It's a fact: art investing pays off

PUBLISHED : Monday, 19 September, 2011, 12:00am
UPDATED : Monday, 19 September, 2011, 12:00am


Owning an art collection guarantees a daily dose of aesthetic pleasure but can it also be an asset that appreciates more rapidly than more conventional investment tools?

According to Professor Mei Jianping, the answer is an emphatic yes, a view backed up by hard, art-auction data that the mathematician has studied carefully over the years. At first, the art-industry analysis was a purely academic pursuit, which later metamorphosed into the Mei Moses Art Index, a lucrative little niche business for the Shanghai-born professor of finance and his fellow lecturer, American Michael Moses.

Subscribers, who include universities, research institutes, auction houses and individual art collectors, can tap into a database of almost 30,000 individual sales, going back almost a century, and track in detail how a particular painting, or artist, has performed over the years.

Says Mei: 'In my portfolio in the past 10 years art has performed better then the Standard and Poor's 500, the Hang Seng Index and the Shanghai stock market as well as the US treasury. It is just a little bit under gold, you can't beat gold.

'People ask for advice and I always say the only way to make good investments is to buy low and sell high! The key with buying art is to buy within your budget, it should not exceed 10 per cent of your total wealth, don't overdo it. Only buy it if you really love it, then it will give you tremendous joy whatever happens with the price. The financial returns are just icing on the cake. Art is different from stocks in that it can give you pleasure every day.'

The Mei Moses Art Index had a long gestation period. The seed of the idea was sown when Mei, who was working as a lecturer at New York University, met Michael Moses at a weekly staff lunch. The chit-chat turned to the topic of art, prompting Moses to mention that he was knowledgeable on the topic, thanks to his art-collector wife.

Recalls Mei: 'She bought it for fun, but he became interested in how art compared to stocks as an investment but could not find any research on the topic, so he started collecting data. After 10 years, he had this fabulous data base which documented all the sales of Sotheby's and Christie's over the last 100 years or so, but he didn't know what to do with it.

'I was intrigued by how you calculate the returns from art investment and said I would take a look. I had an open mind, and tried many different things, but I found it very hard. After a couple of weeks, it occurred to me that it was exactly like real estate and some of the models, and tools, could be applied; nobody buys a house and sells it the next day, it is quite unlike a stock, which you can buy in the morning and sell in the afternoon.

'We approached it from an academic point of view, rather than something to make money from, or to occupy a niche in the art market. Like professors do, we wrote a paper!

'We looked at the main drivers such as inflation and economy and wealth created in the economy and whether a well known artist like Picasso would make more money, or less money.'

The research, which was published in a specialist journal, concluded that anyone investing in art over the years would have achieved returns similar to those of stocks.

After a Wall Street analyst picked up on the findings, and the British bank Barclays validated their conclusions, the pair realised they could make money from selling the index information to galleries, financial institutions and individual collectors.

The venture was helped enormously by the internet, which allowed access to a worldwide audience of clients willing to pay a fixed fee for access to the regularly-updated site. The 12 index staff members, based in the United States, keep tabs on auctions held in New York, London, Paris and Amsterdam, as well as Hong Kong, Beijing and Shanghai, and also work on the soon-to-be-published Mei Moses global art guide.

'The index has many different functions,' says Mei, 51, who is now professor of finance at the Cheung Kong Graduate School of Business in Beijing. 'It tells people what kind of return their investment in art is likely to achieve and what kind of volatility they can expect.

'It can help you to take your art to the market by allowing you to calculate what kind of price increases there have been over a certain period. Also, for people with large individual wealth it can help them make a decision on how much of their wealth they should devote to art. If your wealth is about US$10 million then I think 10 per cent is a good figure to aim for but for people with net worth of up to US$1 billion they should be thinking more in terms of 15 per cent devoted to art.

'I put my money where my mouth is, and have my own collection of contemporary Chinese art and a very small Picasso collection. I cannot collect the very best but I do have some Chinese pieces that I think are undervalued. I don't want to mention their names as people will think it is a recommendation.'

Mei's natural propensity for rapidly digesting information, allied with a formidable intellect and innate curiosity, have helped him become something of an art guru, despite no formal training in the field. Right now, he is eyeing up old masters, in particular British paintings from the 18th century, which he feels are undervalued, a conclusion based partially on his astute observation that China's new museums, in fast-growing secondary cities, will be going on buying sprees if they want a decent European-art section.

At the same time, Mei is keeping a weather eye on contemporary Chinese art and is currently compiling in-depth data on the prices of superstar painters such as Zhang Xiaogang whose prime works sell for millions of dollars.

Says Mei: 'As someone who has studied finance and art I think I have a role to play. I can communicate in English with Wall Street, so I think I can bring some Chinese art to the worldwide audience. Some have been very successful but I think by and large many Chinese art and artworks are little understood in the world.

A grand plan for someone who, according to his teachers, was no great shakes when it came to painting, even though he excelled at other topics, beating intense national competition to win a scholarship to study in the United States.

He adds: 'In my elementary school my art teacher criticised me, saying I had no aptitude, but I have managed to have the most well known art index in the world. It fell into my lap, having started out as an academic exercise ...'