Investing in art
Art has been bought and sold by collectors for hundreds of years, both as an investment and as a hobby. It is one of the largest and most lucrative alternative investment markets in the world, involving collectors from across the financial spectrum and in many different countries.
Art of all kinds – such as painting, sculpture, drawing, etc. – can attract enormous amounts of money in auctions and private sales.
For collectors, art is an excellent way to combine business with pleasure; buying a work of art that is loved but is also profitable is often the ultimate goal for investors.
Key factors in investment-grade art include rarity, the artist, provenance, history and condition.
Size of the markets
Over the last 30 years, the fine art market has grown substantially, expanding from 10,000 collectors in 1980 to an estimated 1m collectors in 2010.
Despite the recent economic crises affecting the global financial markets, Christie's claimed that “There's no question that the market is healthy”.
In 2010, the auction house had its best ever year, grossing $5.3bn of sale in the art market – up 53% from 2009.
Sotheby’s also reported strong sales. In October 2010, several art auctions set a record for a sale series in Hong Kong, including HK$256m for contemporary Asian art.
The “monstrous” appetite of the market is also indicative of the strength of art in emerging economies like China. A new generation of wealthy Chinese citizens with an interest in ‘repatriating’ art has driven the art market in recent years.
Behind the USA and the UK, China is now ranked as the 3rd largest art market in the world, overtaking France.
In 2007, the Chinese market generated 75 sales above a million dollars; the top price paid was $8.5m for a Chinese art work, setting a record. Christie’s reported $882.9m worth of sales of Asian art in 2010.
The largest market share still belongs to America though; there were $2bn of sales in 2010, up 111% from the previous year.
Value of the market
Between 1976 and 2009, Deloitte reported that the Art 100 index showed an average annual return of 9.6%.
The art market was affected by the global economic recession in 2008, losing 17% of its value – however, it still recorded an 8% expansion in 2008.
Other evidence supports the conclusion that the art market has recovered well. In 2010, the Mei/Moses All Art Index showed a return of 16.6% for fine art, whilst several auction results seemed to confirm this.
In 2010, Christie’s sold ‘Nude, Green Leaves and Bust’ by Pablo Picasso for $106.4m – a world record for a painting sold at auction.
An Andy Warhol work entitled ‘200 One Dollar Bills’ sold for $43.8m in November 2009. The seller had originally purchased the piece for $385,000 in 1986, equalling a return of almost 23% per annum, compounded over 23 years.
In early 2010, Sotheby’s auctioned another Warhol piece, a self-portrait; it realised $32,565,500, doubling its estimate. The auction house also sold a Giacometti sculpture for a world record $104.3m.
Markets across the world have seen increasing values in art work for sale. In March 2010, a painting of outlaw Ned Kelly became Australia’s most expensive auctioned art work, selling for $4.9m.
The Russian art market has also grown in recent years, with auction house MacDougall’s posting sales of £1.5m and £1.4m in 2009 and 2010 respectively.
How to invest
Valuable, investment-grade art is widely available from specialist dealers, auction houses, galleries or private sellers. All potentially offer works that could make a good asset.
Auction houses like Christie’s, Bonhams and Sotheby’s are leaders in the field, and have many works costing millions down to thousands. Smaller regional or specialist auctioneers, such as Dreweatts, can offer art more affordable for entry-level investors.
Investing in art should primarily be driven by the twin aims of realising a profit and enjoying the work itself. San Francisco art consultant, Alan Bamberger, provides a number of tips on what to look for in the art investment market.
A budding collector should visit galleries, museums and art fairs to identify an artist or period that they can connect with. As a long-term investment, a collector should be able to enjoy the piece they have purchased.
He also recommends studying an artist’s background, career, exhibitions, and prices realised to get an idea of the potential a piece of art has as an investment.
Bamberger stresses the importance of finding a trustworthy art dealer, whether it be a gallery, a specialist or directly from the artist.
He also underlines the risk of investing in an unknown artist, but highlights the potential returns if the artist becomes highly successful.
Bamberger also recommends caution, especially when contemplating “buying into a bubble” – i.e. where the value of an artist’s work increases dramatically over a short period of time, with a resultant collapse in price later.