more crap on the artmarket: a lecture on art as asset for a bank.

Alfred Barr, the first curator at one of the very first museums of modern art (that would be the Museum of Modern Art in New York, which opened in 1929), stated that art is more important than war. I think that is a profound and telling statement especially in light of the worldwide political upheaval today at the same time as the attention for art and the higher and higher prices it seems to garner.


I consider art and the voracious collecting so much in the press today, a healthy disease, and a profitable one at that. I left my family in the Bahamas yesterday which was a 22-hour trip to be here today. That shows how desperate I am for a forum to think and speak more about art, or the fact I wanted to get away from my kids. There’s also an art fair in Cologne tomorrow, another in Brussels at the same time and a few client’s to see in Switzerland. So please excuse my jet-lag!


But art has long been about money from a fund set up in Paris in 1904 to speculate on paintings – they quadrupled their money in 10 years, to the $54m that was paid for Van Gogh’s Irises in 1987 and $82.5m in 1990 for the portrait of his doctor, Dr Gachet.


High prices for art is nothing new. It’s just the breadth of the market that has exploded and the price levels. I should say markets, as there are many distinct offshoots. And the explosion has been to the tune of billions. The contribution from developing markets like China, India, Russia, the Middle East, and South American play a big role in this phenomenon.


It’s been some time since we have been inching closer and closer to what I predict will be the onset of the billion dollar single work of art, something I have been thinking about for a few years now. I only just got a call this morning from the Sun Herald in Sydney about this notion.


Here is a bit of inside information: A Cezanne painting, The Card Players, recently sold privately for the largest sum ever recorded for a painting: $250m. Try today and raise $50m for a private equity deal or property transaction vs. selling a 1960s Warhol. For the Warhol, I could raise twice the amount in half the time. I know as I recently offered the sum of an office building for one and was summarily turned down. In fact, its more a problem today that great art is so valued that no one wants to sell (the good stuff, anyway) which partly accounts for why prices have been going up so swiftly.


I also recently tried to pry away the entire contents of a very high profile private collection for an unimaginable sum in the stratosphere, but the reply to my unsolicited offer was “not even tempted”.


This sentiment, bordering on shocking, hits the nail on the head: Where else can you put your money today and look for steady and healthy returns? What are the alternatives? Stocks, banks (with near 0% interest), gold, oil, property, cash? So much for the old adage that cash is king, today cash is like a hot potato: nobody wants to hang onto it for too long.


Amazingly, not even billions could tempt owners of vast private collections today: art is seen as a safe harbor in times of continued economic uncertainty. Namely, the returns they have achieved in the past and, as importantly, continue to expect to achieve in the future. The most distinguishing part of some of today's mega collections are that they reside in freeports, outside the jurisdiction of taxing authorities, and are viewed (not with eyes but) strictly as a fully fledged asset class.


There has been a mad dash with money flowing into tangible assets such as collectibles of all stripes ahead of expected inflation. But there is something a bit sad about the situation when people buy cars they don’t drive, wine they don’t drink, houses they don’t live in and art they don’t see. In my case, you trip over it in every corner of my house, thankfully my kids not only respect it they appreciate it and I have proven more likely to damage it (through carelessness) then they or their friends.


I have lectured on the subject of pricing art at both Sotheby’s and Christies which have accredited institutes of art in both New York and London. I am probably the only person participating in the market that will admit that most artworks have different prices depending on the knowledge of the prospective buyers in front of it. That’s one of the characteristics that differentiates art for the uninformed and uninitiated and why pricing knowledge is so important. Services like Artnet.com and Artprice.com provide the capacity to research past pricing history at auction so that is one clear way to avoid being caught out.


There are speculators trading virtually around the clock in Warhol’s with their noses against the screen like on a trading floor. A 40-inch square painting is like a 60s Ferrari - a market I still don't understand though I collect cars too, one similarly scaled painting can sell for $60k or $60m, and same with the cars. But that is also why there is something to be said for an artist like Hirst-with so much production floating around there’s plenty of goods to feed an ever-growing market. Not to be cynical of course.


I tried to internet research the numbers for the British Rail Pension Trust which put together an art fund across many different collecting categories in the 70s to hedge against inflation. With returns achieved in excess of 11%, they handily accomplished their goal. The funny thing was that the info was contained in a prospectus from an art hedge fund fully illustrated by a series of technical analysis graphs depicting how art has historically outperformed everything from stocks to gold! The times have changed.


I had dinner recently with some friends in finance and they expressed popular misconceptions about art and the market. The first was that art is illiquid and the market miniscule. Maybe in the recent past (i.e. just about 10 years ago where markets didn’t constrict, they evaporated during downturns), but that has demonstrably been proven not to be the case this time around in the latest down cycle. Art has outperformed the expectations of most everyone involved.


Another misconception is that if a person buys art in depth, it’s enough to move a market. I am afraid art is a mature enough market today with more than enough breadth to far outweigh the intent of any one person or small group to manipulate things on a grand scale. People only wish they could impact markets like the Hunts did with the silver market in the 70s, and perhaps people like Saatchi did in the 1990s.


But this is clearly no longer the case. Sure there is some market manipulation where dealers or big collectors try and drive up prices at auctions to protect and bolster their inventory, but that could end up being a very expensive proposition. And I doubt someone pays $40m for a Warhol with such an end in mind. Though I admit, art remains the least transparent, and just about totally non-regulated multi-dollar business.


Another fallacy in art market perceptions is that art has no inherent value. This again I believe to be blatantly false. My point is that quality is not an elusive concept, that art, good art, has a provable and sustainable value. Since it came off the walls of caves it’s been coveted. And will continue to be so, well past many current and future wars. Which is a good thing. I sound like a preacher or worse, politician.


Appreciating, collecting and investing in art is pretty much like anything: you have to develop a feeling for it, a sense gained by taking the time to look and read; and, if you do so, it’s a never ending road of continuing education but one of the most enjoyable. Going to galleries is the only free lunch left in town. For me, the beauty of art is that it is all so largely undefined as a practice, career and even the market itself; and, that it morphs quicker than the latest ipad model.


If you like art and have a feeling for it, or a trusted advisor, it is also a pleasant way to make good money. And the dividends-which in case of art are visible- are there in good times and bad. Art could be a very lucrative holding, but you must be in the know to prosper, as it’s a competitive world and not for unwary


I was asked to address a few bullet points:

• Why do collectors collect? Because they can. And its an enjoyable, possibly lucrative way to make great returns, both in the short and long term.

• Is art a real asset class to invest in? Yep, and more.

• What are the main categories? There are too many to recount; from first edition early Superman comics to old masters, Scandinavian Ceramics, Chinese, Indian, African, Middle Eastern classic and contemporary art, as wide a net as the imagination can cast.

• How do you buy and sell? Know your markets cold before you venture to buy and or sell in galleries and auctions.

• Examples of returns (vs inflation if possible). You can safely beat inflation and possibly the stock market indexes buying quality art at present market values.

• How do you value art? Highly. I just follow the market: past, present and my idea of future value.