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

 

Photo: Tashphotography / Stockimo / Alamy
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The Negroni fools no one – it’s easy to make and contains nothing but booze

It is the colour of danger, a red rag to anyone jaded by cocktail-world bull.

The cocktail is designed to lie about its origins; no wonder it reached its apogee during Prohibition, which forced everyone with an unrepentant thirst to lie about their cravings. Even today, when only extreme youth, religious belief or personal inclination prevents a person from draining the bar dry, the cocktail continues its career of dishonesty. It hides ingredients or methods. It provides a front for poor-quality booze. And it often dissolves, within its inscrutable depths, mountains of sugar, enabling drinkers to pose as sophisticates while downing something that tastes like a soft drink – to get drunk without leaving the playpen.

This is why I love the Negroni, which fools no one. It is easy to make and contains nothing but pure booze. Despite being a third sweet vermouth, it isn’t saccharine: the other two thirds, equal measures of gin and Campari, may have something to do with this. And it is the colour of danger, a red rag to anyone jaded by cocktail-world bull.

They say it was invented in Florence at the request of a Count Negroni, who wanted a drink unsullied by club soda – a drink stiff enough to get a man back on a bucking horse, perhaps, since this Count may have been a rodeo rider. I prefer to believe that the Count, if Count he was, came in, tossed down enough strong liquor to start telling stories about his American adventures, and, when he finally staggered out into the night, the exasperated bartender poured three straight shots into a single glass and baptised this wondrous reviver in grateful homage to the fabulist who had inspired it.

In a former glue factory a very long way from Florence or America, the East London Liquor Company now makes very good gin – Batches One and Two, the former tannic with Darjeeling as well as cassia bark, pink grapefruit peel, and coriander seeds; the latter redolent of savoury, bay, thyme and lavender. Transforming these plants into excellent alcohol seems an improvement on boiling down horses for adhesive, and the company also makes superb Negronis from Batch Two.

We sit outside, in a carpark made marginally more glamorous by border boxes of Batch Two botanicals, and marvel at the transformation of this grimy part of East London, next door to a park intended to give Victorian working men brief respite from lives all too lacking in myth or fantasy. It is a reincarnation at least as miraculous as the transformation of three strong and entirely unalike spirits into the delectable harmony of the Negroni. The sun shines; a fountain plashes. Nuts and charcuterie arrive. All is right with the world.

I leave my herbaceous bower and dangerously pleasing drink for a peek at the large copper distillery behind the bar, walking in past the fountain, a whimsical stone construction that pours vermilion liquid into two, tiered basins topped by a chubby putto clutching a rather reluctant fish.

And then I stop. And double back. Vermilion liquid? It is, indeed, a Negroni fountain. There are even slices of orange floating in the basin. I dip a finger: the taste is slightly metallic but still undeniably that potent mixture of booze, botanicals, bitterness, and just a hint of sweetness. A streak of citrus from the orange slices. It turns out that the world’s most straightforward cocktail lends itself to a decadent neo-Renaissance fantasy. There’s a message here, one forthright as a temperance tract: without imagination, we would have no lies – but no Negronis, either.

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 20 July 2017 issue of the New Statesman, The new world disorder