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How to Allocate a Warhol

A surging art market and manic global equity and bond markets have many investors looking at their collections for returns. But how should a masterpiece fit in your portfolio? Here, a new look at art as asset.

VIEWPOINT

FEBRUARY 2012

When the annual Art Basel Miami Beach fair opened in December 2011, the still-precarious global economy put no apparent dent in buyers' enthusiasm. If anything, even with $2.5 billion worth of art on display, the problem for many of the fair's more than 260 galleries was a lack of supply. At the closely watched VIP preview, one noted hip-hop artist reportedly paid $71,000 for a Tracey Emin neon wall sculpture that forms the words "I Listen to the Ocean and All I Hear Is You," while a "spot" painting (a series of multicolored polka dots) by British artist Damien Hirst sold for 500,000. The torrid sales pace even prompted "doomsday" economist Nouriel Roubini, famous for predicting the 2008 market meltdown, to tweet ominously from Miami of a possible art bubble.

The fair, considered an important barometer for the $55 billion-a-year global art market, capped a buoyant year in which a comic-strip painting by pop artist Roy Lichtenstein sold at Christie's in New York for $43 million (a record for the artist), and at Christie's in London five telephone bidders pushed up the price for a 1982 hyperrealistic painting of a burning candle by coveted German painter Gerhard Richter to $16.5 million. The Mei Moses World All-Art Index, which tracks repeat auction house price results for major artists, jumped 10.2% in 2011. Although past performance obviously does not necessarily indicate what the future will hold, last year's results continue a stunning turnaround for the index, which had declined 22.7% amid the financial crisis in 2009. According to Bloomberg News, the art world's two major auction houses, Christie's and Sotheby's, sold $1.7 billion worth of contemporary art in 2011, up from $1.2 billion in 2010 and just $480 million in 2009.

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