The worst performer in billionaires’ portfolios? Trophy art.

A bubble at the top of the art market has burst. Auction sales of paintings that cost more than $10 million fell 44% last year, and continue to be depressed in 2025, data from ArtTactic shows. The shift in the market was clear at Sotheby’s New York auction in May, when a sculpture by Alberto Giacometti with a $70 million asking price didn’t attract a single bid and had to be pulled from sale.

This is odd. In 1993 and again in 2010, Yale professor William Goetzmann analyzed more than two centuries of art-auction results, finding that painting prices are correlated with the stock market and act as a good inflation hedge.

So based on history, the high end of the art market should be doing OK with the S&P 500 bobbing around record highs, but the correlation appears to have frayed.

Is weakness at the top of the art market a sign that very wealthy collectors are growing concerned about the future? Tariffs and uncertainty about the economy may be making them wary of tying up millions of dollars in illiquid assets like paintings.

But billionaire collectors are hardly down on their luck. At the start of 2025, they controlled $15.6 trillion of wealth, according to the Art Basel & UBS Art Market report—a record high and up 80% from 2019 levels.

A possible explanation is that a vogue for treating art as an asset class that took hold after the 2008-09 global financial crisis has made the market more sensitive to interest rates.

When money was cheap between 2009 and 2022, the ultrawealthy pumped cash into rare paintings. Specialist databases that compile decades of auction results also made it easier to quantify the risk of investing in paintings, and to identify hot artists that could be flipped for profit.

Sales of high-end art exploded over this period: The value of art sold at auction for $10 million or more increased by 700% between 2009 and 2022 versus 12% for works priced below $50,000, the UBS report shows.

Art attracted a new, financially minded buyer. “Think about the big collectors today. They are wealth creators like hedge-fund founders and private-equity managers. These people understand how to deploy capital and manage their liquidity," says Drew Watson, head of art services with Bank of America Private Bank.

Wall Street collectors, including Daniel Loeb and Steven Cohen, bought works by post-war and contemporary artists like Warhol, Willem de Kooning and Jean-Michel Basquiat, whose paintings soared in value.

These collectors manage their art acquisitions strategically. The private-banking arms of JP Morgan, Citi and Bank of America offer art-backed loans to clients. Before 2022, collectors could borrow about 50% of the appraised value of their blue-chip art collections at a sub-3% rate. Cash that would otherwise be tied up on the walls of penthouse apartments could instead be put to work in higher-yielding investments like the stock market or real estate.

The arbitrage worked until higher interest rates pushed the cost of an art-backed loan close to 8%. Finding an investment that can deliver a return acceptably above this rate is harder today, which has damped the appeal of buying art. While dedicated collectors are still spending, speculators are gone.

The wealthy can now find better returns on their money elsewhere. European equities are up 21% this year, and private infrastructure funds have gained 13%, according to BlackRock’s investment-return map. Art doesn’t reprice daily like stocks and bonds, but the value of some art is down anywhere from 20% to 40% from peaks, especially works by very contemporary artists that speculators were flipping for profit. The ultrarich are allocating less of their wealth to art as a result: 15% in 2024 compared with a peak of 24% in 2022, UBS notes.

Ironically, banks that offer art-backed loans are doing fine. The size of Bank of America’s overall art-lending book is up 12% this year compared with the same period of 2024. This isn’t necessarily a bullish sign for the art market. Borrowing against an existing collection can be preferable to selling it into a down market, even though a credit line is costly these days.

High interest rates have made the pitfalls of investing in art obvious again. Paintings are illiquid, they generate no income and are expensive to insure and store safely. They also cost money to sell. Top auction houses like Christie’s take at least 10% of the final hammer price in commission and other fees.

And art is vulnerable to shifts in taste. Baby boomers who favor abstract expressionists and pop art may find it hard to offload their collections to younger buyers. Millennial and Gen Z collectors aren’t showing interest in the same artists. Cultural signals have moved on: Warhol’s screen prints of Jacqueline Kennedy or Marilyn Monroe may not carry the same potency for coming buyers.

Impressive art collections have brought the ultrawealthy cultural clout and bragging rights. As for investment returns? Don’t expect them to tout their success anytime soon.