Source: The Market Herald.
It seems that most of us can recall the last time we read an article revealing a jaw-dropping price that a piece of art fetched for at auction. Whether these illicit a knee-jerk response of a dreaded “I could have done that” or “You wouldn’t see me hanging that in my living room” – it seems there’s a lot more nuance and foresight to the decisions these investors are making.
It’s 2021 and the prospects of investing in the billion-dollar art market have long preoccupied your mind – you’re certainly not alone.
It seems that most of us can recall the last time we read an article revealing a jaw-dropping price that a piece of art fetched for at auction – whether it be a renaissance masterpiece, a controversy-clad banana and tape installation or more recently, artworks that exist only digitally.
Whether these illicit a knee-jerk response of a dreaded “I could have done that” or “You wouldn’t see me hanging that in my living room” – it seems there’s a lot more nuance and foresight to the decisions these investors are making.
Sotheby’s Auction. Source: Sotheby’s
Deloitte’s 2019 Art and Finance report estimates art and collectible wealth was worth US$1.7 trillion (about A$2.2 trillion) in 2019 and that figure is projected to balloon to US$2.1 trillion (about A$2.7 trillion) by 2023.
Of course, a certain global pandemic has cast an inevitable shadow on sales within this market since then, as social distancing and stunted international travel brought global art sales down 22 per cent to $50.1 billion on pre-pandemic numbers, according to Art Basel.
The Bank of America has drawn comparison between COVID-19’s impact on the art market and the global financial crisis of 2008 and 2009, which is considered one of three great “art pullbacks” alongside the tech bubble of 2001 and the global recession in 1990.
Noting that art and collectibles markets tend to lag behind the stock market and broader economy however, it estimated the COVID-19 induced drop off in the art market, would not be quite as steep in comparison to that of the global financial crisis.
Source: Art Basel and UBS Global Art Market Report 2019.
“Global sales of art and antiques fell from $62 billion in 2008 to $39.5 billion in 2009 but returned to its pre-crisis levels by 2010,” the report revealed.
“The bounce-back was fuelled by stimulative fiscal and monetary response similar to what we’ve seen this year. We expect the art market to take a similar path forward.”
The U.S. makes up one of the three major global art hubs alongside China and the U.K, which make up 81 per cent of art value sales.
Bank of America outlined its expected recovery of the art market last year. Source: Bank of America Art Services, June 2020.
Art as an asset class
Although the cultivation of art becoming an asset class is certainly not a new idea, it is yet to fully cement itself within the mainstream investment fore.
The Deloitte Art and Finance Report also looks to make a case for art as an asset class in itself, although momentum in the past few years on this forefront appears to have temporarily slowed.
According to said report, fewer investors and collectors feel they are aware of art becoming an asset class compared to previous years, which the report owes due to a lack of awareness and stakeholder education.
The report acknowledges also the difficulties in getting investors into the market.
Director and Global Art & Finance Coordinator at Deloitte Luxembourg, Adriano Picinati di Torcello said there are other factors at play.
“The lack of transparency and trust is the main challenge the art and finance sector faces today, due to the low level of regulation—both government and self-imposed,” he explained.
“For example, if there are no trusted means to efficiently perform due diligence of a piece of art, it is harder to make informed and assured investment decisions,” he added.
Director and Global Art & Finance Coordinator at Deloitte Luxembourg, Adriano Picinati di Torcello said there is growing recognition for art as a capital asset
More broadly, however, while movement on this forefront has taken a slight detour, Adriano affirms it’s moving in the right direction.
“The definition of an asset class can vary from one viewpoint to another. But we are seeing a growing recognition of art as a capital asset,” he explained.
“This is a very long process that involves cultural change. But with the sophistication of investors’ financial and estate planning building year on year, we are witnessing an increasing awareness and number of new initiatives supporting this development.”
In some respite and unlike other recessions, the pandemic brought an increased level of support for the arts from high-net worth and ultra-hight net worth investors in particular.
According to a survey of 2569 HNW collectors conducted by Arts Economics and UBS Investor Watch, 66 per cent of those surveyed “felt the pandemic had increased their interest in collecting” with close to one third of this group reporting it had followed up on this sentiment.
“For (U)HNWIs, art is not always an investment—but there are financial factors that should be taken into account, especially if a high price is attached,” Adriano said.
Art and collectible assets are said to make up five per cent of UNWIs’ wealth, according to a recent Knight Frank wealth report.
Metrics and risks
As is with many other commodities, the art market has its own benchmarks, with one of its most well-known being the Sotheby’s Mei Moses indices.
Acquired by the renowned auction house in 2016, it seeks to measure the change in the value of unique works of art based on data from 60,000 artworks since 1810 – a potentially useful resource for aspiring collectors.
The Sotheby’s Mei Moses All Art Index Source: Sotheby’s
For artists that tout multiple repeat sales, it’s far easier to track how their particular pieces have and might perform, but broadly, liquidity can prove to be a challenging factor in art investment.
Most recently, blue-chip equivalents and established artists, such as Warhol, Basquiat, Hockney and Picasso among other post-war and contemporary artists have dominated the market, according to Art Basel.
Post-war and contemporary exhibition. Source: Christie’s
“In 2020, the largest sector in the fine art auction market was Post-War and Contemporary art, which along with Modern art accounted for 81% of the value of sales at fine art auctions.”
Meanwhile, the same report revealed Impressionist and Post-Impressionist pieces experienced their most substantial decline in 15 years, with European Old Master works falling over 60 per cent in a decade due to a lean supply of high-quality works in circulation.
Broadly, Adriano affirms the art sector comes with risk, just the same as any other sector.
“Quality in its broadest definition normally drives the artist legitimation process and, consequently, the price. So yes, an “eye” is very important, as well as information,” Adriano explained.
“Like any investment, you must perform due diligence on the artwork and the seller. This should consider the risk of money laundering, fakes and liquidity, to name just a few of the associated risks.”
While a more accessible way to gain exposure, there’s more to art investing than acquiring a piece you think will hold value in 10 years and hang well in your dining room in the interim.
“Pure financial exposure to the art market can be achieved in several ways,” he added
“This can include financing an artist; investing in an art business that is listed or unlisted on a stock exchange; acquiring artworks alone or with friends by creating club deals; being supported by an advisor via a managed account or an art investment fund or by acquiring non-fungible tokens today and investing in security tokens perhaps tomorrow.”
Art moves online
Non-fungible tokens (NFTs) and the emergence of technology in the art world are moving with haste.
In essence, NFT’s operate as a unit of data stored on a digital ledger or, blockchain, which can then be bought or sold as a representation of that digital asset.
This might come in the form of a meme, a tweet, an image or music to name a few, but in the art market there is a flurry of speculation regarding its potential to cultivate into a lucrative method of collecting.
In early March this year, Christie’s held its first digital auction, which was simultaneously its first auction accepting cryptocurrency as payment.
Mike Winkelmann, under his digital moniker, Beeple sold a digital collage titled “Everydays: The First 5000 Days,” for US$69.3 million (roughly AU$89.5 million) at this auction. This is considered the most expensive digital artwork sold to date, and the third-highest ever achieved for a living artist after Jeff Koons and David Hockney.
A digital art collage by Beeple. Source: Christie’s Auction House/AFP/Getty Images
This particular example offers an indication as to how the global art market pivoted when COVID-19 hit, as art fairs and auctions were forced to rethink strategies and relocate online.
As one door closes however, another must open, and global art sales, although not compensating entirely for the contraction in sales overall, reached record highs of $12.4 billion, doubling in value since 2019.
Founder of Art Economics Clare McAndrew said the art market was uniquely placed to deal with the fallout from COVID-19.
“The fall in sales was inevitable,” she commented.
“But the crisis also provided the impetus for change and restructuring, the most fundamental shift being the rollout of digital strategies and online sales which had lagged behind other industries up to now.”
Much like the television accompanied radio, the days of live exhibitions and auctions are far from over, as international travel slowly becomes a light at the end of the tunnel and foot traffic statistics show early indications of an “eagerness to return to live exhibitions.”
Bank of America said it expects virtual salesrooms, online auctions and digital channels to boom “but ultimately the art market could return to its social, tactile roots.”
Having weathered unyielding recessions through to lofty booms, the global art market looks to be emerging from a global pandemic with a fresh coat of paint and a plethora of opportunities for those with an eye for it.