Investing in art and collecting: the liquidity trap and partial acquisition

When building an investment portfolio, the focus is usually on. shares, bonds and real estate. However, one activity that has long offered protection against inflation and economic crises is investing in art and collectibles. The art world is often perceived as a playground for the super-rich, but thanks to technological solutions (e.g. fractional ownership), this asset class has become more accessible to ordinary investors.

In this article, we analyse why and how investing in art and other rare items (e.g. wine, watches, sports memorabilia) works differently from investing in traditional assets, and explain the risks and practical steps an investor should know before entering this market. This is investing where passion must be at the service of expertise.

1. How does investing in the arts differ from traditional assets?

Investing in art and collectibles falls into the category of "passion assets" (passion assets). Their value is mainly determined by rarity, historical significance and emotional attachment, and not only by cash flows (as in the case of shares or bonds).

A. Low correlation and inflation protection

Historically, the Blue Chip art (the world's best-known artists) shown by very low correlation stock markets. This means that when stock markets fall, art prices may not follow. In times of crisis, when paper currencies lose purchasing power, wealthy investors look for physical assets to store value. Rare art or wine offer such a hedge against inflation.

For example The Second World War period and the years of hyperinflation that followed, many Impressionist masterpieces (e.g. Monet, Renoir) have much better purchasing power than stocks or government bonds. in 2008. financial crisis in the aftermath, when stock markets were still recovering, the top segment of contemporary art (e.g. Basquiat, Warhol) showed a rapid recovery and new price peaks. Such works provide protection to preserve value, because their the number is physically limited - no new masterpieces by a given author (e.g. Picasso) are created.

B. Non-fungibility (Uniqueness)

Shares are fungiibsed - one Apple share is exactly the same as another. Works of art and rare objects, on the other hand. non-fungible. A particular Picasso painting is unique. This uniqueness creates a limitation of availability, which is a key prerequisite for long-term value growth.

C. Emotional pricing and market immaturity

Unlike regulated financial markets, the art and collections market is often... immature and indecent. Emotions and short-term attention (e.g. media coverage, the price of a particular work, etc.) play a major role in price formation. hype). This entails an important risk: prices can rise and fall sharply, not because of fundamentals but because of supply and demand psychology. A transaction by a large buyer (e.g. a famous collector) can instantly move the market, creating inefficient market situations. This asset class therefore requires extreme caution and thorough due diligence to avoid falling victim to emotional overvaluation. Value is where passion meets rarity.

2. The reality of direct investment: logistics and peer review

Buying physical assets outright is the most difficult but potentially the most profitable route for an investor.

A. Valuation is subjective and expensive

In the stock market, the price is determined by millions of buy and sell transactions. In the art market, value is more a matter of agreed expert judgement.

Asymmetric information: When buying fine art or rare items, you are dealing with a professional dealer or auction house with knowledge of the market, the origin (provenance) and authenticity (authenticity) are many times greater than yours. This creates financial risk for the investor.
Involvement of experts: In order to confirm the value and authenticity of a specific work or object, you need to. expensive and impartial expert advice. Without it, there is a risk of buying a fake or a highly overpriced item.

B. Storage and insurance costs (Storage Costs)

Unlike shares in a bank account, physical assets need to be managed.

Works of art: Require special storage with temperature and humidity control. Storing paintings or sculptures in living spaces is often risky. Insurance (e.g. to Christie's or Sotheby's standards) is compulsory and expensive.
Rare wine (Fine Wine): The value of wine critically depends on the storage conditions. This requires a special cellar or specialised wine warehouses (e.g. the London warehouses that issue the In Bond certificates). The annual cost of storage and insurance can easily be a significant proportion of the intrinsic value of an asset, which significantly reduces the net return.

C. Direct acquisition channels and involvement of experts

Acquiring direct ownership requires the use of specific channels, which are very different from operating through an exchange. There are three main routes to buying art and collectibles, each with its own risks:

Auction houses: The world's leading auction houses (Christie's, Sotheby's, Phillips) offer the most transparent deals for high-end and rare items (watches, jewellery). They have a strong due diligence a process that should guarantee the authenticity and provenance of the work. Warning: A buyer's premium is added to the auction price (buyer's premium), which can range from 15% to 25% of the final price, immediately reducing your actual return.
Galleries and Dealers: Art and vintage The market for watches and clocks is largely through galleries and dealers. This offers more privacy and the opportunity to haggle on price, but... information asymmetry is the biggest here. It is advisable to hire your own art adviser (art advisor), who represents the buyer and helps assess the value of the work.
Specialised Funds and Managers: For wine and other specific asset classes, the safest way is to use specialised investment funds (e.g. wine funds). These funds manage their own logistics, custody and sales, saving the investor high administrative costs and complex logistics.

3. Fractional Ownership: the way to a wider market.

In recent years, financial technology solutions have emerged that demilitarise large assets, making them available to smaller investors.

A. How does partial acquisition work?

Concept: An expensive work of art, a rare watch or a... vintage a car is bought by a dedicated company (platform) and then divided into thousands of digital shares.
Advantages: For example, an investor can buy a €500 share of a €10 million Basquiat painting. This solves the problem of accessibility.
Example: Platforms such as Masterworks (for the arts) or other specialised funds that offer ownership of wine assets. These platforms are usually regulated by the EU.
In this case, however, the work is not just 'yours', you can't hang it on your living room wall and enjoy it. By part-owning, you only potentially share in the profits.

B. Risks of partial acquisition

While accessibility is improving, there are significant risks:

Platform risk: You don't own the work outright, you own a share of the platform. If the platform goes bankrupt, recovering the real value of the work can be a complicated and lengthy process.
Liquidity: Partial acquisition platforms still have low liquidity. Sales are often limited to the secondary market and can take time. Shares cannot be sold as quickly as listed shares.
Costs: Platforms charge an asset management fee to cover storage and insurance costs. This management fee may be higher than for traditional ETFs.

4. Specific areas of investment

A. Investing in wine

Reason: Fine Wine is known as inflation insurance. The limited availability of older vintages creates an increase in value.
How: Entry via dedicated wine funds is the safest way in. These funds handle their own storage, insurance and sales.

B. Collectible items (watches, vintage cars)

Watches: Particularly rare vintage models (Rolex, Patek Philippe) have shown an impressive increase in value. The value is closely linked to the history of the model, the limited production and the prestige of the brand.
Warning: Extreme expertise and verification of authenticity (e.g. by a watchmaker) is required. Repair and maintenance costs can be significant.

5. Summary

Investing in art and collectibles can be rewarding and financially lucrative, but it is certainly not for beginners.

Liquidity is the enemy: Remember that you cannot get that money fast. This is capital that should be tied to 10-20 year horizons.
Do not bet more than 5%: Hobby investments should account for a maximum of 5% of your total portfolio. The remaining assets should be liquid and diversified.
Education or expert: Never buy something that you are not an expert in valuing, or that you haven't had a trusted and impartial professional assess. Part-acquisition is often the safer route here.