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What does the global financial meltdown mean for art investment?
By: Michael Surguladze   |    December 3, 2013   |   0 Comments (0) (0)

Marshall McLuhan famously said “art is what you can get away with.” This quote may have derived from a culture of contemporary art born in 1917 when French artist Marcel Duchamp submitted “Fountain” to the Society of Independent Artists. To some, this represented a new era for art which, following the growing popularity of photography, needed to reinvent itself. For others it simply represented a urinal, quite literally. Today this concept is an accepted part of most modern art galleries but it remains as controversial as the day it was conceived, largely due to questions about the artistic integrity and value.

 

One criticism of contemporary art is the apparent lack of skill within its production, such as Tracey Emin’s opinion dividing exhibition ‘My Bed’. Some contemporary art does not even require a hands-on approach from the artist which is a far cry from the days of the craftsmanship of a painter or sculptor. Anyone who has seen the Oscar winning documentary “Exit Through the Gift Shop” will be familiar with Thierry Guetta, aka Mr Brainwash, and how he directs artists to assemble compositions that he dreams up. Unfortunately for Guetta, his artistic style has landed him in two lawsuits for copyright infringement. All of this raises questions of the level of skill involved, the authenticity of the piece as a genuine work or art and, in the case of Guetta, the extent to which an artist transforms or comments on an existing piece opposed to simply copying it verbatim. It also makes valuing art somewhat tricky. Some pieces will go for astronomical sums of money and can subsequently depreciative to almost zero monetary value, as has happened when previous contemporary art bubbles have burst.

Since the banking collapse almost five years ago, much of Europe has witnessed tough austerity measures and bailouts. The Casoria Contemporary Art Museum in Naples has taken to burning artworks every week in protest against government funding cuts resulting in the closure of a number of galleries. Occupy Wall Street activists have camped outside auction houses, amusingly armed with foghorns in an effort to disrupt bidding. Greece has witnessed riots and many European economic powerhouses have struggled to control overwhelming national deficits.

Yet in stark contrast, the art boom only appears to be gathering pace. Edvard Munch’s painting ‘The Scream’ set a new world record for the highest auction sale when it attracted a top bid of almost $120 million in May 2012. Less than a month later and Sotheby’s made a London record of £108.8 million by auctioning of 79 modern paintings. This included Francis Bacon’s ‘Crouching Nude’ for £8.3 million, Andy Warhol’s portrait of Blondie singer Debbie Harry for £3.7 million and an early Damien Hirst spot painting ‘Dantrolene’ for £1.1 million. Not a bad haul for a country whose chancellor recently announced that it was embroiled in a double-dip recession.

A quick look at statistics will show that four of the world’s five most expensive pieces of art were sold in the last six years and 70% of the world’s most expensive pieces of art were sold in the last decade. In fact, all of the world’s 50 most expensive pieces of art have occurred since 1987. These figures show that despite short-term collapses, long-term art investment can see the value of some pieces sky rocket.

Take New York couple Dorothy and Herbert Vogel for example. Herbert, a postal worker, and Dorothy, a librarian, spent most of the 60’s and 70’s acquiring works by emerging Minimalists for a pittance amassing a collection that today is worth hundreds of millions of dollars. It would be hard to image that stocks and share investment would have been able to outperform such a collection.

Although the smart money is on long term investment, quick fire sales have also been successful in the past. When Van Gogh painting ‘Vase with Fifteen Flowers’ was sold in 1987, its sale price of $39.7 million was more than triple what it was bought for just two years earlier.

Coming back to “art is what you can get away with”, today the rhetoric appears much more to be what you can get away with charging. Ella Fontantels-Cisneros, founder of the Miami Art Central museum, said “New artists used to start by pricing their works at $2,000; now they start at $10,000, $15,000, $20,000.” Thus art has become a platform for the exhibition of money. If you want people to know your wealth, you must invest in art. Laying claim to owning some stock in a foreign bank is not quite as impressive as having a rare Picasso hanging from your living room wall.

The primary concern here from an investment point of view is that this level of knowledge demands connoisseurship which means time pounding the pavement from galleries to art shows and an investment that might take several decades to appreciate. Not an ideal scenario for the pure investor.

Today though, you don’t need to be Dorothy or Herbert Vogul. Just as those with wealth can turn to a financial expert to manage their hedge funds or a lawyer to arrange their tax affairs, the art market today is awash with dealers, connoisseurs, advisors, specialists and art wealth management firms to relieve the burden.

Art also offers more than just an asset investment. It is increasingly being recognised as collateral for loans. Several boutique lenders such as Fine Art Capital, Art Capital Group and Art Finance Partners act in the capacity of art banking providing clients with liquidity should they need it. In the past collectors have taken art backed loans for divorce, estate-planning strategies, asset diversification, life insurance premium financing, charitable giving and annual exclusion transfers. Aside from the specialist art banking market, similar services are now being offered by the likes of Sotheby’s and major financial institutions including Bank of America, Citigroup Private Bank and J.P. Morgan.

So what does the global economic meltdown mean for the art market? Economies move in cycles, some dip, others emerge but so long as there are ultra-high net worth individuals who have money to invest then the art world will continue to boom regardless. Economic squeeze or otherwise, an average member of the public is much more likely to put any spare cash they have into property, a savings account or an investment fund than they are into buying art. Art is an exclusive market in that respect, just like any other luxury product including private jets, yachts, top level football club ownership, luxury brands etc.

Art is not recession proof. If people lose liquidity then they will be less likely to buy art, having said that, art value does not dip in the same way that financial shares do. Contemporary pieces are more volatile but work by blue-chip artists like Rembrandt, Picasso, Miro, Dali, Van Gogh will only appreciate and represent a sound investment irrespective of the global economic position.

With art expanding into banking and wealth management companies and with existing connoisseurs, dealers and auction houses, the art world has never been healthier but the golden rule remains, if you like a work and you can afford it, you cannot lose either way.

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