Wednesday, December 15, 2010

It was only a matter of time: art "stock exchange" due to launch in Paris

The notion of art as an alternative investment asset class is gaining unprecedented momentum this year: record auction prices were set for painting, sculpture, rare books and Chinese art; several market participants (and Russian regulators) affirmatively backed the rise of art funds and art securitzation (see for example, Deloitte Art & Finance conference and Skate's new art securitization services) and now Art Exchange is launching a "stock exchange" for works of art in the coming days. The exchange will function just like a traditional stock exchange except investors will buy shares in publicly listed artworks instead of companies. Participating galleries will sell artworks valued at €100,000 or more (similar to the concept of the minimum "market capitalization" for a company's shares to be publicly traded) and investors will be able to acquire shares initially valued between €10 and €100 per share. So far, six Parisian galleries and six artworks (4 are unknown, the other two are a Sol LeWitt and a Mike Kelley installation) are lined up for the launch of the exchange though its founders intend to enter the US, UK and Chinese markets. Aside from a 5% commission payable to the exchange, participating galleries have little to lose (at least financially) since they are entitled to retain the proceeds from any shares sold if after six months fewer than 20% of shares are sold and the work is "returned" to the gallery. The risk of a work being de-listed is borne by the investors (presumably a sunken cost for them as I can't imagine the idea being that they hold illiquid shares). However, investors also have the option to purchase a work outright once they acquire an 80% stake plus share prices will be publicly available at as the exchange will be "completely transparent" say its founders.

Whether or not the commoditization of art is loathsome to you, it cannot be denied that art will play an increasingly important role in the diversification of investment portfolios as returns on "blue-chip" works continue to rise and, crucially, returns on traditional investments traded on the stock market continue to be volatile, stagnant or decline further. It's a difficult debate: the appeal of the egalitarian principle that anyone can own a "fraction" of a Rembrandt (just like through an art fund or art securitization) vs. the slippery slope of art being reduced to dollar signs. One of my biggest fears is the impact the exchange will have on the long-term career of a living artist whose work is traded (interestingly, one of the two known artists whose works will be traded is living whereas the other is not). The hazaards of a living artist getting "burnt out" on the secondary market are well known and something tells me that trading works on the exchange with prices fluctuating daily will put enormous pressure on the artist and undoubtedly affect how and what art he/she creates.

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