Art FinanceArt Funds

Buying and selling art needs a strategic approach

When selling an item from your art collection, it is wise to adapt your approach depending on whether the piece is Contemporary or an Old Master. That is the view of a spokesperson for art investment and advisory house The Fine Art Fund Group.

“Contemporary works could be deemed more liquid when compared with Old Masters,” she said. “The former can often be sold very publically; in fact publicity of the work can increase its price. When selling an Old Master you might be better to have kept the work away from the market and then bring it on for sale into public view, afresh. If you try to navigate the market without professional assistance, the chances of losing your shirt are considerably higher as the art world remains unregulated and opaque.”

She said that art has become an increasingly popular investment option with millionaires and billionaires all over the world taking note of its potential for impressive returns.

“One way in which the market caught the media’s attention during the financial crisis was the night Lehman Brother’s fell,” she said. “At the same time, Damien Hirst had a record breaking sale of his works at Sotheby’s. I believe the contrast in performance of these disparate financial markets highlighted a real avenue for investment potential which had not been regarded by the public to this degree before.”

As evidence that the market is flourishing she points to last year’s records, including the sale of a Francis Bacon triptych which generated $142million at auction and Jeff Koons becoming the only living artist to have generated such astronomic sales.

“One must be careful, however, as these prices are extreme,” she said. “The Monets, Doigs and Magrittes, are continuing to increase in value, yet without attracting questions of over inflation or queries as to their market’s stability. These are the sectors of the market which we focus on.”

She said that possessing art in a financial portfolio has numerous positives, as it is a unique asset with a diminishing supply set against strongly increasing demand.

“Art is a real, tangible investment which can also operate as a hedge against inflation. Furthermore, it has demonstrated its low correlation with traditional financial markets.”

However, the art market is a dangerous place for the uninformed. Once you have bought a work you face the challenge of storing and maintaining it adequately – both of which can be costly.

“Working with professionals is essential to mitigate against overpayment,” she said.

There are a number of factors to consider when selling art, she added. “You may find a difference is attained when selling privately through a gallery or dealer or at public auction. Despite potential variances in fees owing to either institution, a quiet, private sale might suit an old master, where a specific buyer is in mind.

“One of the benefits for Damien Hirst in selling his works at a highly public 2008 Sotheby’s auction, was the publicity generated. You should also be wary of location. Certain genres of work sell particularly well in certain countries or international fairs. It is about putting your work, be it discretely or overtly, in front of the right crowd.”

There are, likewise, a variety of factors to consider when purchasing art, she added.

Fees again, be they negotiable, might influence your decision in some small part, as will the quality of the due diligence conducted.

“Buying a work where the provenance is incomplete or questionable is something we, The Fine Art Fund Group, would never do. You must have a complete set of records corroborating the attribution of the piece.”

Considering any legal restrictions is also essential, she said. You may feel that by purchasing a work of art, you have freedom to move it and even sell it as you wish, but this can sometimes not be the case as import licences or existing governmental regulations over the specific piece can apply, even to you as the new owner.

“When buying or selling an artwork, you simply have to receive expert advice,” she said.

When deciding what to buy it is worth being aware that certain genres of the market are more high risk than others, yet these may offer the possibility of higher returns.

“There is no set formula as to what constitutes a good art investment. Many investors have been stung by following trends which spring out of nowhere and then fail to fulfil. Spotting the real deals from these trends is essential and one of the reasons our business has seen such success.”

She adds that the recent sales of Modern and Contemporary Latin American and Middle Eastern by Christie’s and Sotheby’s suggest these markets are continuing to develop.

“The demand certainly seems to be there, with often multiple bidders chasing the same piece. The auction houses and most prestigious of the galleries have set up offices in these regions, with Sotheby’s opening in Doha and Christie’s having now six offices in Central and South America. Gagosian’s move to Hong Kong in 2011 accompanied the development of the Chinese Contemporary Market.

“However, it is impossible for me to state exactly what would constitute a secure investment in art,” she said. “I would never advise without understanding the position of the client, their tastes and financial aims. The market is complex and trends move. The only factor which we have focussed on in this respect is, buying top class works, complete with provenance and supporting expert and legal documentation, by blue-chip artists – a formula we would never stray from.”

 

 

 

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Alasdair Whyte

Alasdair Whyte

Alasdair is a financial journalist writing about art. He has focused on high value asset finance since 1998. As well as Private Art Investor, he also edits Corporate Jet Investor (despite knowing very little about aircraft) and Helicopter Investor (ditto).