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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Ken Clarke: Theresa May has “no idea” what to do about Brexit

According to the former Chancellor, “nobody in the government has the first idea of what they’re going to do next”.

Has Ken Clarke lost the greatest political battle of his career? He doesn’t think so. With his shoes off, he pads around his Westminster office in a striped shirt, bottle-green cords and spotty socks. Parliament’s most persistent Europhile seems relaxed. He laughs at the pervasive phrase that has issued from Downing Street since Theresa May became Prime Minister: “Brexit means Brexit.”

“A very simple phrase, but it didn’t mean anything,” he says. His blue eyes, still boyish at 76, twinkle. “It’s a brilliant reply! I thought it was rather witty. It took a day or two before people realised it didn’t actually answer the question.”

A former chancellor of the Exchequer, Clarke has served in three Conservative cabinets. His support for the European Union is well known. He has represented the seat of Rushcliffe in Nottinghamshire for 46 years, and his commitment to the European project has never wavered over the decades. It has survived every Tory civil war and even his three failed attempts to be elected Tory leader, standing on a pro-Europe platform, in 1997, 2001 and 2005.

“My political career looks as though it will coincide with Britain’s membership of the EU,” Clarke says, lowering himself into an armchair that overlooks the Thames. There are model cars perched along the windowsill – a hint of his love of motor racing.

Clarke won’t be based here, in this poky rooftop room in Portcullis House, Westminster, much longer. He has decided to step down at the next election, when he will be nearly 80. “I began by campaigning [in the 1960s] in support of Harold Macmillan’s application to enter [the EU], and I shall retire at the next election, when Britain will be on the point of leaving,” he says grimly.

Clarke supports Theresa May, having worked with her in cabinet for four years. But his allegiance was somewhat undermined when he was recorded describing her as a “bloody difficult woman” during this year’s leadership contest. He is openly critical of her regime, dismissing it as a “government with no policies”.

For a senior politician with a big reputation, Clarke is light-hearted in person – his face is usually scrunched up in merriment beneath his floppy hair. A number of times during our discussion, he says that he is trying to avoid getting “into trouble”. A painting of a stern Churchill and multiple illustrations of Gladstone look down at him from his walls as he proceeds to do just that.

“Nobody in the government has the first idea of what they’re going to do next on the Brexit front,” he says. He has a warning for his former cabinet colleagues: “Serious uncertainty in your trading and political relationships with the rest of the world is dangerous if you allow it to persist.”

Clarke has seen some of the Tories’ bitterest feuds of the past at first hand, and he is concerned about party unity again. “Whatever is negotiated will be denounced by the ultra-Eurosceptics as a betrayal,” he says. “Theresa May has had the misfortune of taking over at the most impossible time. She faces an appalling problem of trying to get these ‘Three Brexiteers’ [Boris Johnson, David Davis and Liam Fox] to agree with each other, and putting together a coherent policy which a united cabinet can present to a waiting Parliament and public. Because nobody has the foggiest notion of what they want us to do.”

Clarke reserves his fiercest anger for these high-profile Brexiteers, lamenting: “People like Johnson and [Michael] Gove gave respectability to [Nigel] Farage’s arguments that immigration was somehow a great peril caused by the EU.”

During the referendum campaign, Clarke made headlines by describing Boris Johnson as “a nicer version of Donald Trump”, but today he seems more concerned about David Cameron. He has harsh words for his friend the former prime minister, calling the pledge to hold the referendum “a catastrophic decision”. “He will go down in history as the man who made the mistake of taking us out of the European Union, by mistake,” he says.

Clarke left the government in Cameron’s 2014 cabinet reshuffle – which came to be known as a “purge” of liberal Conservatives – and swapped his role as a minister without portfolio for life on the back benches. From there, he says, he will vote against the result of the referendum, which he dismisses as a “bizarre protest vote”.

“The idea that I’m suddenly going to change my lifelong opinions about the national interest and regard myself as instructed to vote in parliament on the basis of an opinion poll is laughable,” he growls. “My constituents voted Remain. I trust nobody will seriously suggest that I should vote in favour of leaving the European Union. I think it’s going to do serious damage.”

But No 10 has hinted that MPs won’t be given a say. “I do think parliament sooner or later is going to have to debate this,” Clarke insists. “In the normal way, holding the government to account for any policy the government produces . . . The idea that parliament’s going to have no say in this, and it’s all to be left to ministers, I would regard as appalling.”

Clarke has been characterised as a Tory “wet” since his days as one of the more liberal members of Margaret Thatcher’s government. It is thought that the former prime minister had a soft spot for his robust manner but viewed his left-wing leanings and pro-European passion with suspicion. He is one of parliament’s most enduring One-Nation Conservatives. Yet, with the Brexit vote, it feels as though his centrist strand of Tory politics is disappearing.

“I don’t think that’s extinct,” Clarke says. “The Conservative Party is certainly not doomed to go to the right.”

He does, however, see the rise of populism in the West as a warning. “I don’t want us to go lurching to the right,” he says. “There is a tendency for traditional parties to polarise, and for the right-wing one to go ever more to the right, and the left-wing one to go ever more to the left . . . It would be a catastrophe if that were to happen.”

Clarke’s dream of keeping the UK in Europe may be over, but he won’t be quiet while he feels that his party’s future is under threat. “Don’t get me into too much trouble,” he pleads, widening his eyes in a show of innocence, as he returns to his desk to finish his work. 

Anoosh Chakelian is deputy web editor at the New Statesman.

This article first appeared in the 29 September 2016 issue of the New Statesman, May’s new Tories