The Authorities Transforming Art as an Asset Class
By some estimates, the world’s private art collections are worth between $2 and $3 trillion, but the role of art in investment portfolios has tended to be ambiguous. As more collectors focus on financial gains, prominent innovators in and outside of finance are creating clarity and transforming art’s place in the modern portfolio.
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Art has always been an asset but until recently, art funds were not particularly popular. “Despite the potential for strong returns and low correlation to the stock market, global art funds have been struggling to attract investor interest,” Barron's wrote in 2019, pointing out that the assets in these funds slid from $2.1 billion in 2012 to $830 million in 2017. The thinking used to be that if you wanted art to diversify your portfolio, you could just buy a painting, hang it on your wall, have your friends ogle it and otherwise enjoy the collector experience.
This year, the same publication wrote an article headlined “The Fractional Art Market Keeps on Expanding.” People are once again eager to treat art as an asset and, despite high interest rates, excited to commoditize it in the way we’ve seen happen with other financial products. Masterworks—a platform for buying and selling shares of blue chip artwork—has done much to popularize this concept, though there has been a lot of heat behind Harold Eytan and Loic Gouzer’s Particle (another co-ownership platform), via which the former Christie's dealmaker entered this increasingly populated financial space. Last year saw the launch of the Switzerland-based Artemundi, and Freeport, based in Delaware, launched this past May. This year also brought us the “IPO” of Francis Bacon’s Three Studies for a Portrait of George Dyer (1963) by the Lichtenstein-based Artex.
Masterworks and its ilk wouldn’t have been possible in the past, according to Evan Beard, executive vice president of private sales at Masterworks. “The reason it’s changed is because you have a generation of collectors very financially driven in their collecting,” he told Observer last year. According to Beard, today’s collectors are more focused on financial gain; have backgrounds in private equity, real estate, hedge funds and tech entrepreneurship; and are just not as interested in the aesthetic pleasure of artwork as the collectors of yesteryear.
This segment of the marketplace does show a geographical bias for areas where the population of LLCs tends to outnumber the population of actual people. Nonetheless, this segment of the market is growing, thanks in no small part to the influence of the people below.
Harold Eytan
- Cofounder and CEO of Particle
NFTs, or non-fungible tokens, have attracted praise and controversy in equal measure as proponents of the technology attempt to change how people think about art ownership. Harold Eytan cofounded the digital arts platform Particle with business partner Loic Gouzer (former Christie’s postwar and contemporary art co-chairman) early in the NFT boom and it’s still going strong. The firm’s goal, according to Eytan, is to recontextualize the idea of art ownership by digitally fracturing real-life art into “particles” on the blockchain, where NFTs can be leveraged to verify provenance and track ownership.
The company initially made waves in the art world when it put 10,000 units of Banksy’s iconic Love is in the Air up for sale. Two years later, the owners voted to loan the physical artwork to museums across Europe. This year, Particle sold 500 shares of H.R. Geiger’s sculpture of the famous Xenomorph featured in Alien. “One of Particle’s missions is to democratize art ownership,” Eytan said in an interview with Decrypt. “Both at the point of buying and owning and also of viewing and enjoying.”
Rebecca Fine
- Managing Director and Head of Art Investments of Athena Art Finance x Yieldstreet
“When investors get together to discuss alternative assets, they talk about art,” Rebecca Fine wrote in an opinion piece Observer published earlier this year. “When art investors get together, they talk about why investment in art-secured lending is the holy grail for people looking to diversify their financial portfolio.” Investing in blue-chip art assets has historically been an income avenue reserved for the richest of the rich, but it’s become more accessible in recent years, thanks in part to pioneers like Fine spreading the gospel. A lawyer in a family of sculptors, painters and filmmakers, she joined the Athena Art Finance group in 2015, where she oversaw the company's risk mitigation and market strategies in art-backed loans.
After Athena was acquired by Yieldstreet in 2019, Fine managed the platform’s first art debt offerings, backed by diversified art collections, in which investors can purchase a stake for as low as $10,000—and receive long-term passive interest income. With her leadership, Yieldstreet has been at the forefront of the art equity fund marketplace, representing portfolios featuring pieces by Contemporary and Post-War artists whose work has historically produced higher than 10 percent returns. Outside of her management duties, Fine is a thought leader and evangelist in the world of art finance.
Philip Hoffman
- Founder and CEO of The Fine Art Group
It’s been a standout couple of years for Philip Hoffman. In 2022, The Fine Art Group, which runs one of the world’s largest art funds, announced an advisory collaboration with Allan Schwartzman’s Schwartzman& (coinciding with the London-based advisory opening its New York City Office). This year, Hoffman expanded his firm into the Asian market with a joint venture with Patti Wong & Associates—former Sotheby’s Asia chair Patti Wong and Daryl Wickstrom’s Hong Kong-based art advisory firm.
Hoffman has a history of making smart decisions for himself and for the collectors and investors he serves. At 27, Hoffman became the youngest C-level executive Christie's had ever appointed and stayed with the auction giant for the next 12 years, becoming its deputy CEO of Europe before leaving it all behind to launch his own firm. His clients include high-net-worth families—30+ billionaires, as he has described them—plus private equity firms, hedge fund managers and real estate developers around the globe. “Smart people would build an art collection with an advisor who understands how to make money, and they can buy art that they love and make a lot of money at the same time,” Hoffman told Observer in 2019. Fast forward to today, and he’s still 100 percent focused on building The Fine Art Group into the number one partner for those looking to transact at the highest levels of the global art and collectibles markets. “Assembling the most experienced and talented team in the industry worldwide is a key priority," he tells Observer. “We look forward to expanding our network and bringing a number of new, very experienced colleagues on board.”
Colin Johnson
- Cofounder and CEO of Freeport
Colin Johnson has been instrumental in opening up access to art investing by offering tokenized shares—on the Ethereum blockchain—of historic, high-value artwork with comparatively low buy-in prices. He cofounded Freeport, a fractionalized art investment platform, in early 2022 after his brother convinced him to leave his marketing job at Apple. The company trademarked the tagline “ownership for all” and has gone all-in on its commitment to democratizing art collecting, initially issuing shares of four Andy Warhol prints fractionalized into thousands of NFTs sold for as little as $50 each.
“We care about everyone being able to come in and own a piece of something that’s really cool,” Johnson tells Observer. Moving forward, Freeport will focus on art by household names that appeal to younger buyers. Works by Keith Haring, Jean-Michel Basquiat, Kaws, Daniel Ashram and Yayoi Kusama could be a part of future Freeport launches. In the meantime, the company has also developed a social 3D gallery where users can display the physical art they’ve invested in alongside their favorite NFTs.
Javier Lumbreras
- CEO of Artemundi
Fund manager and philanthropist Javier Lumbreras has more than 30 years of experience managing art as an alternative asset. He’s also an avid collector, on the board of several museums and chairman of the board of directors of The Art Fund Association in New York. Additionally, his lecture credits include talks at the Authentication in Art Congress in The Hague and the Sotheby’s Institute at the University of London. His perspective on what it means to interact with art is broad, and at Artemundi, Lumbreras has managed funds backed by world-famous works by Salvador Dalí, Andy Warhol and Diego Rivera, among others. Lumbreras’ philosophy is that great art is universal, revolutionary and a reliable investment, and he has led the pack in embracing fractionalization technology that puts classical art on the blockchain.
Artemundi made headlines when it tokenized Picasso’s Fillette au béret, which became the first Picasso piece on the public blockchain. "I hope to witness the convergence of advanced technology and further development of legal frameworks for art investments, breaking down limitations now imposed by one's country of residence and purchasing power,” Lumbreras tells Observer. “It would significantly enhance transparency, democratization and trustworthiness, making historically relevant art of the 19th and 20th Centuries accessible through fractionalization.”
Scott Lynn
- Founder and CEO of Masterworks
Serial entrepreneur and art collector Scott Lynn began acquiring art when he was just 20 years old. He has since accumulated hundreds of pieces—including works by Willem de Kooning and Jackson Pollock—giving him an in-depth understanding of the lucrative financial returns artworks can produce. But that’s not what drives Lynn. He’s been fiercely vocal in positioning Masterworks (a platform he founded that turns art into investment securities through public filings with the SEC) as an agent of change in the art world.
“I think the art market created this entire infrastructure of not being accessible,” Lynn said on the Business X Factors podcast. “It’s just a weird industry that caters to the handful of ultra-wealthy people. And now we’re taking these paintings and these objects that a lot of people have never even seen before and just making it more accessible.” Masterworks investors can buy and hold shares in works by highly sought-after artists like Keith Haring, Jean-Michel Basquiat, Banksy and Joan Mitchell, or sell them on a secondary market.
Sarah D. McDaniel
- Head of the Art Resources Team (ART) at Morgan Stanley (MS)
Sarah McDaniel grew up going to galleries and museums and earned a degree in art history at Dartmouth College, but she never thought of pursuing an art career herself. That all changed in 2017 when, after three decades in finance and wealth management, she ended up creating Morgan Stanley’s newly launched Art Resources Team (ART), a unit in the investment bank’s Private Wealth Management division. Today, her team works with high-net-worth individuals and families to understand the implications of their assets in art and collectibles, a market estimated to be worth up to $3 trillion globally, on their balance sheets.
ART, according to McDaniel, helps clients understand the role of art vis a vis their other financial assets—an important task, given that between 10 and 15 percent of ultra-high-net-worth balance sheets are made up of art and collectibles and how complicated generational transfer of wealth can be. “Many collectors own art as a passion asset and would prefer that it be a positive capital appreciation asset as well, though many times it may be a capital loss,” McDaniel tells Observer. “Our goal is to make art a passion asset, not a liability.” She later added that the “orderly transfer of works from one generation to the next necessitates a more coordinated and integrated overall art ecosystem that demands the discipline and fortitude of artists, their representatives, museums, collectors and art/financial advisors to plan responsibly.”
Allan Schwartzman
- Founder of Schwartzman&
For more than three decades, former curator and arts writer Allan Schwartzman has advised collectors building private art collections and even private museums. But that’s not all. Schwartzman has served in leadership roles at the New Museum of Contemporary Art in New York City; the SoHo nonprofit Artists Space; Art Agency Partners; and Sotheby’s Fine Art Division. He develops cultural plans for municipalities seeking to integrate art into civic projects. And with Charlotte Burns, he launched the Art& editorial platform that develops podcasts and symposia. “If Mr. Schwartzman is not exactly a household name, he is nonetheless regarded by clients as something of a clairvoyant when it comes to spotting modern aesthetic creations whose values are likely to increase,” Observer wrote in 2014.
This tastemaker continues to keep it low-key while wielding his outsized influence. In 2022, Schwartzman& partnered up with Philip Hoffman’s Fine Art Group in an unofficial global alliance, consolidating their power. “We live in a time where artistic practice as we know it and the institutions that present and assess it are encountering immense disruption,” Schwartzman tells Observer. “My work has become increasingly geared towards defining, steering and managing legacy goals for artists, collectors and philanthropists.” He added that he’s excited to focus on “the growing power and potential of individual and collective legacy planning as it relates to fostering the wellbeing of the art ecosystem in this ever-changing cultural landscape.”
