Paul Allen’s art didn’t outperform the stock market
News Team
You might have heard that art is a fantastic alternative asset class that has outperformed the S&P 500. Microsoft co-founder Paul Allen, from beyond the grave, is here to say: Not so much.
Driving the news: In the biggest and most blockbuster art sale of all time, a selection of paintings and sculptures from Allen’s collection was auctioned at Christie’s in New York this week. In total, the art sold for more than $1.6 billion.
How it works: Allen, a prolific collector, bought many works at auction — which means we know exactly how much he paid for them. The Cézanne that sold on Wednesday for $137.8 million, for instance, was bought in 2001 for just $38.5 million. By looking at the resale values, it’s possible to see how much the art rose in value.
Between the lines: There are many reasons why these numbers massively overstate the broader returns to art investment.
Paul Allen was, as the title of the auction says, a visionary. Most collectors don’t have his unique combination of a great eye and deep pockets in the 1990s, when first-rate art was particularly cheap.
Collectors coveted Allen’s art in particular: Because of the quality of the collection as a whole, Allen provenance has real value.
Allen’s estate has the luxury of being able to time the market. The collector died in 2018, but this art is only being sold now, at a time of extraordinary demand.
The resale price includes “seller’s premium” — the amount the Allen estate paid to Christie’s and its guarantors. So the cash-on-cash return will be lower than the numbers on this chart.
Christie’s and the estate both had every incentive to sell those works — and only those works — for which demand is currently hot. The paintings the estate didn’t sell will have seen much less appreciation.
By the numbers: Even with all those tailwinds, the average annualized growth rate on the 11 lots with public entry prices was just 6.2%. On average, Allen held them for 18 years before selling them.
By contrast, even after its fall this year, the S&P 500 still boasts a compound growth rate of 8.9% over the past 18 years.
The bottom line: Allen would have made more money just buying an S&P 500 index fund.
