Fine art is not a liquid investment. You can't buy and sell your Paul Gaugin in seconds like you can stocks and ETFs. Nor does investing in great works of art come cheap, since buying them is an all-or-nothing proposition. You can own $105 worth of Johnson & Johnson (JNJ), if you like; there's no need to shell out $290 billion to buy the whole thing. Not so with that Gaugin. When Will You Marry?, which sold for a record $300 million last year, has not been divvied up into shares for the benefit of retail investors.
But perhaps one day it will be. Hong Kong-based Takung Art Co. Ltd. (TKAT), which began trading over-the-counter at the end of November, offers investors the chance to invest in shares of fine artworks. (See also: Fine Art Can Be A Fine Investment.)
How to Buy a Share of Fine Art
Takung does not buy or sell art itself, but allows owners to list artworks on its platform in exchange for a fee. The works are appraised and divided into equal shares, which investors can trade on Takung's platform in exchange for commissions. After 10 years, the works are sold through auctions, galleries or one-to-one transactions, for which the company is developing a platform. Trading takes place in Hong Kong dollars.
None of the 59 works listed on Takung's platform is slated to be sold until 2023, but investors have already begun bidding shares up. The works' aggregate initial listing value of HKD159 million has shot up 773% to HKD1.2 billion ($158 million). A few works have blown even that figure out of the water. The first piece listed, Lot 10001 (百博長卷), has appreciated 2,618% since December 2013.
Perhaps a bit of the gold rush mentality from Chinese stock investing has bled into Hong Kong's art market. Before collapsing last summer, Chinese equities would routinely trade for several dozen – or a couple hundred – times earnings, with price gains tied more to rumors of government stimulus than fundamentals (Hong Kong's Hang Seng Index, to be fair, did not offend as badly in this regard as its Shanghai or Shenzhen counterparts).
Takung may even be attracting some of the same (surviving) capital that fuelled that boom. Zhou, a 37-year-old former stock investor who did not give his full name, told Reuters, "We all want an easy, safe place to earn money." Saying he had invested over $61,000 through Takung's platform, he added, "Here I know my assets are safe, and for a long time."
Investors like Zhou may be disappointed when the pieces begin to sell – or not – eight years from now. If returns do not match apparently sky-high expectations, Takung may be in trouble. For the time being, though, the company appears to be thriving on commission and fees, with little immediate exposure to risk. On February 18 Takung reported full-year earnings of $5.4 million, or $0.49 per share, on revenues of $11.3 million. Revenues were up 140% from the previous year, while profits quadrupled. (See also: Fine Art Funds: A Beautiful Investment.)
Coming for the Big Two
Takung and other art-world startups are nipping at the heels of the world's two dominant auction houses, Sotheby's (BID) and privately owned Christie's, which have been in the game since 1744 and 1766, respectively. The duopoly has had a stranglehold on fine art auctions for generations, but a range of newcomers is steadily wresting market share away.
Christie's sales slid 5% between 2014 and 2015, to £4.8 billion ($6.7 billion), while Sotheby's is expected to report flat fourth-quarter sales on February 29. Losses at Sotheby's were $17.9 million in the third quarter, compared to losses of $27.7 million a year ago.
Artsy, a startup funded by Jack Dorsey and Peter Thiel, has launched an online auction house. Similar ventures include Paddle8, backed by influential London and New York gallery owners, and Auctionata. Takung's model of dividing artworks up into shares remains unique for the time being, but others could soon attempt something similar.
The Bottom Line
The ability to buy and sell shares of a piece of fine art is intriguing, but Takung appears to be attracting a lot of speculative capital, and investors might want to be careful about investing on its platform. The company's stock may be more attractive, given the breakneck pace of earnings growth, but those earnings are dependent on owners listing art on the platform and speculators trading shares. If the apparently inflated prices of artwork on Takung deflate, as other places for Chinese investors to stash capital have of late, Takung's earnings could dry up. The best bet here appears to be that the old auction house duopoly, if it does not do something new and fast, will continue to lose ground to companies with new ideas.