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

 

Iain Cameron
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Meet Scotland's 300-year-old snow patch, the Sphinx

Snow patch watchers expect it to melt away by the weekend. 

This weekend, Scotland's most resilient snow patch, dubbed Sphinx, is expected to melt away. The news has been met with a surprising outpouring of emotion and nationwide coverage. Even The Financial Times covered the story with the headline "The end is nigh for Britain's last snow". The story has also gone international, featuring in radio reports as far away as New Zealand.

So what is it about Sphinx that has captured the public’s imagination?  Some have suggested it could be symbolic. The Sphinx represents how we all feel, helpless and doomed to a fate determined by leaders like Donald Trump and Kim Jong Un. 

Regular contributors to the Facebook page “Snow Patches in Scotland”  have their own, more prosaic theories. One tells me that the British are “generally a bit obsessed with weather and climate”, while another says snow-patches are "more interesting than anything Trump/May/Boris or Vladimir have to say”.

Those more interested in patches of snow than the existential consequences of international relations could be dismissed as having seriously skewed priorities, but there's more to the story of Sphinx than lies on the surface. 

For a start it's thought to be 300 years old, covering a small square of the Cairngorms for centuries with just six brief interruptions. Last time the Sphinx disappeared was 11 years ago. Though it may melt away this weekend, it is expected to be back by winter. 

Iain Cameron, the man who set up the Facebook page "Snow Patches in Scotland" and someone who has recorded and measured snow patches since he was a young boy, says that Sphinx has shrunk to the size of a large dinner table and he expects it will have melted entirely by this Saturday.

It came close to disappearing in 2011 as well, he adds. In October of that year, Sphinx at around its current size and only a heavy snowstorm revived it.

"They tend to keep the same shape and form every year," Cameron tells me. "It might sound weird to say, but it’s like seeing an elderly relative or an old friend. You’re slightly disappointed if it’s not in as good a condition."

But why has Sphinx survived for so long? The patch of land that Sphinx lies above faces towards the North East, meaning it is sheltered from the elements by large natural formations called Corries and avoids the bulk of what sunlight northern Scotland has to offer. 

It also sits on a bid of soil rather than boulder-fields, unlike the snow patches on Britain's highest mountain Ben Nevis. Boulder-fields allow air through them, but the soil does not, meaning the Sphinx melts only from the top.

Cameron is hesistant to attribute the increased rate of Sphinx's melting to climate change. He says meterologists can decide the causes based on the data which he and his fellow anoraks (as he calls them) collect. 

That data shows that over the past 11 years since Sphinx last melted it has changed size each year, not following any discernable pattern. “There is no rhyme or reason because of the vagaries of the Scottish climate," says Cameron.

One thing that has changed is Sphinx's title is no longer quite so secure. There is another snow patch in near Ben Nevis vying for the position of the last in Scotland. Cameron says that it is 50:50 as to which one will go first.