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.



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The conflict in Yemen is a Civil War by numbers

Amid the battles, a generation starves.

Ten thousand dead – a conservative estimate at best. Three million internally displaced. Twenty million in need of aid. Two hundred thousand besieged for over a year. Thirty-four ballistic missiles fired into Saudi Arabia. More than 140 mourners killed in a double-tap strike on a funeral. These are just some of the numerical subscripts of the war in Yemen.

The British government would probably prefer to draw attention to the money being spent on aid in Yemen – £37m extra, according to figures released by the Department for International Development in September – rather than the £3.3bn worth of arms that the UK licensed for sale to Saudi Arabia in the first year of the kingdom’s bombing campaign against one of the poorest nations in the Middle East.

Yet, on the ground, the numbers are meaningless. What they do not show is how the conflict is tearing Yemeni society apart. Nor do they account for the deaths from disease and starvation caused by the hindering of food imports and medical supplies – siege tactics used by both sides – and for the appropriation of aid for financial gain.

Since the war began in March 2015 I have travelled more than 2,500 miles across Yemen, criss-crossing the front lines in and out of territories controlled by Houthi rebels, or by their opponents, the Saudi-backed resistance forces, or through vast stretches of land held by al-Qaeda. On those journeys, what struck me most was the deepening resentment expressed by so many people towards their fellow Yemenis.

The object of that loathing can change in the space of a few hundred metres. The soundtrack to this hatred emanates from smartphones resting on rusting oil drums, protruding from the breast pockets of military fatigues, or lying on chairs under makeshift awnings where flags denote the beginning of the dead ground of no-man’s-land. The rabble-rousing propaganda songs preach to the watchful gunmen about a feeble and irreligious enemy backed by foreign powers. Down the road, an almost identical scene awaits, only the flag is different and the song, though echoing the same sentiment, chants of an opponent altogether different from the one decried barely out of earshot in the dust behind you.

“We hate them. They hate us. We kill each other. Who wins?” mused a fellow passenger on one of my trips as he pressed green leaves of the mildly narcotic khat plant into his mouth.

Mohammed was a friend of a friend who helped to smuggle me – dressed in the all-black, face-covering garb of a Yemeni woman – across front lines into the besieged enclave of Taiz. “We lose everything,” he said. “They win. They always win.” He gesticulated as he spoke of these invisible yet omnipresent powers: Yemen’s political elite and the foreign states entangled in his country’s conflict.

This promotion of hatred, creating what are likely to be irreversible divisions, is necessary for the war’s belligerents in order to incite tens of thousands to fight. It is essential to perpetuate the cycle of revenge unleashed by the territorial advances in 2014 and 2015 by Houthi rebels and the forces of their patron, the former president Ali Abdullah Saleh. This demand for retribution is matched by those who are now seeking vengeance for the lives lost in a UK-supported, Saudi-led aerial bombing campaign.

More than 25 years after the two states of North and South Yemen united, the gulf between them has never been wider. The political south, now controlled by forces aligned with the Saudi-led coalition, is logistically as well as politically severed from the north-western territories under the command of the Houthi rebels and Saleh loyalists. Caught in the middle is the city of Taiz, which is steadily being reduced to rubble after a year-long siege imposed by the Houthi-Saleh forces.

Revenge nourishes the violence, but it cannot feed those who are dying from malnutrition. Blowing in the sandy wind on roadsides up and down the country are tattered tents that hundreds of thousands of displaced families now call home. Others have fled from the cities and towns affected by the conflict to remote but safer village areas. There, food and medical care are scarce.

The acute child malnutrition reported in urban hospitals remains largely hidden in these isolated villages, far from tarmac roads, beyond the reach of international aid agencies. On my road trips across Yemen, a journey that would normally take 45 minutes on asphalt could take five hours on tracks across scrubland and rock, climbing mountainsides and descending into valleys where bridges stand useless, snapped in half by air strikes.

Among the other statistics are the missing millions needed by the state – the country’s largest employer. Workers haven’t been paid in months, amid fears of an economic collapse. This is apparently a deliberate tactic of fiscal strangulation by the Saudi-backed Yemeni government-in-exile. The recent relocation of the central bank from the Houthi-controlled capital, Sana’a, to the southern city of Aden is so far proving symbolic, given that the institution remains devoid of funds. The workforce on both sides of the conflict has taken to the streets to protest against salaries being overdue.

Following the deaths of more than 140 people in Saudi-led air strikes on a funeral hall on 8 October, Saleh and the Houthi leader, Abdulmalik al-Houthi, called for yet more revenge. Within hours, ballistic missiles were fired from within Houthi territory, reaching up to 350 miles into Saudi Arabia.

Meanwhile, in the Red Sea, Houthi missile attacks on US warships resulted in retaliation, sucking the US further into the mire. Hours later, Iran announced its intention to deploy naval vessels in the area.

Vengeance continues to drive the violence in Yemen, which is being drawn ever closer to proxy conflicts being fought elsewhere in the Middle East. Yet the impact on Yemeni society and the consequences for the population’s health for generations to come are unlikely to appear to the outside world, not even as annotated numbers in the brief glimpses we get of this war. 

This article first appeared in the 20 October 2016 issue of the New Statesman, Brothers in blood