How much is that painting?

 

What would the late painter Francis Bacon make of it all? A portrait of his lover is about to make its stock-market debut, giving the average Joe access to the rarefied world of serious art collecting. 

A company named Artex is launching a roughly $55 million initial public offering of Bacon’s “Three Studies for a Portrait of George Dyer,” painted shortly after the couple met in 1963. Shares in the portrait will be sold for around $100 a piece and will list on a specially created art stock exchange based in Liechtenstein, giving regular investors the ability to buy and sell shares in a famous artwork on a stock exchange for the first time. 

Trading is expected to begin in July. The portrait will then go on public display in a museum, rather than be squirreled away in a freeport — high-security, low-tax warehouses where wealthy collectors often store valuable works of art. 

Artex has big plans to float $1 billion worth of paintings over the next few months, each individual work with its own IPO. The company thinks supply will come from private collectors that are looking for a cheaper alternative to selling through auction houses like Sotheby’s and Christie’s, which can charge up to 20% in commission. Artex takes a lower cut of 3% of the IPO proceeds plus a small fee every time shares in the Bacon portrait change hands.

It is one of a number of companies trying to “democratize” elite art. Another innovation called aShareX will soon allow investors to club together and attempt to outbid wealthy individual collectors in auctions of high-value paintings. Masterworks, probably the best known business of this type, has offered fractionalized art worth more than $700 million to its investors since the New-York based company was launched in 2017.

What’s new about Artex is that, as an exchange, it will be subject to tighter regulations than a private art fund. The Bacon portrait also should be a bit easier to cash in and out of as it will be publicly traded, and Artex will subsidize up to 3% of market value daily to provide liquidity. Private art funds that don’t offer the option to sell quickly have struggled to attract retail shareholders. 

The first publicly listed artwork also raises the tantalizing possibility of a takeover of the Bacon portrait. If a billionaire collector or museum wants to swoop in with a bid, they must offer a 20% premium to the average closing price of the shares over the previous 20 trading days, according to rules set by Artex. A rival bidder can then step in and offer even more, though unlike with a typical corporate takeover, shareholders don’t get to vote on whether to accept the offer. 

Paintings can be a lucrative investment, once buyers are selective. Artworks valued below $1 million are risky, but returns on so-called “blue chip” art from the best-known artists like Bacon or Mark Rothko have trounced traditional asset classes for years. Between 1995 and 2022, masterpieces from the post-1945 era gained 12.6% a year. The S&P managed 9% and U.S. corporate bonds gained 4.9% over the same period, data from Masterworks shows.  

The advantage of new “fractional” ownership models is that smaller investors who don’t have millions of dollars to shell out on a single painting can access the very top of the art market, where the big bucks can be made.

Like gold, high-end art has a solid reputation as an inflation hedge. Between 1974 and 1980, a pension fund for British Rail bought a collection of paintings as protection against spiraling prices in the U.K. economy. It made a real return of just under 6% a year after holding the works for around two decades. 

The difference this time is that regular investors are being ushered past the velvet rope at what is likely to be the tail end of an art boom, when prices are already high. The market for masterpieces has been on a tear since the financial crisis in particular. From 2009 through 2022, the value of art sold at auction for $10 million or more increased by 700%, according to the Art Basel & UBS Art Market 2023 report. 

Ultraloose monetary policy is likely a big reason: Analysts at Citi point out that periods of falling or low real interest rates have coincided with rising art prices. It will be harder for art to deliver headline-grabbing returns as central banks reverse course.

The top of the art market is already beginning to cool. Sales of works with a hammer price of more than $10 million totaled $621 million at New York’s crucial auction sales held in May, compared with $1.4 billion last year, according to analysis by art-market research company ArtTactic.

Investors typically need to own artworks for a long time to cover the costs of buying, holding and selling. Some collectors have doubled or tripled their money on Bacon paintings over a decade or more. Meanwhile, the anonymous private collector selling the Bacon portrait through Artex paid $52 million for it in 2017 at an auction. If the IPO prices at the top of its guidance of $53 million to $57 million, it will have increased in value by a modest 10% in six years.

Can a Francis Bacon portrait really protect investors from inflation? Paintings like these should rise in value over the long term because of their rarity and popularity with the wealthiest collectors. But fine-art prices in general may not boom in the future as they have in the recent past.

Like other so-called investments of passion, art offers high glamour, bragging rights, but no income. Rising rates could shift the action elsewhere.