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Special Report

Investing in Fine Art - September 2012

Published by FTAdviser | Sep 10, 2012

This summer, UK minister for culture, communications and creative industries Ed Vaizey placed a temporary export bar on Picasso’s Child with a Dove – one of his earliest paintings – which has resided at the National Gallery for the past 40 years and is currently valued at £50m.

In spite of the ongoing financial turmoil, this is just one of the stories in the media about works of art fetching large quantities of cash at auction. Last year, for example, Edvard Munch’s The Scream sold for $120m (£75.5m) at auction in New York, setting an all-time record high.

Furthermore, according to data from Artprice quoted in Barclays Wealth’s 2011 report ‘Profit or Pleasure? Exploring the Motivations Behind Treasure Trends’, last year was the best ever year for sales of art at auction, with auction house Christie’s recording a 9 per cent increase in sales on 2010 to £5.7bn. Sotheby’s recorded a 21 per cent increase in annual sales, reaching $5.8bn in 2011.

But while the majority of retail investors have been closely monitoring the ups and downs of equity and bond markets in the past year, it would be fair to say that fine art has simply not registered with them as a potential alternative.

Philip Hoffman, chief executive of the Fine Art Fund, says that he has seen a significant increase in the number of wealthy individuals seeking to own alternative assets as part of their portfolio.

“In the old days, clients just wanted equities, bonds and a bit of real estate, but now they want a very wide distribution of assets and are looking to put a proportion of their wealth into categories of alternative assets like art,” he says.

According to Fine Art Wealth Management, fine art investments have not only survived the recent global economic crisis, but have gained impetus from various disappointments in financial assets.

A report released by the advisory firm towards the end of 2011 examined more than 40 art and “passion investment” vehicles at various stages of their development operating in 13 different countries – Australia, Austria, Brazil, China, France, India, Israel, Luxembourg, Russia, Spain, Switzerland, the UK and the US – and covers fund managers investing in a range of fine art sectors as well as other so-called ‘passion’ investments.

Building investor confidence

Managing director of Fine Art Wealth Management Randall Willette claims that while the financial crisis put the spotlight on risk management and transparency in the field, this scrutiny will ultimately benefit fine art as an investment.

“Having navigated through the worst of times, the art and passion investment fund industry must now act to lay the groundwork for its future success by building investor confidence,” he says.

As at the end of 2011, Skate’s Art Investment Handbook – a comprehensive overview of the global art market – listed 300,000 art works with a combined total value of $400bn. This reflects the move away from art trading being reserved for the wealthy elite – typically found in Europe and North America – and now being increasingly targeted by the rising wealthy in emerging markets. In fact, according to Skate, China overtook the US as the world’s largest art market for the first time in 2010.

Selling on an inheritance

According to Barclays Wealth, fine art, along with antiques, is typically more popular among those aged 55 and over but when it comes to ‘decluttering’ and selling off any treasured assets they hold, fine art is usually last on the list of items they wish to get rid of. However, for owners to pass artworks down through the family when they die, the amount of tax payable on inheriting something of significant value can be very costly.

Elizabeth von Habsburg, managing director at the Winston Art Group, says that selling on inheritance is the rule rather than the exception. “In our experience, most of the inherited works of art and collectibles are sold,” she says. “The inheritors may hold on to one or two pieces that have a strong sentimental connection but, in most cases, they wish to sell, often quite quickly.”

The obvious pitfall here is that art, by nature, is an illiquid investment and a quick sale, or a sale at the valued amount, cannot be guaranteed.

Pitfalls aside, however, the increasing interest in fine art as an investment shows that diversification is at the forefront of investors minds.

Thierry Hoeltgen, leading partner of the advisory and consulting department at Deloitte Luxembourg, concludes: “There is a growing number of professionals worldwide who share our belief that further to its primary and core functions, art is an asset class in its own right, which contributes as much to the economic development as it does to the cultural wealth of a city or country.”

Jenny Lowe is features editor at Investment Adviser

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