Paint by Numbers: Art as an Asset Class

	Warhol's Lemon Marilyn
	Photo courtesy of Christie's

Art is very hot.

Christie's sale on May 16, 2007, of post-war and contemporary art was the second-highest total art auction in history -- just under $385 million.

The sale's highlight was Andy Warhol's Green Car Crash, which sold for almost $72 million, a new record for the artist at auction. Warhol's Lemon Marilyn, expected to sell in excess of $18 million, brought $28 million.

Who's doing the buying?

One explanation is that hedge-fund managers, rolling in money, have joined nouveau riches Russians and Indians in pushing prices even higher.

But there is another factor at work: the belief that art is an asset class that belongs in investment portfolios together with stocks, bonds and real estate.

Art vs. Stocks

What jump-started art as an asset class was a 2002 study by Michael Moses and Jianping Mei, professors at New York University's Stern School of Business, which found that art outperformed Treasury bills going back as far as 1875.

In 2006, the Mei Moses All Art Index returned 18.3%, outpacing the 15.8% return of the S&P 500.

Moses and Mei have since started consulting firm Beautiful Asset Advisors to market their research to investors. They claim that because of a low correlation between the performance of art and other asset classes, art can be used to diversify an investment portfolio, recommending an allocation of about 10% for investors with a minimum of $500,000 in financial assets.

Many pundits don't believe art is an asset class, however.

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