The top 7 art investment related questions to finally get what it is all about.
What is behind the art investment boom?
According to the Deloitte Luxembourg & ArtTactic Art & Finance Report 2016, 73% of wealth managers in 2016 said their clients wanted to include art and other collectible assets in their wealth reports, in order to have a consolidated view of their wealth.
But why is art investment becoming such a hot topic? Here is a quick overview with a list of the 5 major trends:
- Art does not rely on traditional financial markets which is attractive to anyone who doesn’t want to rely on institutions.
- Just like Pokemon cards, asset classes with scarcity and tangible enjoyment potential such as art and antiques generate passion and enthusiasm, unlike stocks and bonds.
- The art market is a great source of fascination due to its ability to recover quickly after economic downturns and its ability to perform well even with high inflation rates.
- Auction houses’ skyrocketing figures stimulate the dream factor; “what if I were about to discover the next Wassily Kandinsky?”
- You can make a profit by buying an artwork and reselling it almost straight away. It’s called “art flipping” and it is a big (dreadful) thing!
- Conducting pre-buying research online and/or offline
How to sell and buy art for investment?
Well, the classical and obvious answer is “Just start an art collection!”. But the process isn’t very straightforward. The traditional journey of an art investor looks more or less like that:
The not-so-time-nor-money-efficient buying journey:
- Conducting pre-buying research online and/or offline
- Consulting an art advisor/wealth manager
- Selecting artworks
- Online/or offline buying process through artist studio, galleries or auction houses
- Arranging transportation, deliveries, installation, insurance storage
The complex selling journey:
- Conducting pre-selling research
- Having the artworks authenticated and evaluated by experts
- Finding dealers such as auction houses or galleries
- Agreeing on the terms of the transactions or praying for a favorable outcome
We will all agree that this looks more like a challenging full-time job with thin margins than the eldorado of nowadays’ investors. However, there is a second option for lazy/busy investors with consistent financial means and an overall lack of interest for art itself: the art funds.
What is an art fund?
An art fund is a professional entity that manages the acquisition and the disposition of artworks with the objective of creating a profit. As we said earlier, investing in art is very complex and time-consuming activity that requires a high level of knowledge of arts and logistics. So, to put it simply, a small selected group of wealthy investors trusts the expertise of a particular fund to generate returns on investments.
Optimists will emphasise on the great opportunities they offer while pessimists might argue that art funds are largely unregulated and operate in a very non-transparent and even speculative manner.
What art to buy for investment? Like, precisely…?
The mainstream answer appears to be “contemporary artworks by young artists”. Just because if you are reading this article it means that you cannot afford the service of an art fund and that you don’t have the knowledge nor the energy to play an art-hunting version of Indiana Jones and to go look for a lost masterpiece on flea-markets in East London. The good type of art should be art that was worth it. To start with, there is a need to feel a connection with an artist due to a particular background or a specific value that is promoted through creation. It goes without saying that pre-buying research is crucial here. Secondly, knowing that your purchase allows this specific artist to develop and to progress artistically is the best way to be confident. It is important to remind that the quality of an artwork and even its pricing depend completely on the artist. Art investment should be about trusting people not trusting a particular format or a specific medium using a trendy colour.
Are art prints a good investment?
It could be but it is very unlikely and you have to be very careful! Prints are appealing because they are cheaper than the “real thing”. So, the good new is if the value doesn’t increase at least you haven’t lost too much. But generally talking, art prints and limited editions are very tricky due to a bunch of labels such as “Signed by the artists”, “Numbered by the artist”, “Artist’s proof”, “Printer’s proof”, “Hand embellished”. You don’t know what it means and sometimes it does not even mean anything. Some art dealers, with a questionable sense of professional ethics, are just blowing smoke at you! The signature is crucial but, the key with print is to go for a strong visual message that is timeless, because that is what will dictate if it retains or increases in value.
NB: A little trick that is good to know is that if you have a series of 50 prints you should get number 50 instead of number 1. Rarity, rarity, and rarity!
How safe is art investment?
As mentioned in the trend analysis, investing in art is seen as a safe alternative to the usual investment methods when compared to traditional investment instruments. In the real world, this means that it is very unlikely to see an artwork dropping value overnight and, in this sense, art investment is kind of “safe”. But, the myth of the secured jackpot has to end.
First of all, it is naïve to talk about safe investments. The very notion of risk is inherent to investment activities. Hence, we can only classify investment as more or less risky but never as safe.
Second of all, the art investment industry is largely unregulated and therefore published figures and results tend to be extremely misleading. For obvious commercial reasons, success stories are relayed through both the general and the specialised media bodies while not-so-good and negative outcomes are kept untold.
Also, the skyrocketing results achieved by auction houses should be mitigated by the fact that art price indexes only register lots that have been sold. It implies that privately sold collections are not taken into account and that many sellers quietly go through failures and losses.
But, why is art a good investment?
But is it really though? I mean, yes, the overall industry results are fantastic but isn’t it a bit full of smoke and mirrors? When art is qualified as a good investment it can only relate to the use of a very exclusive and elitist group. Overall, Art remains a very illiquid asset that bears extremely high transactional costs. The real benefits of art investments are still reserved for the happy few and completely exclude artists from the conversation.
Thankfully, all is not lost. Historically talking, art is associated with prestige and it has always been a way to show some erudition and to access coveted social positions. So, even if it does not make you richer, art might make you appear smarter and more likely to be invited to several posh parties.