THE ART of investing in art.
Art has proven to be a viable asset class as over the years we have witnessed a demonstrable diminishing supply set against an increasing demand for art. In addition, art is a store of value and wealth preservation and as a result offers long-term protection against inflation.
There are several key elements that make art a unique instrument for portfolio diversification. It is a real asset that enjoys a negative correlation with traditional assets, and simultaneously it can be a hedge against inflation. And some of the potential drawbacks don't accurately reflect the truth. Art is often seen as illiquid, yet unlike most asset classes it is both tangible and moveable.
The major risks related to the art market involve acquiring the wrong artwork, i.e: fraudulent, damaged, stolen or looted works, but if you acquire what you intended, there is relative safety in that investment. During the economic downturn in 2009 museum quality art did not take a significant hit, though the market for very young emerging artists did suffer greatly. What we refer to as 'blue chip' or 'museum quality' art can indeed withstand time, economic turmoil and other trends in the market (i.e. equities, properties, etc.). And whereas the stock market is intangible by nature, art is not. As my business partner likes to say, "a Canaletto will never down zero".
Research is everything when it comes to acquiring art. There is a very fruitful, educational process involved in building a collection. For example, what year was the piece painted/made? This is very important for any genre especially when we look at historical references for genres of the past (i.e. impressionist and modern art and post war). Next, provenance, or the CV of the artwork, is very important. The next question to ask yourself is, is the work in good condition?
This is especially relevant in secondary market acquisitions; the photo may not always be a true representation. Lastly, if you're acquiring an artwork from the primary market and it's by an emerging artist, it's important to know what major collections they exist in, have they been or will there be any future acquisitions by museums or institutions?
THE ART ECONOMY
A stable art economy is attributable to the various players in the market: galleries, art dealers, museums and foundations, auction houses, advisors and collectors. I like the term 'movement' to describe a healthy art economy, especially when we are discussing this region (which is an emerging market), and this entails more than just sales. The best example I can give you is the increase in regional artists, represented in the galleries in Dubai, with international presence or featured in renowned collections. This is largely due to the hard work of the gallerists. Another indicator is when the majority of the lots have successfully been sold at auction, and we witness a surge of new collectors alongside seasoned collectors who contribute through building and maintaining their collection.
CONSULT THE EXPERTS
In an opaque and inefficient market, an expert or advisor can present the opportunity for arbitrage.
The overall objective of having an advisor is that they pursue a proactive and proprietary approach to investing/ collecting by leveraging their network and knowledge. Art advisory is objective, and it offers a complete and comprehensive perspective on the market, presenting the best possible options for your collection/ portfolio. Art advisors have no inventory and therefore all the due diligence/ research they are responsible for should be non-bias.
The Middle East art market is an incredibly interesting space, and the UAE has been absolutely pivotal in the growth and international recognition of the region's artworks and artists. With that said, every emerging market experiences growing pains, and its perseverance comes from a strong infrastructure and a healthy economy. As an industry, we strive to maintain a steady incremental growth. Success is measured both in cultural economic development as well as monetary value.
Luckily, the UAE has also led the way in this field--in recent years, the country has become a representative hub for the region's art; initiatives such the Sharjah Biennale, Art Dubai and the ongoing museums project in Abu Dhabi are a testament to this. The UAE is already an art investment hub for the region, and investors in the country looking to diversify should absolutely take notice.
FIVE ESSENTIAL KEYS TO POSSESS WHEN ENTERING THE ART MARKET
- Work with experts
- Sell at the right time and place
- Publicise the work correctly ('Old Masters' tend to sell better when they have been out of the public gaze for some time, whereas contemporary works benefit from mass publicity)
- Invest only five to seven per cent of your investable wealth into alternative investments
- Acknowledge that there are many different sectors of the art market that all behave differently
The Middle East art market is an incredibly interesting space, and the UAE has been absolutely pivotal in the growth and international recognition of the region's artworks and artists."
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