- Demand for luxury goods has been "crazy" over the past decade, an art consultant told Insider.
- For some wealthy collectors, art could be a profitable investment as the recession approaches.
- Increasingly, this art is exhibited not in the homes of buyers, but on their megayachts.
As real estate prices plummet and the direction of the stock market remains uncertain, many super-rich people are investing their money in luxury goods. And more and more often it is found not in one of his houses, but on his multimillion-dollar megayachts.
Demand for luxury goods has been "crazy" over the past decade as the tech, private equity and hedge fund industries have joined in, art consultant and collector Elisabeth Margulis told Insider.
And when a recession hits, this art can do more than impress guests—it can boost the resilience of the wealthy's investment portfolios.
“Art lags stock markets by six to 18 months, but recovers faster,” Magnus Resch, an art market economist and art economics professor at Yale University, told Insider.
Resch is referring to the Great Recession, during which financial markets crashed in 2007 and returned to pre-crisis levels only in 2013. By comparison, art market auctions have plummeted since 2009 and fully recovered in 2011.
In today's challenging economic environment, the art market could provide an expected long-term return of 1%. According to the Artprice art database, from 2000 to 2018, world-class art (works by the most famous artists who typically command the highest prices) outperformed the S&P 500 index by 180%.
In the short term, Resch expects many sellers to delay selling their work until economic conditions improve, which could reduce supply and help luxury values "remain stable," he said. For example, during the 2020 recession, many art collectors looking for cash did not sell their art but instead used it as collateral for loans.
But for most people, art in general is “a bad investment, especially in times of crisis,” Resch says, and not just because it can’t be monetized overnight. For example, indices that show that the art market is outperforming the S&P 500 "distort" the global art market because they only include art that is "constantly selling out."
“Because over 99% of all art is never resold, these indices only take into account the cream of the crop,” he said.
While the super-wealthy collectors may come out unscathed from the economic downturn thanks to their art investments, he believes that artists, galleries and art fairs, "virtually everyone in the art market," could be hurt. This is partly because "one-time shoppers," who Resch says make up the largest demographic group, will be more reluctant to buy high-end art during times of financial hardship.
Wealthy people turn their megayachts into "floating art galleries".
Art bags of the super-rich are taken to the sea. When the pandemic hit, the demand for yachts skyrocketed as they gave the one percent a chance to avoid an attack, see the world and maintain social distancing.
All this time on the water has made yachts “an extension of someone’s brand, an extension of their home, and a place where they want to display their collection,” Margulis said.
“Yachts are like floating art galleries and museums, reflecting one’s taste, life and wealth,” he said, adding that yachts, rather than homes, are increasingly the place where the super-rich entertain with guests. Therefore, it is quite logical that they want to show their art there as well.
“Sometimes they spend more time on these yachts than at home,” he adds. "And they want to be closer to their art."
Margulis says these megayachts have crews and amenities that could include spas, saunas, gyms, bars, basketball courts, wash pads and helipads. For the super-rich who want to outdo themselves, it could be the art "that separates one $100 million yacht from another."
He points to Leonardo da Vinci's The Savior of the World, which became the most expensive painting in history when Saudi Crown Prince Mohammed bin Salman paid $450 million for it in 2017. corona at the end of 2020.
As wealthy art collectors want to keep their collections, one wonders if the sea isn't the best place to do so. But many of these yachts aren't just air-conditioned—they're usually so big, says Margulis, that "the weather doesn't affect the art as much as you might think."
The new generation of the rich continues to demand the art of luxury
While some of the New Age wealth has turned to non-physical assets like NFTs, many are still drawn to the mainstream art world.
“You see other people who have a lot of money and you see these people have significant collections,” said Margulis, daughter of internationally renowned art collector Martin Margulis. "So I think it's more like being part of a cool club."
With these new buyers, competition for luxury art is expected to remain particularly fierce. According to Margulis, many established artists have passed away, rising stars are still building their portfolios, and buyers sometimes shun artists who overproduce.
These factors have created a limited supply art market, and as a result, prices have skyrocketed.
Looking ahead, Margulis says that everyone in the art world is "trying to find the next Picasso." In the meantime, however, he hopes the world's richest will continue to pay for art, even as economic conditions remain uncertain.
Resh agrees. "A handful of billionaires will still want to add what's missing from their collections and compete for those few works," he said.
“The super rich are always buying art,” Margulis said. "The greatest wealth you can get is to spend $10 million on a painting."