Art Market: Will art save the world from protectionism?

With Art Basel attracting 61,000 participants this year recent art deals reaching record highs across nearly every collecting genre, medium and period and art being dubbed “the new asset class,” art investment funds have returned to the marketplace as viable alternative investments. Still an emerging industry, there are now an estimated fifty art funds in the United States and new global sectors such as the Middle East, Asia and Russia ranging in stage of development from capital raising to buying fund assets. Investors in these art funds, who are often individual private collectors with an affinity toward and considerable experience with art, are increasingly viewing art as no longer purely a cultural pursuit but as serious monetary investments as well.
Given the basic strategy of any investment to “buy low and sell high,” with art being no exception, the idea of investing in an art investment fund might seem easy – funds conduct due diligence on certain sectors of the art market, acquire undervalued artworks at low price points, sell their artwork when valuations
have peaked and thus succeed in a classic well-tested investment strategy.
The art market now exceeds $50B in annual transactions globally, making it the largest lawful industry in the world that is essentially unregulated. The unregulated nature of the art industry engenders a lack of transactional transparency and, in turn, high risks of ownership disputes or what is otherwise called defective legal title. Defective art title risks are compounded by the long-standing practice in art transactions of withholding seller and buyer identities to protect their privacy as well as dealers’ sources and pricing structures.