How to invest in the art market

For years the idea of purchasing art as an investment was frowned upon by purists in the art world – the two should be separate, like church and state.

Art as investment is certainly not for everyone: the market is quite illiquid, prices can be volatile, and storage costs can outweigh profits. But as investors continue to search for alternative assets to diversify their portfolios, buying art, like cars, wine or watches, has become more attractive, with the bonus of owning something exquisite and original.

Beyond buying works directly, one way of doing so is through an art investment fund, such as those offered by the Fine Art Group. Clients deposit funds into an account, which is trusted to a team of art and investment professionals, who invest on their behalf with the aim of generating a profit over time.

Chief executive Philip Hoffman emphasises that there are different levels of risk. “Higher risk tends to be fast growth, reasonably young, contemporary artists”, he says. “Take Albert Oehlen – one would pay £100,000 10 years ago, £300,000 five years ago – but now his works reach over £1m.”

Art will fluctuate in value based on present vogue – an antique chair worth £20,000 10 years ago might now be worth only £2,000, which is certainly not the sort of risk an average investor would want to take.

At the lower end of the risk level are (expensive) contemporary classics – Warhol and Picasso hold their value because they’ll never be unpopular. “Realistically”, says Hoffman, “if you invest in art there are opportunities to make somewhere between 4 per cent at the lower end of risk, and 15 to 20 per cent if you want to take more.”

But what to invest in? Even some of our wealthiest citizens don’t have a spare million to put into a niche investment vehicle, or to buy an art work themselves. The key is to look at what the big museums have on their walls, says Hoffman. “It’s a combination of popularity and museum interest, and whether major collectors are following that artist”, he says.

Coutts, where Mohammad Syed is head of financial advice and investment solutions, has put together a ‘’Passion Index’’. It includes fine art, and tracks performance (net of costs) over the last 10 years. “Classic cars, traditional Chinese works; impressionist and modern art; and post-war and contemporary art have all seen dramatic price growth during that period”, he says.

Hoffman agrees that contemporary and modern art are the wisest investment choices – “and it will always be the case – that is where the most liquidity is”. But realistically, art is not going to be a sensible investment for those without other substantial savings. And Hoffman insists that art should be about enjoyment first, and profit second. “Some of our clients buy purely for investment, but the great thing is that they can both enjoy and invest at the same time”, he says.

Syed agrees: “Investing in fine art is best reserved for those with a genuine passion and price-appreciation should not be the be all and end all”, he says. “For our ultra high net worth clients who buy these objects, the price going up is really of secondary consideration to the hobby of collecting, and the enjoyment and happiness these works bring.”