Extraordinary returns of economist John Maynard Keynes’s art collection

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Famed economist John Maynard Keynes made ‘extraordinary’ returns on his collection of Picassos, Renoirs and other artwork, says an academic study published this week.

The Cezanne, Renoir and Picasso-filled art collection of economist John Maynard Keynes has generated “extraordinary” long-term returns above government bonds and nearly equal to equities, says an academic study published this week.

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The study was based at Cambridge Judge Business School.

The study found that economist John Maynard Keynes invested less than £13,000 between 1917 and 1945 on his extensive art portfolio, which by the beginning of 2019 had an estimated open market value of more than £76 million – an internal rate of return of 6.1 per cent in real terms (10.4 per cent in nominal terms). If the value of Keynes’s collection had merely kept pace with inflation, it would have been worth less than £500,000 at the beginning of 2019.

Keynes’s art collection was bequeathed to King’s College, Cambridge upon his death in 1946, and most of the major works are hung at the Fitzwilliam Museum in Cambridge. The collection also includes paintings and drawings by Matisse, Seurat, Degas, Modigliani, and “Bloomsbury Group” artists Vanessa Bell and Duncan Grant who were part of Keynes’s bohemian social set.

Economist John Maynard Keynes was also a pretty good investor

The study published in the Review of Asset Pricing Studies was made possible by Keynes’s careful documentation of his art transactions, records which are housed in the King’s College archives.

The study notes that art price indexes featured in previous studies showed significant long-term underperformance compared to equity markets, whereas the Keynes art collection has outperformed bonds and was narrowly surpassed by equities only in the past 20 years.

“For the art collection to have performed far better over the period than government bonds, and to have nearly matched the total return on equities, is an extraordinary outcome,” the study says. “The collection performed especially well shortly after purchase, suggesting that Keynes was able to buy art at attractive prices.”

By focusing on an actual long-term collection, the study highlights the limitations of art market indexes in looking at returns from art investment.

Details of the study

“Indexes surely increase our understanding of historical price movements and cycles in the art market,” the study says. “However, they … should be employed with care in asset allocation studies and performance measurement.”

The study cites several attributes of art collections including portfolio concentration that are “crucial in explaining why individual investors’ returns can diverge substantially from market returns.”

Underlining such concentration: of the more than 100 pieces of art purchased by Keynes, his 10 most expensive purchases represent 80 per cent of his total art expenditure. The most expensive painting, an 1867 Cezanne work called L’Enlèvement (The Abduction), was purchased in 1935 for £3,500 – more than 25 per cent of Keynes’s total lifetime art expenditure.

The study of economist John Maynard Keynes is not merely of academic interest, as many of the world’s ultra-high-net-worth individuals are heavily invested in art. The 200,000 individuals with a net worth exceeding $30 million on average allocate about four per cent of their portfolio to art and other luxury collectibles.

The study – entitled “Art as an Asset: Evidence from Keynes the Collector” – is co-authored by Dr David Chambers, Reader in Finance and Academic Director of the Centre for Endowment Asset Management (CEAM) at Cambridge Judge Business School; Professor Elroy Dimson, Research Director (Finance & Accounting) at Cambridge Judge and Chairman of CEAM; and Dr Christophe Spaenjers, Associate Professor of Finance at HEC Paris.

To see some images from the Keynes art collection housed at the Fitzwilliam Museum in Cambridge, please see this longer article posted on the Cambridge Judge Business School website: https://insight.jbs.cam.ac.uk/2020/art-collector-keynes/

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