© 2018 by  Asian Art Advisory

The challenge with art indices

January 12, 2019

Indices allow investors to gain an insight into the performance of an asset class or a segment of that asset class.  In the case of financial markets, stock and bond market indices typically consist of an imaginary portfolio of securities representing a particular market or section of it.  So how can indices help create transparency in the murky pricing waters of the global art market?

Well to put it bluntly, they can’t.  So much of the data is missing.  For example in the Central Asian market most sales typically take place at an artist’s studio and prices are subject to a number of variables.  Not least how you came to be introduced to the artist and what connections you have.  And even in many galleries in the cities of forwarding thinking Kazakhstan, prices are often invented on the spot.  In Southeast Asia similar experiences with pricing occur when interacting with artists and galleries from Yangon, Myanmar to Jogjakarta in Indonesia.

 

The challenge with art indices is, as Georgina Adam points out in ‘Big Bucks: The Explosion of the Art Market in the 21st Century‘, “if 10 Warhols are offered for sale, nine are bought in [fail to find a buyer or meet the unknown reserve price] but one triples its estimate, then performance indices would record a fine result”.  Added to this is the fact that the virtually all indices rely on data from a section of the auction market which in itself only represent approximately 25% of the total art market.

 

There is no quick fix to understanding the price that you should pay for an artwork.  Should you wish to work with an index it is worth bearing in mind that the data is mostly likely to be skewed as often index builders decide to leave outliers out of the data set.  The best bet is to do your homework and consult a variety of sources: galleries, auction houses, and art dealers as this will provide you with more transparency on the price.  It is arguably erroneous to consult with just one data source and the higher the stakes, the less advisable it is that you follow this course of action.

 

There is talk in the art markets about Blockchain technology potentially providing an answer.  And companies such as Deloitte are looking into this from different perspectives.   Deloitte has launched The Deloitte ArtTracktive proof of concept which provides a distributed ledger for tracking the provenance and whereabouts of fine artworks. The blockchain-based application is purported to manage the interactions between all parties involved, from the artist or the owner of the piece of art, via freight forwarders, customs, art galleries, museums and all the way to potential buyers.

 

Challenges clearly remain with creating better transparency in the global art market and arguably the index solutions that are being heavily promoted today leave a lot to be desired.  What is clear is that numerous technology providers are taking an interest in the art market and solving the problem of how to better trade art globally.

 

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