Castlestone Management, the boutique New York and London asset manager which recently launched the world’s first retail art investment fund — Collection of Modern Art — published independent research from a University of Maastricht professor showing that art is an investible asset class.

The firm asked respected market researcher Dr. R.A.J. Campbell of Maastricht University’s Faculty of Economics and Business Administration, to investigate whether art really represented an analyzable and investible asset class. The results make for interesting reading for any investor looking to diversify their portfolios into real assets.

Her research shows that real assets, including art, have outperformed financial assets in certain decades, especially during periods of inflation. If, as many fear, the global policy of 'printing money' leads inevitably to high inflation, art fund investing could help to shelter portfolios from the inflation storm. This could well be the case for the next decade as value of money continues to decrease.

An extended abstract of the research follows…

(Click here to learn why well known financial journalist Iona Minton begs to differ with this article)

The history of art as investment

The history of art investing reveals just one proven strategy for art fund investing: 'buy and hold' of a diversified portfolio.

Parisian financier André Level began one of the earliest 'art funds' in 1904, investing in pieces by Picasso and Matisse. He quadrupled his investors’ money by the time he liquidated the fund in 1914 as war threatened. The British Rail Pension Fund achieved an impressive 11.4 percent annualised return on its large investment in art from the mid 1970s to 1999, with mainly modern art delivering most of those returns.

Although art investment funds appear to be a fairly recent development, it has, in fact, a history of more than a century.

Art as a real asset

Art delivered an average annual return of 7.7 percent a year between 1875 and 2000.

Art, like gold (click here to learn how you can invest in gold coins), is an unleveraged, irreplaceable real asset, which many investors turn to as a safe haven in times of economic uncertainty. Art and gold, both real asset classes, have historically shown similar characteristics and performance, especially over the last decade.

Art as in inflation hedge

Art, in the same way as gold, has traditionally been used to hedge against inflation.

Many commentators and economists see inflation as an inevitable outcome of dramatic increases in money supply that have resulted from the monetary policies being pursued by central banks in the wake of the credit crunch. In such an environment, the value of money falls. When the value of money declines, the value of real assets — unleveraged, irreplaceable assets such as art — rises. In recognition of this fact, several respected financial intuitions have already begun to allocate to art.

The Harvard and Yale University Endowments have already considered this development by allocating a great share of its investments to real assets. Brandeis University and Deutsche Bank, among other institutions, have also invested in real assets and specifically in art over the past years and in doing so built respectable art portfolios

Go to page two to learn more about art as a diversifier, the buying opportunities that exist as prices correct, the growth of global demand for art and the conclusions of this study...

What we waste money on `What do you waste money on?` Most respondents in a new poll seem to agree...

How to budget The disease? Overspending. The cure? Drawing up a budget. Kabous le Roux on how to do it...

Taxing retirement funds The tax considerations of various retirement funds before, upon and after retirement...