As 2023 begins to take shape, we thought we’d ask Vedat Mizrahi, our CFO and Chief Economist, to step back and look at the performance of several asset classes over the course of 2022.
The year may have been dramatic for the global economy, but when you cast your mind back to the beginning of 2022, it was a positive start. 2022 began with renewed hope and strong economic momentum post-Covid right across the board – then on 24th February, Russia invaded Ukraine. The human cost of this conflict has been profound, as have the knock-on effects across the global economy, including energy price spikes and supply chain disruption. The resultant price inflation was arguably the defining macroeconomic feature of 2022, triggering global interest rate hikes as central bankers tried to regain control.
“The invasion of Ukraine in February 2022 sparked a chain of events that resulted in global inflation and interest rate hikes, highlighting the interconnectedness of the world economy.”
– Vedat Mizrahi, Mintus CFO
The second half of the year was defined by multiple business failures in the Cryptocurrency market, most notably FTX, and for those of us in the UK by the (not so) mini budget that created a turmoil in the financial markets. By the end of the year, signs were also brewing of trouble in the technology sector as Twitter, Meta, and Amazon announced significant layoffs.
We’ve looked at the performance of nine different asset classes, including art and a variety of other alternative investments. As ever, past performance isn’t indicative of future results – but the reaction of each asset class to macroeconomic events can help us understand the underlying drivers of performance.
So, without further ado, here is the Mintus review of 2022, from the Ugly, to the Bad, to the Good:
Crypto – 2022 was a well-documented shocker of a year for crypto, with multiple business failures and the first crypto credit crisis which culminated in the collapse of FTX. Bitcoin’s 65% fall in value was in line with the overall market, which fell 64%. We’ve talked previously about NFTs, crypto’s blockchain-based counterpart, where monthly transaction values fell 90% from March to November 2022. A year to forget for the alternative darling of 2021.
Private Equity – assessing private equity performance within a single year is notoriously tough. Nevertheless, we’ve taken on the challenge and looked at three measures. For each, 2022 performed worse than 2021: global fundraising fell by 12%, global Private Equity deal values fell by 39%, and first time fundraising fell by 67%. It is fair to say though that 2021 was an exceptional year, and 2022 still looks like a reasonable year looking over a longer time series.
Ultimately, the most interesting measure would be portfolio valuations – but Private Equity funds keep these under wraps. However, if they are truly marking-to-market they are unlikely to be structurally different to public markets.
Equities – across the globe, stock markets saw a significant correction after bumper growth in 2021, led down by the technology sector in particular. The benchmark S&P 500 index fell by 19%, with the UK small cap AIM Index falling by 32%. However, it wasn’t all bad: the FTSE 100 benefitted from the strength of the US Dollar to finish 1% up at the end of 2022.
Real Estate – one of the more difficult assets to evaluate, we’ve looked at the benchmark MSCI indices to understand the performance of investment grade Real Estate. In the UK, this showed an average fall in prices of 14%. The US, however, fared much better, recording 1% growth for the year, although the second half of the year was on a downwards trend.
Bonds – the Bloomberg Aggregate Index, which tracks investment grade corporate and treasury bonds, finished 13% down for the year, the worst performance since the index was created in 1976 (and one of only five down years on record). This was in part driven by monetary policy as central banks increased interest rates, suppressing bond prices, with long dated treasury bonds suffering in particular.
Hedge Funds – Hedge fund performance, as measured by the HFRI 500 Index, fell by 4% in 2022, with crypto and equity hedge funds recording falls of 55% and 10% respectively. It wasn’t all down though: macro hedge funds, which trade a wider variety of assets, were able to better navigate the market volatility and increased by 9%.
Gold – gold reported a flat year-on-year performance in 2022, but it wasn’t without drama. Over the course of the year, it experienced volatility driven by currency fluctuations, in particular the US Dollar.
Wine – wine had a resilient year in 2022. The Liv-Ex 100, which represents the price movement of 100 of the most sought-after fine wines, booked 7% year-on-year growth, although this was very much driven by momentum in the first half of the year.
Art – finishing with art, the ArtPrice 100, which tracks the top-end of the end market including artists such as Andy Warhol and George Condo, recorded annual price growth of 3% for 2022. This was in spite of the wider macro headwinds and market specific factors, including the suspension of sales in China, demonstrating the lack of correlation of investment-grade art with other asset classes.
"The Art market recorded a 3% annual price growth in 2022, showcasing the resilience of investment-grade art despite macroeconomic challenges and market-specific factors."
– Vedat Mizrahi, Mintus CFO
What comes next?
In January, we put together a few thoughts around what the market for alternatives might hold this year. Over a month in, it’s fair to say 2023 has got off to an interesting start: whilst the equity markets have rallied, layoffs have continued in the tech sector and there is little sign of the energy crisis easing any time soon. We continue to be long term believers in the structural growth of contemporary art as an asset class, and hope to see another good year in 2023.
"Despite the volatility in the financial markets, we remain optimistic about the long-term growth potential of contemporary art as an asset class and expect another successful year in 2023."
– Vedat Mizrahi, Mintus CFO