Art as an Investment

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Melanie Gerlis Art as an Investment: A survey of comparative assets Lund Humphries 2014 £30

The case against art as an investment can be simply stated. It doesn't produce an income stream, so 'investors' are just speculating on price rises. It's highly illiquid, and transaction costs are enormous. But there is a persistent belief in the merits of art as an alternative investment, so this thorough and comprehensive book is welcome. Melanie Gerlis is the art market correspondent for The Art Newspaper, but her previous career in finance has served her well in navigating the debates on the economics of the art market. She examines the art market in relation to more conventional investment categories such as gold, property and private equity. There is interesting material throughout, and I found the discussion of art rental particularly rewarding, as in theory it could allow art to generate an income stream, which would be a more robust basis for valuing art as a financial asset. I fully share Gerlis's scepticism about art as an investment, but the book is not a polemic; it is carefully analytic and balanced.

I was frustrated by lots of points that weren't quite right. None was integral to the argument, but it still niggles. For example, counterparty risk does not arise with fiat currency (the purported 'promise to pay' on British bank notes does not represent any real obligation), prices that move in opposite directions are negatively correlated not uncorrelated, there is no banking law in the UK that says that art as loan collateral must be stored in a warehouse, the best wine producers do not have to obtain 100 points from Robert Parker (no one achieves that every year), and I think sellers' premiums are levied even more rarely than Gerlis implies. But this is nit-picking. Gerlis understands art as an asset class as well as anyone, and her clearly argued book is the best guide to the subject.