Art brings immense joy and emotional satisfaction, and for the smart collector it can drive substantial financial gain. Over the long term it has consistently proven to be at the very least a good hedge against inflation, and for those who enter and exit the market at the right time the rewards are far greater. However, only the naive investor would dip into this market without being fully aware of the pitfalls and challenges.
Highly collectible art is a luxury asset, along with others such as superyachts and private jets, and the complexities in ownership have led to a rapid increase in the demand for art advisory services. This comes as Knight Frank’s latest Luxury Investment Index suggested art was the best performing luxury asset in 2023, with prices spiking 11 per cent.
Seek advice
Eric Landolt, Global Co-head of family advisory, art and collecting at UBS Wealth Management told delegates at Art Basel Hong Kong that his team were increasingly helping mainland buyers build their collections and offer impartial advice on the market. These items are sometimes referred to as passion assets, and many banks offer complex financing solutions to allow buyers to unlock the liquidity in passion trophies and perhaps reinvest the proceeds. Banks can also assist with the logistics of restoration, transportation and storage.
Of course, the art market can appear quite intimidating and perhaps a little bewildering for the novice buyer. There are also wider cultural questions to consider about what constitutes art and who defines what makes something valuable. The upturned urinal Fountain (1917) was for some a seminal moment in the history of Western art, as a found object with the words ‘R.Mutt 1917’ written on it was considered an artwork. What chance the uninformed investor?
“The most important reason for buying art is because you love it,” insists Will Ramsay, CEO of the Affordable Art Fair, who believes buyers should trust their instinct and ‘go for it’ with art that catches their eye. “If you discover in 20 years that it has gone up in value, then you can feel particularly smug about your excellent taste! And then consider selling if you wanted to part with your love!”
Emerging buyers
Ramsey founded the Affordable Art Fair in 1999 in London with the aim of welcoming newcomers into the art world and educating tomorrow’s buyers. It has become a source of emerging artists for collectors and galleries, and a springboard for galleries to graduate to other fairs. There are now 16 such fairs around the world and more than 600,000 artworks have been bought since the company began.
“If you are looking to buy ‘investment art’ then you need to have large budgets to buy ‘blue chip’ artists and take the advice of independent, respected art advisers,” he cautions, adding that it is important to ask the gallerist representing the work to tell you the story behind it. Indeed, one of the common mistakes inexperienced buyers make is their failure to ask questions about art. “Ask, ask, ask, and the more you will learn and understand art, and appreciate its value, financially, aesthetically and emotionally,” he says.
Misplaced trust
Advisers can vouch for the authenticity of a piece and give expert guidance on other matters. However, a slew of scandals involving art advisers highlights the art trade’s less savoury side. Last year Lisa Schiff, a high-profile adviser in the US art world who once acted for Leonardo DiCaprio, was accused of defrauding collectors in two lawsuits and subsequently filed for bankruptcy. Back in 2015, German art adviser Helge Achenbach was sent to prison for cheating his client, the heir to supermarket chain Aldi, out of at least 18 million euros (HK$152.6 million). Another more recent case saw adviser Angela Gulbenkian pleading guilty in a London court to defrauding Hong Kong art dealer Mathieu Ticolat in the sale of a £1.1 million (HK$10.9 million) Yayoi Kusama pumpkin sculpture.
For peace of mind, Ramsey suggests asking blue-chip galleries and auction houses in your country, or people you know in the art world, for their recommendations in securing a suitable adviser who is reliable, trustworthy and reputable.
Fair view
He also opines that attending art fairs in person is the best way to buy art, be it paintings, sculptures, photography or video art. ”The advantage of going to art fairs is that you get to see a lot of good art very quickly,” says Ramsey, noting that more than 100 galleries will showcase works at his fairs. “These galleries have already sifted through many artists’ work to choose the ones they exhibit.”
He believes the online route makes it much harder to fall in love with the art because you need to hear the story behind it. Auctions generally tend to sell at higher budgets, he adds.
Risk & reward
Spreading your art portfolio is one way to hedge against downside risks, says Ramsey, who also offers words of caution about when to offload a work you have acquired. “Even the top collectors buy because they love it,” he notes. “You are being a philanthropist of the artist; if you and others try to sell it before they have died, then you might damage their future career. Galleries won’t sell you work if you ‘flip it’ (sell it) in anything under 5-10 years.”
Lihua Tung, Head of 20th Century & Contemporary Art at Phillips Hong Kong, points to another risk in art collection as an investment – it is a non-liquid asset that cannot quickly be exchanged for cash. She also highlights changing fashions and the importance of personal value. “No artwork could be guaranteed a good investment as we can’t always predict the trend and future,” she says. “It’s imperative to buy an artwork that one really likes and can afford. One that brings you joy when you appreciate it is what we consider a return on your investment.”
Training the eye
When building an art collection, Tung stresses the importance of having a total budget and a maximum amount that you are willing to spend on one piece. Thorough research by visiting museums, galleries and art fairs, studying artists, and browsing on social media is also vital. “It also helps to understand the difference between various techniques, mediums and styles that an artist would use in the production. Over time, this will inevitably help train your eye and mind to identity artworks that you love more than others, be it abstract or figurative art, photography or sculpture, modern or contemporary,” she adds.
Ultimately, art investment is a long-term process that not only requires time and knowledge, but also depends on the market and economic climate. She cautions: “The stock market has good and bad days, so does the art world. It’s not as simple as an artwork or an artist will do well regardless.”
Affordable start
Nick Wilson, Head of Editions, Photographs and Design at Phillips Asia, believes a good place to start when investing in art is limited-edition prints and photographs as these are typically more affordable. Limited editions also tend to retain their value well. “They appear on the market with greater frequency than unique works so their value is easier to track,” he says.
“We will hold our inaugural Editions, Photographs and Design sale in Hong Kong on 14 June and this will represent a great opportunity for people to dip their toe into the art world market.”