Fascination with the world of art investment continues to be fuelled by the mystique surrounding it and the astronomical price records set at public auctions. Compound this with the celebrity status conferred upon a handful of superstar contemporary artists such as Jeff Koons, Anish Kapoor and Christopher Wool, mega-dealers like Gagosian, David Zwirner and Pace and high-profile collectors from the finance world including Steve Cohen, Leon Black and J. Tomilson Hill, and it’s no wonder an increasing number of traditional investors are becoming fine art investors.
Although the art market may be similar to financial markets in principle, it is very different in practical terms, partly due to its unregulated and opaque nature. While auction prices represent, in part, a consensus opinion on the value of art works, values in turn are determined by a complex and subjective set of beliefs based on past, present and future prices, individual tastes and changing fashion. A savvy art investor must analyse auction metrics, study trends in artistic movements and artists, and apply principles of behavioural finance when making art investment decisions in the international market.
Art assets, likes securities in privately held companies, are generally illiquid and yield solid returns only when bought at very reasonable price levels. Buying the equivalent of a blue-chip artist such as Andy Warhol, Francis Bacon or Alberto Giacometti is a safe bet in the long term although it will require a larger capital outlay. Buying the work of emerging artists is more speculative whilst offering the greatest potential upside. Rational art investment strategies aimed at achieving returns should therefore be focused on less pricey emerging and mid-career artist segments. As the artist becomes more successful, so will the value of his or her works and, therefore, your investment.
Milestones that can shift the value of an artist’s work upward include representation by a notable gallery (i.e. one that shows other well-regarded artists, participates in high-end art fairs, has strong ties with museum curators and the press), critically acclaimed solo shows, inclusion in a museum exhibition or acquisition by a museum for its permanent collection, a presence at global art fairs or biennales, and successful prices realized at auction.
The fluctuations in the market for one artist can and often will affect the market for another, related artist, so putting together a diverse portfolio of art assets (i.e. a collection) comprised of artworks from different cultural contexts, periods, geographic regions, styles, mediums and price points helps to reduce the investment risk. Additionally, thematic collections centered around a focused curatorial theme may prove to be particularly valuable in the long run, coveted by museums and auction houses alike.
A shrewd art investor knows to buy the best examples of works within their budget by artists they admire and enjoy, which requires understanding and a certain amount of expertise in the artist’s oeuvre. As with other luxury goods, it is always advisable to buy quality over quantity when it comes to works of art. Dealers, auction house specialists, curators, advisors and other art world experts can be instrumental in educating burgeoning collectors with the concept of value in art and help navigate them through the increasingly transactional and famously opaque art marketplace.
The art market is a captivating and inspiring place to participate in and requires the same discipline one would apply when approaching any other high-value investment. There is an inherent risk involved in buying art and building a collection so it is always advisable to do your due diligence and solicit input from experts. Ultimately, becoming a fine art investor and building a personalized collection should be an enjoyable pursuit and approached with a long-term perspective. The pieces that you acquire should be a reflection of your unique aesthetic tastes and resonate with you on a visceral level. This way, inevitably, and at a minimum, you will derive a high rate of return in the form of aesthetic pleasure.
Evaluating the Current Art Market – Part 2 of 5