Art. A new alternative investment vehicle? An analysis of Art as an investment opportunity for institutional investors

Irena Chloé Angelov & Anna Fischer

Studenteropgave: Kandidatafhandlinger


Encouraged by substantial media and public attention as well as the continuous quest for new alternative forms of investment, the study at hand sought to answer the question whether Art presents an investment opportunity for institutional investors. To investigate this issue it was first desired to gain a general understanding of the Art market, its drivers and requirements as well as financial profitability in order to determine the general appeal of paintings as an asset class. In a second step, the stance of institutional investors and specifically Danish pension institutions was taken to scrutinize further the attractiveness of paintings as an instrument in institutional portfolios. From those observations it had to be concluded that paintings are rather disappointing from a financial perspective, appear quite unattractive to and unsuitable for pension institutions if a direct holding and passive approach is desired. The most promising feature of Art (possible role as a portfolio diversifier) is overshadowed by negative aspects, above all the weak and non-competitive average financial performance of paintings which is most striking if transaction costs and other Arttypical expenses are provided for. Furthermore, volatility of returns, substantial illiquidity and valuation difficulties present sources of risk depressing further the attractiveness of Art. In the context of pension portfolios, Art encounters additional obstacles which can vary with the type of pension scheme that is considered and range from administrative concerns to discrepancies with investment/risk-management strategies and regulatory stipulations. Foremost, however, paintings do not seem to be able to compete with other financial instruments and to provide a benefit in terms of return or diversification which would render it worthwhile to take the financial risk or jeopardize institutions’ reputation. Evidently, without any further action and attempts to work on the deficiencies of Art investments, paintings prove to be unsuitable instruments for pension institutions and possibly all types of institutional investors. However, the peculiar conditions and also inefficiency of the Art market give rise to different opportunities along the Art investment process to improve the financial performance and mediate other concerns about the asset class. It could be problematic for pension institutions themselves to gain the expertise and skills necessary for exploiting those opportunities (at least in the short-run) but specialized Art investment funds which claim to provide over critical know-how and strive to take a very active approach could present a remedy with this regard. Though, Art funds still have to prove their capabilities and at least until then it appears more reasonable for pension institutions to draw on other alternative investment vehicles which present themselves in the highly sophisticated investment universe.

UddannelserCand.merc.fsm Finance and Strategic Management, (Kandidatuddannelse) Afsluttende afhandling
Antal sider129