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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"By now, there was no way back for me": the strange story of Bogdan Stashinsky

Serhii Plokhy’s The Man with the Poison Gun is a gripping, remarkable Cold War spy story.

On the morning of 12 August 1961, a few hours before the supreme leader of East Germany, Walter Ulbricht, announced the sealing of the border between East and West Berlin, a funeral took place for a four-month-old boy at the Rohrbeck Evangelical Cemetery in Dallgow. Numerous KGB agents and officers of the East German ministry of security were in attendance, but the boy’s parents were missing. Instead, Bogdan Stashinsky and Inge Pohl were preparing their imminent escape from Soviet-occupied territory and into the West. They had intended to flee the following day, but the funeral provided a moment of opportunity when their surveillance was relaxed. If they wanted to go, they had to go now.

“The KGB operatives present at the child’s funeral were puzzled by the parents’ absence,” a Soviet intelligence officer later wrote. “By the end of the day on 13 August 1961, it was clear that the Stashinskys had gone to the West. Everyone who knew what tasks the agent had carried out in Munich in 1957 and 1959, and what could happen if Stashinsky were to talk, was in shock.”

Those “tasks” were the state-sponsored assassinations of Lev Rebet and Stepan Bandera, two exiled leaders of the Ukrainian anti-communist movement who had been living in Munich. Stashinsky, one of the KGB’s top hitmen, and the focus of Serhii Plokhy’s gripping book, had been given the task of tracking and killing them with a custom-built gun that sprayed a lethal, yet undetectable poison. It was only after Stashinsky’s defection to the Central Intelligence Agency, and then to the West German security services, that the cause of Rebet and Bandera’s deaths was finally known.

For decades, the KGB denied any involvement in the assassinations, and the CIA has never been entirely sure about Stashinsky’s motives. Was he telling the truth when he confessed to being the assassin, or was he, as some still claim, a loyal agent, sent to spread disinformation and protect the true killer? Plokhy has now put to rest the many theories and speculations. With great clarity and compassion, and drawing from a trove of recently declassified files from CIA, KGB and Polish security archives, as well as interviews conducted with former heads of the South African police force, he chronicles one of the most curious espionage stories of the Cold War.

Stashinsky’s tale is worthy of John le Carré or Ian Fleming. Plokhy even reminds us that The Man With the Golden Gun, in which James Bond tries to assassinate his boss with a cyanide pistol after being brainwashed by the Soviets, was inspired by the Stashinsky story. But if spy novels zero in on a secret world – tradecraft, double agents, defections, and the moral fallout that comes from working in the shadows – Plokhy places this tale in the wider context of the Cold War and the relentless ideological battle between East and West.

The story of Stashinsky’s career as a triggerman for the KGB plays out against the backdrop of the fight for Ukrainian independence after the Second World War. He was a member of the underground resistance against the Soviet occupation, but was forced to become an informer for the secret police after his family was threatened. After he betrayed a resistance cell led by Ivan Laba, which had assassinated the communist author Yaroslav Halan, Stashinsky was ostracised by his family and was offered the choice of continuing his higher education, which he could no longer afford, or joining the secret police.

“It was [only] a proposal,” he said later, “but I had no alternative to accepting it and continuing to work for the NKVD. By now, there was no way back for me.” He received advanced training in Kyiv and Moscow for clandestine work in the West and became one of Moscow’s most prized assets. In 1957, after assassinating Rebet, he was awarded the
Order of the Red Banner, one of the oldest military decorations in the Soviet Union.

Plokhy’s book is about more than the dramas of undercover work; it is also an imaginative approach to the history of Cold War international relations. It is above all an affective tale about the relationship between individual autonomy and state power, and the crushing impact the police state had on populations living behind the Iron Curtain. Stashinsky isn’t someone of whom we should necessarily approve: he betrayed his comrades in the Ukrainian resistance, lied to his family about who he was and killed for a living. Yet we sympathise with him the more he, like so many others, turns into a defenceless pawn of the Communist Party high command, especially after he falls in love with his future wife, Inge.

One of the most insightful sections of Plokhy’s book converges on Stashinsky’s trial in West Germany in 1962 over the killings of Rebet and Bandera, and how he was given a reduced sentence because it was deemed that he had been an instrument of the Soviet state. The decision was influenced by German memories of collective brainwashing under the Third Reich. As one of the judges put it: “The accused was at the time in question a poor devil who acted automatically under pressure of commands and was misled and confused ideologically.”

What makes Plokhy’s book so alarmingly resonant today is how Russia still uses extrajudicial murder as a tool of foreign policy. In 2004 Viktor Yushchenko, the pro-Western future president of Ukraine, was poisoned with dioxin; two years later Aleksandr Litvinenko, the Russian secret service defector, unknowingly drank radioactive polonium at a hotel in London. The Russian journalist Anna Politkovskaya survived a poisoning in 2004 after drinking tea given to her by an Aeroflot flight attendant (she was murdered two years later). The collapse of the Soviet Union did not bring the end of the Russian threat (Putin, remember, is ex-KGB). As le Carré noted in a speech in the summer of 1990, “The Russian Bear is sick, the Bear is bankrupt, the Bear is frightened of his past, his present and his future. But the Bear is still armed to the teeth and very, very proud.”

The Man with the Poison Gun: a Cold War Spy Story by Serhii Plokhy is published by Oneworld (365pp, £18.99)

This article first appeared in the 12 January 2017 issue of the New Statesman, Putin's revenge