There”s debate on whether art – a term covering a wide range of objects and concepts – counts as an investment. If it does, how should it fit within the portfolios of HNW clients? Art is full of unusual elements and artworks are not, like gold, strictly fungible. Our US correspondent reports back from a recent major NYC conference.
Art as an asset class is in the spotlight this month, as works by
Picasso, Monet and Rothko are expected to reach headline grabbing
prices during Sotheby’s and Christie’s annual fall auctions in
New York City.
Despite all the attention, prestige and eyebrow-raising prices
associated with the art market, experts at the Deloitte bi-annual Art &
Finance Conference in New York last week argued that art
shouldn’t be considered as an investment at all.
“If you go into [buying art] with an investment mindset, you’re
probably going to get burned,” Betsy Bickar, director of art
advisory wealth for Citi Private
Bank, said. “It’s not a great idea to think of art as an
investment,” agreed Jeffrey Horvitz, CEO of
Moreland Wealth Services Corporation.
While works by famous artists may attract attention by selling
for hundreds of millions of dollars, art market sales don’t
follow a “gaussian,” or normal, distribution pattern,
Horvitz told Family Wealth Report. “The high end is not
indicative of what 99 per cent of the rest of the art market
does,” he said.
Throughout the conference speakers cited a litany of caveats
about the art market: it’s opaque, illiquid, highly subjective,
largely unregulated, inefficient, relies on questionable data and
is very costly. “If the stock market had to operate the way the
art market does, there wouldn’t be a stock market,” Horvitz
maintained.
(This news service regularly examines the wealth management
aspect of fine art. See examples here and
here.)
Navigating a precarious market
Nonetheless, global art market sales exceeded $57 billion last
year on over 40 million transactions, according to Art Basel and
UBS. And wealthy
individuals continue to buy – and families continue to
inherit – art, collectibles and art works, accounting
for around $2.5 trillion of wealth in the US, according to
Deloitte’s just released Art & Finance Report.
So how exactly should buyers and sellers navigate such a
precarious market?
Experts on the conference’s “Is art a viable investment vehicle?”
panel largely agreed that buyers should put passion ahead of
profits.
Art has underperformed the S&P 500 over the last two decades,
and returns are steadily declining, according to the Deloitte
report, sliding over 12 per cent downward last year, according to
Art Basel/UBS.
“We tell clients art is where you spend your money, not where you
make your money,” Bickar told conference attendees. “Get involved
with the art community. Become a connoisseur. That’s how you grow
value in a collection.”
Buyers should consider art as a “passion asset” and pay close
attention to an artwork’s title, authenticity and the secondary
market before purchasing, said Lars Nittve, a former museum
director and chair of Arte Collectum’s investment committee.
Glenn Fuhrman, co-managing partner of TruArrow
Investment Partners, defended art as an investment. “It makes
a lot of sense to me,” he said, noting that art is a
“differentiated” asset class that has a very favorable
supply/demand imbalance of high quality works.
Buyers should fill a Venn diagram with three intersecting vectors
before making a purchase, Horvitz said: Do they really like the
artwork; do experts believe it has high quality; and is the price
reasonable? “Don’t think about what someone else will pay,”
he advised. “Bid only what your budget allows.”
Role of wealth managers and family offices
Wealth managers and family offices also have a critical role to
play.
UHNW clients allocate an average of around 10 per cent of their
wealth to art and collectibles, and over half of family offices
surveyed by Deloitte reported that clients are asking for
art-related services. In addition, art is playing an increasingly
important role in estate planning, next-gen considerations,
philanthropy and as collateral for lending.
Next-gen clients are increasingly seeking expert advice on how to
use family art collections to support artists, fund institutions
and drive social impact, according to the Deloitte report.
Citi Private Bank is advising family offices on how to educate
next-gen family members on the “why, what and how” behind the
family’s collection, said Alexandre Monnier, global head of the
bank’s family office group, and the former president of Family Office
Exchange. “Is the collection part of the family’s identity
and legacy, or is it transactional?”
Art, which too often falls out of the family office’s purview,
according to Monnier, should instead be part of the family’s
investment policy statement. Art is also an ideal opportunity to
give agency to next-gen family members, particularly those who
aren’t attracted to the business or finance side.
“Next-gen family members shouldn’t just be a link in the chain,”
Monnier said. “Family offices should designate a next-gen member
with an interest in art to become an expert, inform others about
the collection and be a good steward. It’s an opportunity for
them to do something relevant for their generation, similar to
philanthropy.”