabst of Artnet.

Gregg Early: I'm here today with Jacob Pabst, CEO of Artnet (Frankfurt: AYD). Jacob, I wanted to ask you: most of our readers are investors in the stock market, and so the art market might be a little bit different for them, but in this age of transition in the stock market, where does art fit into a portfolio as an investment tool?

Jacob Pabst: Well, the art market has grown exponentially in the last ten years, and has become more and more an alternative form of investment. The problem has been in the past that the market was hidden away and there was not enough information available.

This is something that we provide. We provide the tools for potential investors to learn more about art to see what art that they are interested in, and to buy at the right prices. In a way, we provide transparency to the art world and that has helped the market grow also.

Gregg Early: That's very much like the stock market in the sense that the transparent markets are the markets that are generally the most trafficked by investors because of the transparency. It's the opaque markets and the emerging markets that are the most difficult for anybody to invest in. What you are doing is creating a vehicle to add transparency to the art market.

Jacob Pabst: Yes. There was a lot of resistance in the beginning, because some key players in the market felt that they lost power. They failed to understand that transparency in the long-term or in the mid-term helps the market grow overall and attracts new buyers that in the past have not been able to really understand the market well. The market overall has grown, and we have contributed to that

But then also, there is the fact that more and more emerging countries are entering the market. China for example, Russia, India...there is a lot of new money coming that is invested in art, and so the overall market has grown exponentially in the last couple of years.

Gregg Early: So they are seeing the new wealth that is coming up, the growing middle classes and upper classes are looking to add to their portfolios, their assets, their holdings just as much as they would gold or stocks?

Jacob Pabst: Yes, absolutely.

Gregg Early: Where are you seeing an increase? In the amount of auctions that are going on, or is it the amount of paintings that are coming up for sale?

Jacob Pabst: Both. I mean, the amount of auctions and the amount of art being sold, but also the prices, of course.

There are just completely new markets that also participate in the whole thing. Like I said, China for example has one of the strongest growing art markets in world. There weren't any auction houses 20 years ago, but now they have the third-largest auction house in China, for example. There is just a lot of new money coming from these markets that contributes to the overall growth.

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Gregg Early: Now within that market, I would assume that in any supply and demand equation, if there is more demand for art then you are bringing more suppliers to the table.

Does that mean that the older artists, the big-name artists of the past and the contemporaries are more of that supply coming up, or are we seeing younger artists that are showing up? Is this a good thing for the new artist that is coming on to the scene?

Jacob Pabst: That is a great question. The answer is unfortunately that most of the well-known brands, the well-known artists may be affected by this, and younger artists generally not so much.

There are exceptions of course and it's not everyone, just in many cases. I mean, sometimes you just don't understand why a particular art work of a particular artist achieves the very high price and others don't. It is just good to see the logic in that. Mainly big brand names are affected.

Gregg Early: So it would sound like a lot of this is really buying pieces that are known in emerging countries, where people want to show that they are gaining a certain level of civility. They are showing western, you know Roy Lichtenstein or Gauguin or something, as opposed to taking a chance on a smaller artist and seeing if there is any investment potential there?

Jacob Pabst: Exactly. There are exceptions to that. For example, the South American market has been growing strongly in the last couple of years.

Vik Muniz, a rather famous artist from South America, has been searched very much last month on Artnet. If you track all the searches on our site, usually the top names are on top, like Andy Warhol, Picasso. But last month and even before that, Vik Muniz was at No. 2 between Andy Warhol and Pablo Picasso, so there are trends like these too.

Gregg Early : Within in the context of Artnet, you are the new CEO. You are seeing your business grow as well. Yes?

Jacob Pabst: Well, this year has been unique because we went through a lot of changes. But in general, yes it is growing. We also have an online auctions platform, and online auctions are our strongest growing product segment. We usually year over year we grow by 40%.

Yeah, the business is steady, and I believe strongly that the art market in general is moving more and more online. We are only at the beginning of the shift toward online. The advantages are just very big. It is much faster, it is cheaper, and you have the transparency behind it. I think overall the market will grow online.

Related Reading:

Over the Cliff, There's Gold

Where Are the Emerging Art Markets?

The Age of Collaborative Consumption

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