Rare Book Marketplace Shifting Gears

by Admin on July 25, 2014 · Market Analysis

Rare Books Investment Alternatives

Towards the end of last century, antiquarian book dealer William S. Reese presented his much publicized view of “The Rare Book Market Today” at Brown University. In this historical retrospect beginning with the depressed years prior to World War II, 1945 was picked to be the year of the greatest buying opportunity, since rare books were actually common. This was just after the war and just prior to the explosive growth of major libraries that brought the scarcity that we have been experiencing since the 1960s. In the 1970s, Reese argues that inflationary pressures and the loss of government funding in the US slowed institutional growth somewhat, and allowed private collectors to enter the market as a major force. His analysis ends with the effects of the Internet on scarcity of supply contributing to today’s market characterized by “fewer books being pursued more quickly by more people.”

The financial crisis, which started in the summer of 2007 and is still sending aftershocks through global economies, did not leave the rare book market unaffected. For the first time since the depression years prior to World War II, demand for rare books had actually declined from previous years.  Characteristic of an imperfect market, the effects were slow to take toll and, in some segments of the market, caused permanent transformations. While demand has since then recovered somewhat, a new financial sector investment category: “alternatives,”  encapsulated among other collectibles, rare books.

Alternative mutual funds have grown in assets from 180 billion in 2012, to 318 billion in 2014, according to mutual fund tracker Lipper. The financial category of alternatives is broad and it can include a number of tangible asset classes of securities including rare books.  Morningstar created a new category: Multialternative to track funds that have a majority of their assets exposed to alternative strategies. Alternatives are here to stay, according to Dr. Klaas Baks of Emory University in a recent interview for the Wall Street Journal. He went on to add that when used correctly, they can provide additional diversification, a wider set of investments and leverage. Research from Robert W. Baird and Co., which oversees and manages client assets of over $100 billion, has shown that replacing 20% of a typical portfolio with alternatives reduces volatility by 10% and slightly increases returns.

Turning rare books into targeted financial instruments to address fundamental shortcomings associated with other types of investments may not be too far off. Liquid Rarity Exchange says it has patented a method for turning rare objects into publicly traded funds, and is currently seeking New York investment houses backing. The idea is that a number of funds, each focusing on a different collectible, including books, would be created to provide retail investors additional diversification or targeted hedging.

One thing for sure is that demand for rare books in general is growing while the supply remains scarce. Before the financial crisis, book dealers would finance these purchases through bank loans. These days, banks are reluctant to lend, so independent dealers are seeking new ways to grow their business. When Reese delivered his analysis of the rare book market there were no publicly held rare book firms. Now, one of the leaders in the sector, London based, Scholium, is floating on the London Stock Exchange. The firm has two other businesses as well – a high-end art bookshop in South Kensington, London, and Ultimate Libraries, which provides tailored libraries for luxury hotels and individuals who want to own a collection of books, but prefer to ask an expert to pick the right material on their behalf.

Where is this all leading to, only time will tell for sure. The market is changing as global economic conditions evolve with many buyers these days coming from China, Russia, Brazil and India, who often buy works that were published in their home countries. Investors seeking alternatives to enhance their portfolios are also adding to the demand for rare books. And of course some of the large resourceful book firms are finding new ways to grow their business in untraditional ways all far from a market that has traditionally been referred to as “slow but steady.” Hang on it may turn a bit bumpy.


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Dino August 6, 2014 at 3:05 pm

Love it! Alternatives represent one of the biggest growth opportunities of the next five years and will amass that chunk of revenues while accounting for just 15 percent of the entire asset management industry’s assets worldwide, McKinsey said in a report titled “The Trillion-Dollar Convergence: Capturing the Next Wave of Growth in Alternative Investments.”


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