A Gallery That Pays Off: How and Why to Invest in Fine Art

Fine art investment has a reputation for being a preserve of the ultra-wealthy and, probably, most of the Baby Boomers. But on the contrary, younger generations – including Millennials and Gen Z – are among the most active investors, with 30% of millennials each spending more than USD 1 million versus 17% of boomers.

Based on research by Artprice, those buyers have been doing the right thing. The chart below shows the 20-year trend for the S&P 500, the SX5P, and auction prices for the world’s 100 top-selling artists.

Comparison of the performance of the Artprice100 Index, the STOXX Europe 50 Index, and the S&P 500 over 2000-2024 (January 2000 = 100)
Source: Artprice

What are the causes of this remarkable performance? More importantly, are they sustainable?

The Sustainability of Art’s Uptrend

The main reason for art’s uptrend is simple: people get wealthier as the world’s leading economies grow substantially over the years. In short, there are more millionaires today than ever before.

Number of millionaires (percentage of world population) and their wealth (in USD) in 2013 and 2023
Source: Credit Suisse, UBS

In particular, the 2020 coronavirus pandemic saw leading OECD governments pour massive sums into their economies to stave off recession. After an initial sharp downturn in the public markets, much of this largesse found its way into tradable assets of all kinds, including equities, bonds, real estate, and fine art.

Change in the number of millionaires in selected countries between 2019 and 2020
Source: Statista

This boom in the number of millionaires has been strong and is predicted to continue in the coming years, especially in China, which is now the world’s second-largest source of art investment, second only to the USA.

Estimated number of future millionaires in selected countries (2021 vs. 2026)
Source: Credit Suisse

However, while the boom in the number of millionaires has certainly been highly positive for art valuations over the medium-term, it alone fails to explain the long-term outperformance of fine art investments versus major stock indexes like the S&P 500 and SX5P. Simply put, the increase in the number of millionaires is not the only factor at play.

Therefore, a more thorough analysis is needed to determine the reasons behind the strong performance of art as an investment, and whether it can maintain the momentum over the long term.

Why Do People Believe Fine Art Is a Fine Investment?

An original piece of art is unique and irreplaceable, and this fact explains much of the draw to art as an alternative asset. Even when the artist also makes prints or copies of their work, those reproductions are produced in very limited quantities and each has a unique number. If you own one, no one else can have that same asset.

For some art buyers, that uniqueness is the principal attraction. If you are already on the Forbes Billionaires list, you may already have a Ferrari, a yacht, and a Rolex. However, your peers own very similar valuables – and often they own more than one. That said, no matter their ranking with Forbes, they cannot own, for example, your almost USD 200’000 worth 1968 abstract painting by Bob Dylan – because there is only one.

Exceedingly rare original abstract painting by Bob Dylan, ca. 1968
Source: RR Auction

For other buyers, however, fine art is a passion. Indeed for many buyers, according to one survey, their drive for collecting is by far the most important reason they buy. The art’s value as a unique status symbol, the previous reason we cited, is the least important motivator according to the survey.

Art buyers’ motives in 2020, 2022, and 2023 (share of respondents answering important / very important, in %)
Source: Statista

An essential element of this passion is the collectors’ belief that great art reveals truth. Not truth in the sense that a portrait, for example, is a true likeness of the subject, but rather that it reveals something of the subject’s character or, more accurately, of the artist’s opinion about that character. Similarly, the truth revealed by a polemical work such as Picasso’s Guernica does not lie in any precise depiction of wartime atrocities, but in its expression of the artist’s feelings about such horrors.

In other words, a painting or sculpture is the artist’s personal statement or opinion about the subject. As such, it can mean different things to different viewers, or to the same viewer at different times. In effect, the art tells a story. Such personal communication between artist and viewer is, arguably, what drives an individual collector’s passion for fine art. They can view the piece innumerable times, yet find something new in it on each occasion.

Guernica, 1937 by Pablo Picasso
Source: PabloPicasso.org

Very likely, this passion means very few buyers ever sell any of their collected pieces. Although impossible to verify, art experts and commentators believe that something less than 1% of the fine art bought at auctions is ever resold.

Somewhere between these two motivational extremes lies the desire to make a return by investing in art. The survey cited earlier shows that this motivator drives about 60% of buyers. That, in conjunction with the other motives given here, suggests that the foundations for the strong performance of valuations in fine art are indeed sustainable in the long-term.

What Is the Right Color on the Palette of Options to Invest in Fine Art?

Although the market contracted by some 4% in 2023, the total for worldwide transactions in fine art among dealers and auction houses was still no less than USD 65 billion, according to the 2024 edition of the authoritative annual report by Art Basel and UBS.

Despite that considerable size, the art market remains notoriously illiquid and opaque. It is also highly concentrated, with fewer than 100 artists achieving sales greater than USD 20 million in 2023.

Most of those transactions – 55%, according to the Art Basel report – were conducted through dealers or at art fairs and galleries. In other words, they were private deals, with limited details published on prices, or none at all. Only the 45% sold at auction, both online and offline, were in the public domain, with prices reported widely.

Sales in the global art market through 2009 to 2023
Source: Art Basel

That is in stark contrast to public markets (stocks, bonds, etc.) in which pricing and transaction volume are transparent and, in most cases, continuously accessible throughout the business day. Moreover, dealing in these markets is relatively cheap, with a typical broker’s commission of between 1 and 2%.

Compare that with the buyer’s premium payable on artworks bought at auction, which can be anywhere from 12-25% of the purchase price, excluding any sales tax or VAT. A Swiss resident must pay an import duty of 7.6% if they want to bring their purchase home when bought abroad. Then, the work must be insured and properly stored; together, those two charges are unlikely to be less than 2% annually. With such expenses, it’s easy to see why direct art investment requires long-term commitment.

“Are there any alternatives?” you may ask. There are, as you could always invest in an art fund. Typically, art funds include a diversified portfolio of works that would otherwise be inaccessible to ordinary investors. Equally common, however, is that the funds require a minimum commitment of USD 500’000 or more. Annual management fees range from 1 to 3%, plus a performance incentive of as much as 20% payable on gains realized by the fund.

While those fees do not seem unreasonable by comparison with the costs of owning artwork directly, the high minimum commitment makes art funds inaccessible to most individual investors, including the mass affluent. Besides, you often cannot even view any of the works held in the fund’s portfolio.

A Masterpiece Solution from Moonshot

Moonshot was created precisely to overcome barriers like these. In the near future, we will offer all of the benefits of diversified investment in carefully selected works of fine art, as well as in other tangible assets, via a single product (a portfolio), for a minimum outlay that makes fine art accessible to almost any investor.

As the art market continues to evolve, innovative platforms like Moonshot aim to transform the landscape by bridging the gap between exclusivity and accessibility, making the art world no longer a closed gallery, but instead an asset class available to everyone.

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