Hedge funds and some of the world’s biggest banks have embraced the predictive properties of machine learning to spot patterns and guide their investment decisions. Could this branch of artificial intelligence be used to divine the vagaries of the art market? A New York start-up says it can.
Arthena analyses hundreds of thousands of data points on artworks -artist, style, medium, size and so forth. Adding a touch of human insight, the company picks pieces it says will generate handsome returns for investors. Arthena manages several funds, ranging from low-risk ones that invest in modern art to higher-risk funds that buy works from emerging artists.
Valuing art is inherently subjective, and many experts are sceptical that it can be profitably bought and sold by the numbers. But Arthena co-founder and Chief Executive Officer Madelaine d’Angelo said, “Arthena could shed light on a market where deals are often done privately, lower the barriers to entry and help democratise art investing.”
“Most people in the art world don’t like what we’re doing,” D’Angelo said, noting that she’s been accused of stealing the soul from art investing. “We’re not advocating that art shouldn’t exist for art’s sake, or that people should stop building collections, but we want to make it more widely available as an asset class and investment opportunity.”
Arthena’s pitch coincides with a surge of interest in art investing. Many investors are seeking to diversify their portfolios amid low bond yields and what some consider a frothy equities market. Sales at the big auction houses have jumped 18 percent in the first half of 2017, according to Deloitte’s latest Art & Finance report, and well-known works are fetching record prices.
Art funds are another way to get into the market, but these are usually sold to high net-worth individuals or family offices and managed by professional experts with connections in the art world. Arthena wants to make art investing accessible to more people and attract the next generation of art enthusiasts, including data-obsessed millennials.
“What you see with a lot of innovation happening in art and technology and finance, is that it’s the same repackaged product continued to be sold to the same pool of investors without bringing in a wider audience,” said D’Angelo, 30. “What we are asking is what can we do to make that happen?”
D’Angelo, who has a master’s degree in museum studies from Harvard and worked at the Smithsonian, founded Arthena in 2013 with her brother Michael, 27, chief technology officer, who studied computational and mathematical engineering at Stanford. Their company also has an office in San Francisco and is opening one in Luxembourg, the centre of the art investing world. Backed by Foundation Capital, Beamonte Investments and Y Combinator, the company recently teamed with brokerage Charles Schwab, which offers a suite of alternative investment offerings.
Investing in art is a daunting prospect for most people because there is little available data. That’s changing thanks to the likes of Magnus, a start-up with ambitions to catalogue the existence and price of every artwork and to make that information publicly available; another start-up, Artsy, streams auctions on smartphones and tablets and lists inventory from a global network of galleries.
Arthena is talking to investors in their own language – math. D’Angelo said her team of data scientists uses the same rigorous data-driven approach that fund managers apply to any financial product. Among them: prices at public auctions, the number of gallery or museum exhibits an artist has had, how often an artist’s name comes up in data bases or social media, and works collectors already own of a given artist.
D’Angelo said her company can spot trends across more dimensions and a broader body of work than a team of human analysts or advisers could do, though art experts review the algorithms’ findings. Arthena targets works below one million US dollars and said pieces selling for less than 50,000 dollars are the most liquid. For now, only wealthy investors accredited by the Securities and Exchange Commission – generally individuals with annual incomes of 200,000 dollars (or 300,000 dollars for a couple), or one million dollars in assets – can put money in an Arthena fund. The amount invested varies based on the fund and the manager’s needs but is typically about 10,000 dollars. The company said it has tens of millions of dollars in commitments so far and hopes to generate 12.5 percent to 15.5 percent annual returns. Investors won’t know how they’ve done until the company sells its first artworks in a year or so.
Adam Goldstein, who co-founded the travel site Hipmunk, made a ‘small’ investment in an Arthena fund. “To find an asset class that’s this different; those don’t come along very often,” he said. If Arthena succeeds, he adds, it could help make art a more widely accepted asset for a diversified portfolio.
Data has already had a huge effect on the art market, lowering prices and improving transparency, said Evan Beard, an art services executive at US Trust, the private bank owned by Bank of America Corp. While the personal touch will probably never go away, Arthena’s data-first approach could appeal to a new generation of art aficionados. Phillip Ashley Klein, who runs Deloitte Consulting’s US Art & Finance team, said a massive transfer of wealth is underway from boomers to millennials, who want a “more personal experience and more contextual transparency.”