Once an esoteric playground for the cultural elite, art is enjoying a turn in the spotlight as an increasingly alluring form of investment for financiers and collectors alike. For those who have mastered it, there is indeed an art to investing in art.
In early October last year, German visual artist Gerhard Richter’s Abstraktes Bild (649-2) smashed the record for the most expensive piece of Western art sold at auction in Asia by fetching a formidable US$27.7 million via Sotheby’s. That same month, street artist Banksy’s Girl with Balloon & Morons Sepia was among the trove of works selling for a total of US$34.1 million at a Phillips evening sale, topping the previous year’s result. Just weeks later, G. Harvey’s large-scale Boomtown Drifters went under the hammer at Christie’s for US$1.23 million, setting a new auction record for the artist.
From the picture painted by these figures, one would be forgiven for presuming that the world is in the midst of economic glory. Quite the opposite is true; over the past year, the pandemic has served a plethora of industries with unforeseen hits and experts are still gauging its financial impact, which is estimated to reach US$12 trillion. Yet the one sector that is performing pretty well amid the storm is art.
“The art market has weathered all manner of periods of uncertainty and hardship over the centuries, yet works of the highest quality and rarity remain coveted and highly sought after,” says Jonathan Crockett, the chairman of Asia for Phillips, who has led the British auction house’s art and design initiatives across the region since 2016 to continuous record sales. “For some investors, they have proven to be safer than the stock exchange.”
Art, an estimated US$64 billion-a-year market that has been surging steadily in recent years, occupies an asset class that’s unique in the way that it’s highly isolated from (and, in turn, exempt from) the fickle turbulence of the stock markets. Whether it’s a centuries-old Leonardo da Vinci masterpiece, a contemporary Jeff Koons sculpture, or a gem from an emerging artist, a collection of art can generate an average annual return of 7.6 percent or more, outperforming stocks and bonds during periods of economic uncertainty. Some have even dubbed it “the new bitcoin”.
For an increasing number of people seeking to diversify their portfolio and place portions of their money into alternative assets, the idea of finally starting (or growing) their art collection seems as attractive as ever. This begs two questions: Is now a prime opportunity to dive into art investment, and how exactly can you do it right?
THE TIME IS NOW
To many, investing in art seems daunting – and with good reason. The world’s first auction house opened in 1674 and the first contemporary art investment fund was formed in Paris in 1904. For at least as long as that, the art world has operated much like a member’s club for the well-heeled elite, defined by high risks and even higher costs. “Art, pre-pandemic, was not necessarily the best investment because it’s illiquid, and it’s hard to target the right artists and artworks to buy,” explains Jazz Li, the founder of brand development company Enviseam and one of Asia’s most prolific art pundits, who advises and collaborates closely with the world’s top art collectors – among them, long-time friend and famed Taiwanese musician Jay Chou, whose collection he manages. “Transaction, storage, and insurance fees can be very high.”
Yet the past year has served up a rare scenario to help offset such costs. “The pandemic has given some collectors more time to ponder and restructure their collections,” observes Crockett. Art advisers have noted that many collectors, needing to generate liquidity quickly, are selling works at reduced prices, while potential buyers are taking advantage of lower interest rates. “It has also resulted in the availability of pieces that rarely hit the market; hence, it could be a good time to acquire the best-quality pieces,” he adds.
Adding to that is the fact that the once rarefied, hard-to-penetrate world of art investment has recently made entry far easier by lowering the barriers for novice collectors and cautious buyers alike. Art tokenisation, a new concept that gained traction over the past two years, allows shares of artworks to be sold and even traded. Small investors are thus able to buy a small stake of a work for a fraction of the price – such as owning a piece by US graffiti artist KAWS for as little as US$20, as was the case for many in August 2020 when the work’s public offering by New York start-up Masterworks sold out in a few hours. According to its owner, the trend of fractional ownership of such luxury assets has seen an uptick in interest over the past several months.
AN ARTFUL ENDEAVOUR
The question for art lovers isn’t to buy or not to buy, but what to buy – a question that doesn’t have an easy answer. “Buying a work of art is a personal affair,” says Crockett. “The most important criteria when I buy a work of art is to ensure that I personally like the work, and would enjoy living with it and seeing on my wall every day.” Beyond that, for beginner collectors, Crockett suggests doing research to ensure that the price of the artwork is reasonable or justifiable, and verifying that it’s likely to hold its value in the short to long term.
That individualistic approach to art collecting is echoed by Li, who spent his first several years in the art world fluttering between the biggest international art fairs in New York, Los Angeles, and across Europe and China, and visiting prominent galleries such as Gagosian and Pace, mingling with curators, dealers, collectors, and other people “on the cutting edge of art and culture”.
“I’m very, very selective of what I collect myself,” says Li, whose own collection includes names such as Singaporean artist Jahan Loh and Brooklyn-based José Parlá. “Looking back, I thought I understood art and aesthetics, but art is way beyond that. It’s a really deep subject. If a work’s aesthetic captures my attention, I then try to understand different elements such as the artist’s practice, artistry, and messages, whether their style is unique, and how it relates to different art history movements.”
That emotionality – particularly among the most ambitious and established collectors in the game who regularly splash out millions of dollars on a piece – is balanced with highly pragmatic considerations and analyses that are as technical as they are multifaceted. Aside from “thought-provoking uniqueness”, Li, who consults affluent collectors with US$15 million or more in alternative assets, encourages buyers to look at qualities such as distinct geographic appeal (“for example, the market of pop artist KAWS only skyrocketed because of Asian collectors”), favourable reception by the media, and whether an artist is projected to organically flourish.
“This is something that’s interesting about contemporary art,” explains Li. “You have to take into account an artist’s productivity, and even their age.” He cites the market of 88-year-old Gerhard Richter as having risen 50 percent since he stopped painting and who, as a blue-chip artist, is likely to more than triple in the future. “It’s one of those where we’re pretty sure it’s going to eventually be a Picasso.”
“From an investment point of view, I would also look for big names within the one- to three-million-dollar range,” says Li. “Anything less than a million dollars is very hard for a new collector to discern whether it has potential to grow to a few million dollars or not.” The fascinating interplay between collectors, artists, and the art market itself also plays a role. “If you’re in the 20 to 30 percent of the most serious art collectors in the world, you actually have a better influence on the market in such a way that you can make a bigger return,” he says. Big-name aficionados such as Bernard Arnault, the chief executive of LVMH (who recently opened a Frank Gehry-designed museum to house his private collection), as well as Asian collectors like Adrian Cheng and Kevin Poon, are among those who can tilt the market and spike the value of an artist for the long run just by purchasing a work.
THE FUTURE OF ART
Certainly, attractive economic returns that are practically guaranteed to rise year-on-year are a huge reason why established blue-chip artists (the Pablo Picassos, Andy Warhols, Frida Kahlos, and Jackson Pollocks of the world) remain the go-to favourites among many deep-pocketed investors. However, for more intrepid connoisseurs and auctioneers looking to discover the next Damien Hirst, the pursuit of a diamond among stones – spotting potential in a young artist and witnessing their star rise – is half the thrill.
That’s what happened last July at a Hong Kong sale hosted by Phillips, where a new world record was set for French artist Claire Tabouret, whose Hong Kong auction debut saw its price soar to five times its estimate. Pieces by other European and American artists such as Nicolas Party, Genieve Figgis, Daniel Arsham, and Eddie Martinez also sold far above their estimates, while emerging names such as Emily Mae Smith, Salman Toor, Titus Kaphar, and Derek Fordjour also recently celebrated their Asia debuts with great success.
“The tastes in the region have definitely become more international in recent years,” says Crockett. “Asian clients are not only becoming more international with their observation of the market, but also in their physical attendance and virtual participation in fairs and shows. Appetite among Asian collectors for emerging Western artworks will continue to rise.”
Another market that’s rapidly growing is limited-edition collectibles. “There’s this new segment where we see the mass interest in art going to sculptures, figurines, watches, and sneakers that appreciate in value,” says Li of these pieces, often sold out in minutes, which cater predominantly to younger buyers. “This market is very accessible and I see it growing massively in the next decade.” Fans and budding collectors have clamoured to get their hands on Japanese artist Takashi Murakami’s kaleidoscopic Flower Balls, stationery by Keith Haring, and the aforementioned Arsham’s Grey Selenite Eroded Porsche sculpture, which sold at Phillips for over HK$1.6 million.
Propelling this segment forward is the increasing digitalisation of art. Traditionally tactile experiences such as gallery viewings, museum visits, and auctions moved online over the past year – take Phillips’ newly launched Gallery One platform, which offers works up for bid weekly via its official app and website. Meanwhile, digital has, from the start, been key to the appeal, exposure, and buyer’s experience for collectibles. “People who supply merchandise to that market are doing a lot of online activation, and they disseminate more animation and storytelling content about the art,” says Li. “I think active online marketing is really going to impact this market even more.”
As the dust settles on an unprecedented yet resilient period for the art world, collectors, dealers, gallery owners, and connoisseurs alike are looking to pick up speed in 2021. In normal times and especially now, navigating the ebbs and flows of the art market is an art in itself – and when the cards are played right, it could bring about substantial financial returns. Yet in between all the scrutinising and strategising, it must not be forgotten that art, at its core, carries an irrevocably emotional weight.
“The biggest danger is to get caught up in a collecting fad and buying into a hyped-up market that’s unlikely to have long-term substance,” concludes Crockett. “If you’re looking at art as just an investment, there are other asset classes that yield a more stable income than just purely investing in art. You have to put your heart into it – and any profit is always a bonus.”