Artex is the world's first stock exchange for art investments. It works like a traditional stock exchange - and it will turn works of art into liquid shares. What does that mean for investors?
Andy Warhol once said that "… good business is the best art." If that's true, then his work is undoubtedly among the best of the best art: in the spring of 2022 his silk screen "Shot Sage Blue Marilyn" was sold to a collector for 195 million US dollars.
Has the art market gone crazy? Not particularly. Like any other market, it goes through alternating periods of euphoria and pessimism. That said, for at least the last 500 years, wherever there has been money, there has been art. Long before shares were invented, the wealthy would buy cultural goods as an expression of their success and to pass their wealth down to future generations. Florence, the city where art served as a backdrop for the grandeur of the Medici's, is a perfect example.
According to Deloitte's Art & Finance Report 2021, an investment in art generates an average annual return of 7 per cent - if you keep a piece for 11 years. For art produced by the world's top 100 star artists, the returns are even higher. From 2000 to 2022, the Artprice 100 index - which includes the world's best-selling artists - increased by 9.2 per cent. Gold (plus 8.6 per cent) and the S&P 500 (plus 5.5 per cent) pale in comparison. What's especially striking is that similar to gold, art often moves in the opposite direction to stock markets - a characteristic that can help stabilise a portfolio.
However, for investors, art poses two problems: first, the million-dollar pieces are out of reach for anyone with a normal salary. And second, art investments are usually illiquid - they can't be sold at the click of a mouse.
The new art stock exchange Artex is addressing both of these problems and democratising the market for art investments. How? By selling shares in works of art, thus making it affordable to many more people. And while the art shares will not pay any financial dividends, they will offer an emotional satisfaction that would be difficult to find elsewhere on a stock market. That's because Artex's intends to exhibit its pieces in galleries instead of storing them in private rooms and bonded warehouses like is so often the case with privately owned art. In fact, Artex wants to have its own art galleries one day.
But that's still a ways off. Artex will list its first piece in early autumn, namely the 50-year-old triptych "Three Studies for a Portrait of George Dyer" by twentieth-century painter Francis Bacon. Its value is estimated at 55 million US dollars. The gloomy painting depicts the mental anguish of George Dyer, who was the painter's muse and partner as well as a depressed petty criminal - until he took his own life in 1971.
Artex CEO Yassir Benjelloun-Touimi, on the other hand, is anything but depressed. The ex-investment banker has been a driving force behind this ambitious project for almost three years, as has the project's other co-founder and Chairman of the Board of Directors, Prince Wenzeslaus von und zu Liechtenstein. If everything goes according to plan, investors will be able to buy shares at 100 euros each. Artex will not use digital tokens for trading. Instead, it will set up a joint-stock company for each piece of art. To process the transactions, it will work with partners such as the Swiss stock exchange SIX and banks.
With the spectacular crash of the FTX exchange still fresh in many people's minds, some might wonder if the same thing could happen to Artex. But that's like comparing apples and oranges. Unlike FTX, Artex complies with the Markets in Financial Instruments Directive (MIFID II) and is authorised by Liechtenstein's Financial Market Authority (FMA). "We answer to the regulator like all other stock exchanges, and have to meet the capital adequacy requirements", says Yassir Benjelloun-Touimi. FTX, in contrast, raised funds from clients (something that is strictly prohibited for an exchange), which it then used to trade in cryptocurrencies. The funds were mainly invested in a cryptocurrency with no countervalue. In the case of Artex, investors invest in real assets.
The art shares will be sold just like conventional shares. Unlike the latter, however, there will be no valuations based on key performance indicators or other figures. Their value will lie in the eye of the beholder. Which means that it will also be subject to trends. For example, the paintings of Pierre-Auguste Renoir (1841-1919) are priced considerably lower than those of his contemporary Vincent van Gogh (1853-1890). Forgeries pose another risk - Artex will therefore rigorously examine every piece before acquiring it - as do damage and theft. The works of art will be comprehensively insured, a cost that Artex will bear and that will not affect the share price.
The big question, though, is whether Artex will be able to list enough high-quality works of art on its stock exchange. The answer? It will have to if it wants to succeed. Because like any stock exchange, it will finance itself through the commissions it earns on transactions. "Stock exchanges have a lucrative business model by definition", explains Benjelloun-Touimi. And Artex is rock solid, he adds. "We only need a few pieces to break even."
Chances are good that Artex will become an important buyer for art sellers. Auction houses like Christie's add a good 15 per cent buyer's commission on top of the hammer price. And they target a small, exclusive circle. Artex will take only 3 per cent of the proceeds when it puts a piece on the market. "And we're widening the circle of buyers. Normally, only extremely wealthy people can buy a work like Bacon's triptych. Statistically, we're talking about around one person in two million. We're opening up the art market to the general public. That alone should ensure a higher price", says Benjelloun-Touimi.
At a minimum, the art market is expected to grow in line with global prosperity. It currently has a volume of 3.2 trillion US dollars, according to Deloitte. But Benjelloun-Touimi doesn't just want to grow the market, he wants to revolutionise it. "At the moment, experts are calling the shots. But in the future, it will be shareholders who decide which art is in demand - and which isn't", he says.
Andy Warhol would no doubt have liked the idea, after all, he also famously said that "Being good in business is the most fascinating kind of art."