Investment Art: A Beginner's Guide

Forget your shares portfolio - the recession-dodging art market is increasingly proving to be the most profitable place for high-stakes investment

Oscar Wilde may have been mistaken when he claimed “all art is quite useless”. A new use for art has been emerging in recent years, and it may be the most pragmatic of all – as a solid investment. In a time when stock markets are sinking, debts are rising and the looming threat of double-dip recession cannot be entirely eliminated, the art market still sporadically dazzles with record-breaking profits. The unique economic buoyancy of art has long caught the eye of not just aesthetes, but also discerning investors.

Art now falls under the category of the "SWAG" asset. The term, coined by analyst Joe Roseman of Investment Week denotes "alternate investments" which manage to defy economic gravity – namely silver, wine, art and gold.

As well as being decidedly sexier than the FTSE 100, the trend of investing in luxury assets makes a lot of economic common sense. SWAGs often outperform other equities in times of economic downturn for several logical reasons. Firstly, they benefit from the uniquely profitable principle of "scarcity economics" (their value is related to their rarity). Secondly, in an unsteady market, people are drawn to stability, and all the SWAG assets are durable – they have a historical precedence of desirability and can be bought and stored almost indefinitely. Lastly, as their returns are not related to the patterns of the stock market, they add a sensible diversity to any portfolio, the literal asset equivalent of not keeping all your eggs in one basket.

So, we’ve all been there - you’ve got a few spare million in the savings account and you can’t decide whether to invest in the Damien Hirst or the Château Lafite. Luckily, help is at hand. The art market’s unique ability to maintain a bubble of prosperity amidst a global recession has given rise to a new type of business – the art investment advisor.

Businesses of this sort were virtually unheard of a decade ago, and yet the demand  for art purely as an investment has seen a proliferation in recent years. As well as increasing numbers of private banks offering advisory services to their clients, specialist companies such as Fine Art Wealth Management and The Art Investor exist to assist buyers on making choices for bespoke portfolios which can maximise returns. Perhaps most significant in this field, however, is The Fine Art Fund. Set up just over a decade ago by Philip Hoffman, this was the first business of its type to invest in art as an asset. Currently, they manage more than $150m of assets and achieved a net annual return of 6.34 per cent over the past eight years.

Hoffman recently told the Sunday Times, “In the old days people invested in bonds, stocks and cash, and now they’re investing in ten different subject headings and art is just one of them ... People don’t look at their gold bars and, in some cases, they treat art in the same way.”

The rise of these businesses is necessary because the unregulated nature of the art market means that it still straddles an awkward line between solid economic sense and a frantic, wild gamble. On one hand, there are plenty of promising statistics: in 2011, the Financial Times reported that the art market made an 11 per cent return to its investors, a frantic outstripping of stock market return. This year, sales have been promising, with impressive prices achieved at Art Basel in June, and there is a wealth of evidence that the top end of the market has been immune to the turbulence underneath it. In fact, over half of the 20 most expensive auction sales of all time have been completed since 2008, indicating an economic buoyancy which overcomes even the recession.

So far, so lucrative. Yet, the mechanics of the art economy are governed by strange, volatile forces which means that it is never a safe bet. Charles Saatchi himself noted “Art is no investment unless you get very, very lucky” in his 2009 book My Name is Charles Saatchi and I am an Artaholic. In many ways the art market is an economist’s worst nightmare. It is wholly speculative and subjective, and therefore constitutionally unpredictable. The valuation of contemporary art, in particular, is based on a collection of changeable and changing opinions. It is constantly affected by external circumstances, and trends are capable of crashing out of fashion just as swiftly as they crashed it. Additionally, it is fundamentally impossible to confirm the value of the market as a whole. Private sales comprise approximately 75 per cent of the total market, and these are almost always undisclosed. “The art market is the most illiquid, opaque market in the world,” explained Jeff Rabin, quoted in The Art Newspaper. Given this, manoeuvring within it is always going to be a guessing game.

Other industries have, too, sprung up in reaction to the demand of fine-art investment, notably the specialist storage port. Investment art is, emphatically, not bought to be hung on the wall. Instead, collectors are increasingly storing their assets in state-of-the-art warehouses. Christies are currently expanding their "Fine Art Storage Service" due to increased demand, and new ports are due to open in Singapore and Luxenbourg, adding to existing onces in Geneva. These large-scale warehouses offer highly regulated storage controls with humidity and light protection as well as extensive on-site security. They also have a notably appeal to the money-minded collector in that they allow the temporary postponement of VAT and customs duty payments.

The implications of this are vast. Not only with regards to the valuation of art, but with an entire overhaul of its purpose. Art bought as an asset and stored, indefinitely in a warehouse, far from the damaging light of day denotes a new mode of art ownership – one where the object d’art is reduced to a purely monetary transaction.

“It’s a depressing thought,” comments Connie Viney, a London-based artist who regularly exhibits at The Vyner Street Gallery, “Just recently there was the news that Sotheby’s have once again broken their auction record by selling a Rothko for £47.3m. By all accounts, it seems that that price will just increase once again next time it’s sold. With sums like that, how can people think of art becoming anything but a get-rich-quick scheme?”

Is this the real status of art in today's world? Elite, out-priced, stored out of site and endlessly circulated in a micro-economy closed off to all but the super-wealthy? "Art for art’s sake" is a 19th century concept. "Art for the people", too, is becoming swiftly outdated. The motto for our times, it seems, is "Art for the 1 per cent".

Auctioneers place bids during the Damien Hirst's Beautiful Inside My Head Forever, at Sotheby's in 2008. (Photo by Daniel Berehulak/Getty Images)

Kamila Kocialkowska is a freelance journalist based in London.

@ms_kamila_k

 

Gallery Stock
Show Hide image

Beware of tea: the cuppa has started wars and ruined lives

. . . and it once led F Scott Fitzgerald to humiliate himself.

A drink sustains me – one that steams companionably as I write. It is hot, amber and fragranced differently from any wine; nor does it have wine’s capacity to soften and blur. I’ve never understood how the great drunks of literature, Ernest Hemingway, F Scott Fitzgerald and their like, ever put anything on the page more worthwhile than a self-involved howl, though even Hemingway apparently finished the day’s writing before beginning the day’s drinking.

Tea is more kindly, or so I’d always thought. Those aromatic leaves, black or green, rolled and dried and oxidised, have some of wine’s artistry but none of its danger. Even their exoticism has waned, from a Chinese rarity (“froth of the liquid jade”), for which 17th-century English traders were made to pay in solid silver, to a product that can be found dirt cheap on supermarket shelves.

There are even home-grown teas now. The Tregothnan estate in Cornwall has supplemented its ornamental rhododendrons and camellias with their relative camellia sinensis, the tea plant, while Dalreoch in the Scottish Highlands grows a white (that is, lightly oxidised) tea, which is smoked using wood from the surrounding birch plantations. Tellingly, this local version is priced as steeply as the imported rarity once was.

I enjoy a simple, solitary mug, but I also appreciate communal tea-drinking – the delicate tea warmed with water at 85°C (a little higher for sturdier black blends), the teapot and china, the pourer volunteering to be “mother”, as if this were a liquid that could nurture. But in reality, tea is not so gentle.

Those long-ago English traders disliked haemorrhaging silver, so they started exporting opium to China from India and paying with that. This was a fabulous success, unless you happened to be Chinese. In 1839, a commissioner attempted to clamp down on the illegal and harmful trade, and the result was the Opium Wars, which the Chinese lost. “Gunboat diplomacy” – a phrase that surely constitutes froth of a different kind – won England a great deal of silver, a 150-year lease on Hong Kong and an open tea market. China received a potful of humiliation that may eventually have helped spark the Communist Revolution. As many of us have recently realised, there is nothing like economic mortification to galvanise a nation to kick its leaders.

Later, the tea bush was planted in India, Ceylon and elsewhere, and the fragrant but bitter brew for the upper classes became a ubiquitous fuel. But not an entirely sweet one: just as the opium trade ensured our tea’s arrival in the pot, the slave trade sweetened it in the cup. Even today, conditions for tea workers in places such as Assam in north-east India are often appalling.

Scott Fitzgerald also had tea trouble. When invited round by Edith Wharton, he frothed the liquid jade so assiduously with booze beforehand and risqué conversation during (a story about an American tourist couple staying unawares in a Paris bordello) that he was nearly as badly humiliated as those 19th-century Chinese. Wharton, unshocked, merely wondered aloud what the couple had done in the bordello and afterwards pronounced the entire occasion “awful”.

Some would blame his alcoholic preliminaries, but I’m not so sure. Tea has started wars and ruined lives; we should be wary of its consolations. On that sober note, I reach for the corkscrew and allow the subject to drive me softly, beguilingly, to drink.

Nina Caplan is the 2014 Fortnum & Mason Drink Writer of the Year and 2014 Louis Roederer International Wine Columnist of the Year for her columns on drink in the New Statesman. She tweets as @NinaCaplan.

This article first appeared in the 27 April 2017 issue of the New Statesman, Cool Britannia 20 Years On

0800 7318496