Is Modern Art the Answer to Investors' Nightmares? Trevorlaw
One of the main lessons learnt from the credit crunch is the necessity to diversify an investment portfolio.
Many investors, with their nerves shattered following the prospect of even their bank deposits being lost, sought out tangible investments to preserve their wealth.
Much has been made of the benefits of investing in commodities, particularly gold, property including agricultural land, and even stamp collections.
Not only can tangible assets provide security in uncertain economic times, but historically they have also proved to be an effective hedge against inflation.
While we are no doubt enjoying a present period of low inflation and interest rates, the huge amount of money supply released into the global economy may well create an inflationary problem some way down the road.
While the ultra wealthy have been able to acquire the very best of art as a long term investment, the stratospheric prices paid for works by many modern art-t ists have been beyond the reach of most investors.
The economic downturn may have contracted the highly lucrative contemporary art market, but the most famous contemporary artists still attract vast prices for their works.
It was not that long ago in September 2008 that Damien Hirst shattered the world record for an auction sale dedicated to a single artist with his two-day event at Sotheby's. In the face of the world's economic downturn, the world's wealthy were quite happy to spend pounds 111.5 million buying the British artist's formaldehyde preserved animals, but-t terfly collages and spin paintings.
Institutions have also been buyers of the very best works. The British Rail pension fund famously achieved an annual return of 11.4 per cent on its large investment in art from the mid-1970s to 1999 with modern art delivering much of that return.
But you don't have to be in the superrich category to invest in art. The Castlestone Collection of Modern Art next month launches its modern art fund, an eight-year investment vehicle with a minimum investment figure of pounds 10,000.
The Castlestone website quotes the interesting Mei Moses research finding that art has delivered an average annual return of 7.7 per cent between 1875 and 2000 outpacing the equity market's lower 6.6 per cent figure.
Its own research has shown that one of the most liquid and stable areas of the art market with the best possibility of price appreciation is post-war art from non-producing or deceased artists. …