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To buy, or not to buy – and what are the questions? Falcon Fine Art at Masterpiece 2015

The art market panel held by Falcon Fine Art at Masterpiece 2015 discussed what questions and considerations collectors must address when buying artworks

Masterpiece 2015 once again opened its doors in the grounds of the Chelsea Royal Hospital, hosting over 34,000 visitors looking to buy art (or perhaps just looking). It was also the setting of an art market Q&A session hosted by art financier Falcon Fine Art, offering the audience the opportunity to explore ‘everything you want to know about the art market’.

Taking place at an art fair, however, the audience’s chief concern was much broader – that of collecting in general. So it was that the expert panel – comprising of Tim Hunter, Vice President of Falcon Fine Art; Farrer & Co’s Senior Partner and expert in art heritage, Adrian Parkhouse; Agnews’ Anthony Crichton-Stuart; and moderator Anna Dempster, Senior Lecturer in Art Business at Sotheby’s Institute and incoming Head of Academic Programmes at the Royal Academy of Art – set about discussing what it is collectors must know, and the questions they should ask, when buying art.

Certainly, collectors do not always ask the right – or enough – questions when purchasing art.

Also read: Falcon Fine Art – we have money and we are ambitious

“The amount of attention you might pay when buying items of the same, or even less value (cars, for instance), isn’t always afforded to art,” explained Parkhouse. “Often the only question collectors ask is ‘how much’.”

But asking ‘how much’ is clearly not enough. In a market so vast, varied, and valuable – not to mention complex – it is imperative collectors, as well as investors, ask the right questions to the right people, at the right time if they are to both capitalise on their investment and best enjoy their art.

Growing in numbers

First, when buying any asset, it is important to understand the market. This is even more pertinent for the art market given its size and growth – with the TEFAF report suggesting a value of €51 billion for 2014.

Partly, this growth is due to the increasing numbers of high net-worth-individuals – many of whom are attracted to the social and cultural aspects associated with collecting art. But it is also due to the surge in popularity of Post-War and Contemporary art which drives the underlying numbers for the art market as a whole.

“The Post-War and Contemporary art market has seen enormous growth in the last 10 years – particularly in the last five years – and records continue to be broken,” explained Hunter. “You just need to look at the auction house catalogues – with those devoted to Contemporary art getting thicker and thicker – to gain an idea of its growth.”

Yet opportunities lie in many places, within and beyond the Contemporary art boom. In order for the art market to continue its positive trajectory, collectors must diversify their purchasing – looking once again at other genres, such as Old Masters.

“We need more buyers in our area, and we need more material”

“We’re keen to see more growth in the Old Masters market, but it is proving difficult” said Crichton-Stuart, who joined Agnews following a career at both Christie’s and as an independent art dealer. “We need more buyers in our area, and we need more material – the latter of which, with Old Masters, is proving increasingly hard to find.”

“Yet Old Masters are often touted as the ‘blue chip’ investments,” said Anna Dempster. “They offer lower risk to those who are interested in the longer term returns, and provide an interesting alternative to fashion-led contemporary options.”

Opaque Market

Certainly, when trying to understand the art market, it is crucial to consider its regulation (or, arguably, the lack thereof).

“There is a feeling, certainly in Europe, that the market is unregulated in effect,” said Parkhouse.

Indeed, having moved from the art world – following a long career at both Christie’s and Gurr Johns – to the City with art financier Falcon Fine Art, Hunter is perfectly positioned to highlight the difference between the two industries with regards to regulation.

“The kind of ‘know-your-customer’ due diligence that is required in a financial context is in stark contrast to the kind of precautions in the art world”

“The kind of ‘know-your-customer’ due diligence that is required in a financial context is in stark contrast to the kind of precautions that we used to take in the art world – which used to be pretty negligible, really, looking back on it,” he explained. “At Falcon Fine Art there is an expectation that due diligence is carried out on an artwork in both an art and financing context. And this is something that should exist throughout the art market. ”

“It is a serious issue because there are some ‘funny’ deals that can take place,” said Parkhouse. “While regulation does not always prevent dishonesty, it does allow you to put measures in place – insurance; rules for disciplining the guilty etc. – that protect you against such dishonesty. If there are no regulations to break, it becomes a lot harder.”

Of course, that is not to say there is no regulation in the art market.

“There is a certain amount of self-regulation through societies, dealers, and fairs such as Masterpiece,” explained Parkhouse. “And, perhaps, stronger self-regulation – in addition to the existing laws against issues such as money-laundering and fraud – is the solution. We need to protect consumers, and organisations should recognise that it might be better to do so themselves, provided they have the funding, before tougher regulation closes in on the art market.”

Indeed, universal regulation of the art market could be tricky.

“Overall regulation is something that will be pretty difficult to come by,” said Hunter. “Particularly given you have so many players – auction houses, dealers, agents – who all operate in slightly different regulatory spaces. But when you are dealing with such high values, and complicated transactions, there does need to be a level of transparency and regulation.”

What’s more, the globalization of the art market presents an added challenge to overall regulation.

“In the past, when the art world was smaller and more ‘local’, norms and codes of conduct were quite well-defined, and the market existed in one cultural sphere,” explained Dempster. “As the art world has become more global, however, we have different people with different, possibly conflicting views of what is acceptable, when and why things are done and operating under different conditions and assumptions. Transactions are usually as unique as the art works being bought and sold. It takes a certain type of expert, and a great deal of experience to be able to navigate that. While great for the production of art itself, and for the growth of the art market, globalization poses challenges to implementing regulation, although it also creates exciting opportunities for both investors and collectors.”

Who, what, when, where

Dempster believes that “extreme uncertainty is one of the most interesting and challenging features of the art market and understanding its many, unique and specific risks is what separates the winners and the losers”.

Of course, the uncertainty existing in the art market makes it even more vital that collectors ask the right questions when buying art. So what are these questions?

Certainly, the panel stressed that collectors must know who the artwork is by. While this may seem glaringly obvious, it is a factor that is often difficult to certify and, in fact, specific attributions are too often taken for granted.

“Attribution is a crucial issue when it comes to buying artwork,” described Hunter. “Whether it is a sculpture, a medieval artwork, or a painting, you still need to know who made it.”

And attribution of an artwork seems to get harder depending on its age and the documentation available.

“Attributions can be more difficult with Old Masters, than with Contemporary,” said Hunter – suggesting that this could be another challenge faced by the Old Master market. “With Contemporary art, you could ring up the artist if necessary, and ask them directly. But Old Masters are amazingly complex works often with no signature, and no documentation.”

Crichton-Stuart agreed: “With Old Masters scholarship can be complicated, which is where the knowledge of established dealers is vital, because you get different versions – studio versions, autograph versions, period copies, later copies etc. – and to add to this complexity you sometimes have different art historians with conflicting opinions about the same painting or drawing.”

Indeed, attribution is often up for debate – regardless of genre or period.

“When you buy something that is by somebody, there is absolutely no guarantee”

“It is important to mention that when you buy something that is by somebody, there is absolutely no guarantee, unless it is explicitly stated in the contract, which is unusual,” said Parkhouse. “It ultimately comes down to a matter of opinion. The only question, in court, is whether or not it is a reasonable opinion, and one that is honestly held.”

Of course, the artwork’s provenance – where the artwork comes from and who has owned it – can help you date, contextualise, locate and therefore attribute, a work. Yet provenance also has further importance, and can significantly impact the value of an artwork – positively influencing value if the provenance is illustrious and has desirable associations with people, places or events, but also potentially damaging if there is a risk of negative historical connotations or the risk of restitution claims.

“It is crucial to ask about the provenance of the work,” explained Hunter. “If, for instance, it is a work of art that was around during the war years, you need to be very careful that you can account for it.”

“Provenance research has changed over the years,” added Parkhouse. “If you were to speak to a curator in the 1980s or 1990s, they would have primarily been concerned with building it as a ‘piece of art’, and getting a feel for who has enjoyed it, what collections it has been in, and what paintings it has sat next to. They would have been less concerned with where it was during the war years, and if the artwork had been stolen at any time – which is, of course, what we, as lawyers, are looking for when we conduct provenance research.”

Finally, collectors must also take into account the condition of a painting – also considering whether or not it has undergone restoration. Certainly, the impact of restoration on value depends on the genre of an artwork.

“You’re more forgiving, generally, of restoration on an Old Master painting, given they’re extremely old,” said Hunter. “Restoration on work that was completed during the 20th Century, however, is much more sensitive, as you would expect it to be in pristine condition.”

Passion and investment

Yet it is not all about the “who, what, when, and where” of a painting. The simplest, yet perhaps most important, question collectors should (and do) ask when buying art is “why?”

“The first question that comes to mind when I look at anything – whether it be in my field or in Contemporary – is ‘do you like it?’,” explained Crichton-Stuart.

“People have started talking about an ‘emotional dividend’ as a key factor when making the decision to buy one thing over another,” added Dempster. “It is almost impossible to understand why people collect without getting to the emotional side of the decision to buy art.”

Indeed, while valuable as an investment, the panel was keen to stress that art, first and foremost, is primarily bought as a passion.

Of course, that does not mean it can’t still be treated as an investment.

“Buy art because you love it, not as an investment”

“Buy art because you love it, not as an investment,” said Crichton-Stuart. “But do finance your art if a) you can afford it and b) it helps you buy that which you love.”

“Collectors aren’t buying for investment,” added Hunter. “They are buying because they love the art. But they still have a lot of money tied up in that collection.”

Which is where art financing comes in – something the panel highlighted as perhaps the most exciting development in the art market at the moment.

“I think what has been intriguing is the development of art finance in the last two or three years in this country, and I think it could be one to watch,” said Parkhouse.

Certainly, given the fact that provenance can positively influence a collection, art financing (helping you leverage an existing collection to buy an additional piece) can help lift the value of an entire collection.

“To be able to release some of the equity from a collection in order to make a great purchase, which could bridge the gap between other pieces in the collection, and then raise the value of the collection overall, is really exciting,” said Hunter. “I’m always very pleased when clients have come up to us in order to buy another piece.”

Moreover, art financing is not just about buying more art.

“People come to us for all sorts of reasons,” said Hunter. “They might want to buy property, or invest in their company, for instance.”

“One of the interesting things about art financing is not financing to purchase – financing for investment – but actually just giving the art space as real collateral,” added Parkhouse. “In terms of ‘making the collection sweat’, and making the art a more multifunctional product.”

Indeed, the introduction of art financing solutions that allow individuals to not only finance their art, but also continue to display and enjoy it, means that collectors now have more options for “making their collections sweat” – and making them more valuable – than ever before.

Clearly the art market is complex, and asking the right questions is crucial. But as Dempster pointed out: “a lot of these challenges are also opportunities, and they are opportunities for people across the market – both existing players, and entrepreneurial, newcomers.”

Certainly an exciting time to be at an art fair.

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