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

 

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How wine crosses national boundaries

With a glass of wine, and a bit of imagination, wine can take us anywhere.

Wine offers many pleasures, one of which is effortless movement. You can visit places that make the wines you love, but you can also sip yourself to where these grapes once grew, or use a mind-expanding mouthful to conjure somewhere unrelated but more appropriate to your mood. Chablis, say, need not transport you to damp and landlocked Burgundy, even if the vines flourish there, not when those stony white wines suit sun, sea and shellfish so well.

Still, I’d never been to Istria – a triangle of land across the Adriatic from the upper calf of Italy’s boot – either in vino or in veritas, until I tried a selection of wines from Pacta Connect, a Brighton-based, wine-importing couple obsessed with Central and Eastern Europe. 

The tapas restaurant Poco on Broadway Market in east London has fiercely ecological credentials – it uses lots of locally sourced and sustainably grown food and the space is a former bike shop – but this fierceness doesn’t extend to entirely virtuous wine-buying, thank goodness. I’m all for saving the planet: waggle the eco-spear too hard, however, and I’ll be forced to drink nothing but English wine. Trying each other’s wines, like learning each other’s customs, is vital to understanding: there’s no point improving the atmosphere if we all just sit around inhaling our own CO2 at home.

The world is full of wine and it is our duty to drink variously in the name of peace and co-operation – which are not gifts that have frequently been bestowed on Istria. I have sought enlightenment from Anna, the Culinary Anthropologist. A cookery teacher and part-time Istrian, she has a house on the peninsula and a PhD in progress on its gastronomy. So now, I know that Istria is a peninsula, even if its borders are debated – a result of Croatia, Slovenia and Italy all wanting a piece of its fertile red soil and Mediterranean climate.

From ancient Romans to independence-seeking Croatians in the early 1990s, all sorts of people have churned up the vineyards, which hasn’t stopped the Istrians making wine; political troubles may even have added to the impetus. A strawberry-ish, slightly sparkling Slovenian rosé got on splendidly with plump Greek olives and English bean hummus, topped with pickled tarragon and thyme-like za’atar herbs from the Syrian-Lebanese mountains. A perfumed white called Sivi Pinot by the same winemaker, Miha Batič, from Slovenian Istria’s Vipava Valley, was excellent with kale in lemon juice: an unlikely meeting of the Adriatic, the Atlantic and the Mediterranean. Sivi Pinot is another name for Pinot Grigio, which seems fair enough: as long as we can raise our glasses and agree to differ, names should be no problem.

But sometimes we can’t. The other Slovenian winemaker on the menu, Uroš Klabjan, lives three kilometres from the Italian city of Trieste, where his Malvazija Istarska would be called Malvasia Istriana. Either way, it is fresh and slightly apricot-like, and goes dangerously well with nothing at all: I see why this is Istria’s most popular white grape. His Refošk, an intense red, is also good but there is a complicated argument over when Refošk should be called Teran. Like battles over parts of the Balkans, these wrangles seem incomprehensible to many of us, but it’s sobering to think that wine can reflect the less pleasant aspects of cross-cultural contact. Intolerance and jingoism don’t taste any better than they sound.

We finish with Gerzinić’s Yellow Muskat and rhubarb parfait: Croatian dessert wine from an ancient grape found around the world, with an English plant transformed by a French name. There’s nothing sweeter than international co-operation. Except, perhaps, armchair travel.

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 23 June 2016 issue of the New Statesman, Divided Britain