Art as an investment: proceed with caution and curiosity
While family offices are increasingly attracted to art investments, the number of wealth managers favouring inclusion of art collections in clients’ wealth portfolios has fallen due to the opacity of the art market and the anticipation that the market is due for a correction. That is the view of David Drake, an art collector and chairman of LDJ Capital.
“I think the art market is definitely in a bubble,” he says. He believes that this is being fuelled by the emergence of wealthy buyers globally, plus investments by museums and other institutions keen to build their collections.
“Prices have grown fast. Six years ago I never thought it would happen so quickly but currently there are a lot of wealthy people in the world and the art market is booming,” he says. “I believe there will be a correction in the art market soon after the next correction in the stock market – but until the stock markets correct, the art market will not correct.”
He adds that family offices may be able to progress more confidently than wealth managers in this uncertain environment because they can utilise a good level of knowledge of art and the art market.
“The typical wealth manager doesn’t understand the market and the art industry,” he says. “They haven’t been trained in it, haven’t taken classes in it, and are not familiar with art or buying art themselves.”
In contrast, he says family offices are often “patrons of knowledge” who are well equipped to make their own decisions with their own money. As such they can follow in the long tradition of art patronage that goes right back to the Medici family. By backing some of the most important artists of their day, families can enhance the value of their art and the longevity of those artists’ reputations.
“Art has consistently been a good investment over the last few decades,” he says. “I’m a strong proponent for patronage of the arts and I think there should be more of it. Nurture the artist, don’t just buy the painting but if you can, engage yourself as a patron of that artist for the long term because that allows the industry to flourish and allows that artist to have benefactors.”
He adds that such patronage need not be monetary; it might be as simple as showing some of the artist’s paintings at an event you have organised.
“That’s a good non-monetary way to be a benefactor by giving an artist some exposure,” he says.
Drake’s own initiation into the art world came some years ago when he volunteered at the Metropolitan Museum of Art. It sparked an interest that helped him grow into a well-informed art investor – a skill he puts to use for both work and pleasure.
“I would encourage people who buy art not to just stop at just buying the art: see if you can engage with and elevate the artist and experience something of their life and the production of the art. That way, the collector gets to live vicariously through the artist, feeling the emotions and stories he is expressing with the art. You also get to enhance the cultural heritage of the times.”
From a financial point of view, he acknowledges that art investment is risky: you need to be able to face losing the capital you have put into buying a piece of art, and you need to be willing to play the long game.
“If you go after a new artist then you have to plan on sitting on that art for five to ten years to see it appreciate. By becoming a patron of the artist you help yourself at the same time as helping them. I’d like to see a resurgence of commissioned pieces.”
As a rule of thumb when deciding where to invest your, he recommends an element of shopping around:
“Always try to get three opinions – go to three art shows, talk to three curators and so on – that will increase your chances of buying wisely.
“Also – be fearlessly curious: get involved, ask questions. Fearless curiosity allows us to innovate and find new possibilities without being hampered by societal expectations and limits as to what is possible.”