The alternatives sector is a broad church, ranging from physical infrastructure to music royalties. Fine art has been used as a story of wealth for hundreds of years, and remains an asset class to beat among the proliferation of other alternatives that have sprung up over the years.
In the equities market, the S&P 500 index lost almost one-quarter of its value between 4 January and 30 June this year, while the FTSE 100 index is down 2.5% in the year to date and the Bank of England expects a UK recession to begin in 2022 and last until 2024. Sterling and the euro are both down by more than 20% against the dollar this year.
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In contrast, art has continued to perform well in the UK and US, following a strong recovery from the biggest art recession for ten years. Investment bank UBS estimates that the global art and antiques market increased by 29% to $65.1bn in 2021.
Art also looked to be performing well in the UK and US in the first half of 2022, with leading auction houses Sotheby's, Christie's, Phillips and Bonhams all reporting record revenues and records tumbling for some key works.
Belgian surrealist Rene Magritte's L'empire de lumieres sold for £59.4m ($79.8m) in London in March, more than trebling his previous record of $26.8m, while in the same month Franx Marc's 1913 painting Die Fuchse sold for £42.7m ($57m) - more than double the previous best of $24.2m for a painting by the artist.
Such increases compare favourably with gold, a common alternative asset class to equities. The price of gold has increased by 10.5% from £1,336 to £1,477 so far this year, while the best-known UK example of institutional investment in art also trumps the 11% annual compound growth rate that the Fancy Color Research Foundation claims for pink diamonds since 2008.
Investing in art has a very long history, but mainstream professional investors' interest in the asset class is more recent. In 1974, as Britain sought to conserve electricity following OPEC's oil embargo and industrial action by coal miners and railway workers by introducing a three-day working week, and with surging inflation paralleling our current situation, the British Rail Pension Fund decided to invest in art.
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Setting out in a direction that would see it invest £40m - about 3% of its total holdings at the time - in 2,400 pieces of art, the fund engaged in a partnership with Sotheby's in what the Encyclopaedia Britannica calls the "first very large-scale and systematic attempt to treat art as an investment vehicle".
The results were solid, with an annual return of 13% generated between 1974 and 1987 - a period in which UK inflation ranged between 3% and 17% and the S&P 500 index generated a return of 12%.
Although BR's portfolio ranged from Chinese porcelains to African tribal art, old masters and Limoges enamels, its gains came primarily from 25 impressionist paintings.
Since then, art's rate of outperformance against some leading benchmarks has increased. According to data from Live Art, the art market has outperformed the S&P 500 by 240% since 1986.
There is evidence suggesting that art investments prove resilient during periods of high inflation, and fractionalisation now allows investors to allocate a smaller part of their portfolios to the asset class.
Clearly, like listed companies, all contemporary art is not created equal. Like any investment, investors need to ensure they have the expertise and information necessary to access this fascinating yet often complex asset class.
Investments in works by Andy Warhol and George Condo have outperformed the S&P 500, Nikkei 225 and FTSE 100. As traditional assets, like stocks and fixed income face a difficult outlook, modern and contemporary art can offer an effective hedge to cyclical downturns. People successfully invest in gold, whisky, classic cars, and music royalties - now it can be part of a diversified portfolio, and with a proven ability to outperform, why not consider contemporary fine art?
Tamer Ozmen CEO of Mintus