TUTELA CAPITALFinancial Risks and Rewards of Investment in Art.TEFAF 2012                                         fabian.b...
The future                                       The past             Market risks        Liquidity risks   Conclusion    ...
The future            Market risks        Liquidity risks   Conclusion                                     Prices will go ...
The future            Market risks        Liquidity risks   Conclusion                                     Prices will go ...
The future            Market risks        Liquidity risks   Conclusion                                     Prices will go ...
The future            Market risks        Liquidity risks   Conclusion                                     Prices will go ...
The future              Market risks              Liquidity risks   Conclusion                                     Uncerta...
The future     Market risks   Liquidity risks   Conclusion                                     How much a collector can po...
The future     Market risks   Liquidity risks   Conclusion                                     How much a collector can po...
The future     Market risks   Liquidity risks   Conclusion                                     How much a collector can po...
The future        Market risks        Liquidity risks         Conclusion                                     How to minimi...
The future    Market risks   Liquidity risks   Conclusion                                     How to minimize risks/maximi...
The future    Market risks   Liquidity risks         Conclusion                                     How to minimize risks/...
The future    Market risks   Liquidity risks         Conclusion                                     How to minimize risks/...
The future    Market risks   Liquidity risks         Conclusion                                     How to minimize risks/...
The future        Market risks        Liquidity risks   Conclusion                                     Diversification is ...
The future        Market risks        Liquidity risks   Conclusion                                     Diversification is ...
The future        Market risks      Liquidity risks          Conclusion                                     Diversificatio...
The future      Market risks   Liquidity risks          Conclusion                                     Diversification is ...
The future         Market risks        Liquidity risks   Conclusion                                     Financial Risks an...
Financial Risks and Rewards of Investment in Art.
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Tc presentation tefaf

  1. 1. TUTELA CAPITALFinancial Risks and Rewards of Investment in Art.TEFAF 2012 fabian.bocart@tutelacapital.com
  2. 2. The future The past Market risks Liquidity risks Conclusion Prices went up and down…TUTELA CAPITAL – RISKS AND REWARDS Sources: Tutela Capital SA 2
  3. 3. The future Market risks Liquidity risks Conclusion Prices will go up and down…TUTELA CAPITAL – RISKS AND REWARDS Sources: Tutela Capital SA 3
  4. 4. The future Market risks Liquidity risks Conclusion Prices will go up and down…TUTELA CAPITAL – RISKS AND REWARDS Sources: Tutela Capital SA 4
  5. 5. The future Market risks Liquidity risks Conclusion Prices will go up and down…TUTELA CAPITAL – RISKS AND REWARDS Sources: Tutela Capital SA 5
  6. 6. The future Market risks Liquidity risks Conclusion Prices will go up and down…TUTELA CAPITAL – RISKS AND REWARDS Sources: Tutela Capital SA 6
  7. 7. The future Market risks Liquidity risks Conclusion Uncertainty = risks Operational risksTUTELA CAPITAL – RISKS AND REWARDS – Fire, destruction, flooding, theft, etc. – One can (and should) be insured fort these ones – Forgery/misattribution risks – Can be mitigated (e.g. : by buying at TEFAF and not at ……) – Transaction management: buy well, sell wisely Financial risks – Losing money on an investment (or market risks) – Being unable to sell when you need to (or liquidity risks) 7
  8. 8. The future Market risks Liquidity risks Conclusion How much a collector can possibly gain/lose? Measuring market risksTUTELA CAPITAL – RISKS AND REWARDS – Prices sometimes behave erratically – The more volatile is a market, the riskier it is – “Volatility” is a sure feature of prices – “Volatility” is more or less constant through time – “Volatility” is common to many artworks Idea: extract volatility and project it onto the future 8
  9. 9. The future Market risks Liquidity risks Conclusion How much a collector can possibly gain/lose? Example: CanalettoTUTELA CAPITAL – RISKS AND REWARDS – Yearly volatility of returns of an investment in Canaletto: ~21% 9
  10. 10. The future Market risks Liquidity risks Conclusion How much a collector can possibly gain/lose? Example: Andy WarholTUTELA CAPITAL – RISKS AND REWARDS – Yearly volatility of returns of an investment in Warhol: ~34% 10
  11. 11. The future Market risks Liquidity risks Conclusion How to minimize risks/maximize returns ? 1. CompareTUTELA CAPITAL – RISKS AND REWARDS – Quantitative tools needed at professional level – Pen and paper will already help collectors and amateurs – Estimate risk and return of targets, write them on paper – Compare and discard the bad profiles 11
  12. 12. The future Market risks Liquidity risks Conclusion How to minimize risks/maximize returns ? 2. Diversify !TUTELA CAPITAL – RISKS AND REWARDS – Collectors have difficulties diversifying – Art market prices co-move for the same artist and within the same movements – A drop in Warhol will likely open path to a drop in Basquiat – Warhol is unrelated to Canaletto ! – Diversification leads to same rewards, with less risks – Overcoming current needs to collect can help achieve more “collecting power” over the long run ! 12
  13. 13. The future Market risks Liquidity risks Conclusion How to minimize risks/maximize returns ? Optimality across the art market: choice of a fixed riskTUTELA CAPITAL – RISKS AND REWARDS Sources: Tutela Capital SA 13
  14. 14. The future Market risks Liquidity risks Conclusion How to minimize risks/maximize returns ? Optimality across the art market: choice of a fixed riskTUTELA CAPITAL – RISKS AND REWARDS Sources: Tutela Capital SA 14
  15. 15. The future Market risks Liquidity risks Conclusion How to minimize risks/maximize returns ? Optimality across the art market: choice of a fixed riskTUTELA CAPITAL – RISKS AND REWARDS Sources: Tutela Capital SA 15
  16. 16. The future Market risks Liquidity risks Conclusion Diversification is also interesting to manage liquidity risks Liquidity risksTUTELA CAPITAL – RISKS AND REWARDS – The probability of not being able to sell an artwork – Part is due to the artwork – Part is due to brokers/intermediaries – Part is due to the market 16
  17. 17. The future Market risks Liquidity risks Conclusion Diversification is also interesting to manage liquidity risks Liquidity risksTUTELA CAPITAL – RISKS AND REWARDS – The probability of not being able to sell an artwork – Part is due to the artwork – Part is due to brokers/intermediaries – Part is due to the market – Reward: buy illiquid artworks at discount ! 17
  18. 18. The future Market risks Liquidity risks Conclusion Diversification is also interesting to manage liquidity risks Top liquid artists at auction, 2012TUTELA CAPITAL – RISKS AND REWARDS Sources: Tutela Capital SA, arnet 18
  19. 19. The future Market risks Liquidity risks Conclusion Diversification is also interesting to manage liquidity risks Liquidity is time-dependentTUTELA CAPITAL – RISKS AND REWARDS Sources: Tutela Capital SA, arnet 19
  20. 20. The future Market risks Liquidity risks Conclusion Financial Risks and Rewards of Investment in Art. – Prices go up and downTUTELA CAPITAL – RISKS AND REWARDS – Operational risks can be mitigated: insurance, etc. – Financial risks can be managed: – Compare, diversify to manage market risks – Time your selling to manage liquidity risks – Invest confidently, the art market is the only one immune against bankruptcy ! 20
  21. 21. Financial Risks and Rewards of Investment in Art.

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