Impact investing, emerging economies, and the art market
Since Bill Gates and Warren Buffet published their conversations about the power of creative capitalism in 2008, financial institutions have been pumping out billions of dollars of impact investment vehicles that synthesize global change and financial return. Grandson of Warren Buffet, Howard Buffet developed a system that asses future impact per dollar invested in these ventures, which is utilized in his own impact investing fund, called i(x) Investments. Smaller impact funds like Mr.Buffet’s and major banks, such as UBS, J.P. Morgan, Deutsche Bank and dozens of others are members of the Global Impact Investing Network (GINN). According to the Global Impact Investing Network, “impact investments are investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return.” This financial incentive to generate profit with a purpose helped to develop widespread micro financing in foreign countries, infrastructure in impoverished communities, and green initiatives in targeted polluted regions.
The $77.4 billion that the GIIN reported among their self-identified impact investors is actually just the tip of the iceberg of many financial products that generate intentional positive social impact. BlackRock alone reports that it manages $200 billion in assets that follow impact investing guidelines, including two public equity funds. These guidelines indicate that assets are invested only in stocks that exemplify green innovation, embody corporate citizenship, conduct diseases research, or tackle ethical controversies. Many impact investment vehicles target the economies of emerging markets, where the lack of resources needed to keep up with growth from international exploitation has created extreme income disparity. For example, Brazil is highlighted as a leader of emerging economies in Latin America and is home to the fifth largest amount of billionaires’ worldwide, yet much of the population lives without necessary infrastructure.
In many emerging markets, specifically in Latin America, the art community is doing its part to spark local economies. The art fair phenomenon, spearheaded by MCH Group’s global initiative to create local art fairs, not only brings foreign capital into emerging markets, but also offers local HNWIs a way to store and accumulate their wealth by reinvesting in the local economy. Purchasing art works by local artists in the primary market sparks economic growth from the bottom up in an emerging nation. Local art gallery sales create local jobs surrounding gallery upkeep and support the emerging artists community. It is no surprise then that nearly all of the top 20 emerging markets identified by Bloomberg host at least one art fair.
These art markets offer direct investment opportunities to an emerging economy. And unlike buying stocks of companies in these markets, the growth potential of an artist in an emerging market is not dependent on the success of government policy or international diplomacy. Collecting emerging artist’s work is an extraordinary example of impact investing, where the lower levels of local economies gain valuable capital and collectors get exposure to the historically positive returns from the art market that often out preforms the S&P 500. Further, a successful art community adds substantial cultural capital to a region that can elevate its economy to heightened international importance. The UN reported in 2015 that culture is a driver and enabler of sustainable development. The report explained that “supporting sustainable cultural tourism, cultural and creative industries, cultural institutions and culture-based urban revitalization as powerful economic sub- sectors that generate decent employment, stimulate local development, and foster entrepreneurship.”
The economic boom that developed around the emerging art market in Cuba is a prime example. Investing in an emerging art investment fund offers an effective way to participate in this impact investing opportunity without incurring the expenses of art ownership. At Arthena, experts are able to distinguish emerging artists with high potential for growth in the primary market and has designed and built a statistically rigorous model that estimates the value of artwork over time. Arthena’s Emerging Art fund acquires art created after the year 2000 by artists under 40 years of age. Not only does this category encompass younger artists and new works, but specifically refers to artists that are on the cusp of critical recognition and commercial acceptance.