Savour International

2006 was one of the most vibrant years ever in the international art market. High-profile restitutions, the marketing of art per se, the considerable turnover of entire art collections, as well as new buyer segments all played a major role in market developments. And ultimately, there was an increase in the number of players who are interested solely in financial benefit. For investors and custodians of artworks alike, the question arises as to the very nature of art acquisition.

 

In 1965, collector Leon Kraushar noted in an interview with Life Magazine that paintings by Andy Warhol were similar to IBM shares, and that it was the right time to buy both.  This was not the first time that art was viewed from the standpoint of investment. Nonetheless, the ensuing years witnessed a growing interest among financial investors for paintings and sculptures. In the '70s, the sale of the Scull collection and the decision by the British Coal Pension Fund to invest systematically in art represented the catalyst for the emergence of a new breed of buyers. Then at the outset of the new millennium, investment funds applying the methods of modern portfolio management to the art market got involved for the first time.

 

 

For many longstanding collectors and dealers, the very thought of buying a work of art out of purely financial considerations is a sacrilege. They view the acquisition of art, as well as dealing in it, as an act associated with profound connoisseurship, personal taste and a holistic sense of value; the monetary aspects are of subordinate relevance.

 

At the other end of the spectrum are buyers who focus primarily on supply and demand for art and the potential for specific objects or entire collections to appreciate in value. Certain investors even view art as an asset class of its own, one that can be used for the systematic enhancement of returns and diversification of risks in their overall portfolio. The fact that this group of players has gained considerable significance in recent years is evidenced by the rapidly increasing prices fetched at auctions and exhibitions.

 

Equal for all interest groups are the ideal criteria that represent the key to acquiring artworks. The most important issues to be addressed when evaluating a buying opportunity are the artistic mastery of the work, the intellectual content, the era in which it was created, the historical import, the condition and physical dimensions of the work, as well as its provenance. Also to be considered is the question of whether the object is part of a series, as well as the nature of transaction. Moreover, completely different preparations have to be made if a painting is being acquired directly from the artist or instead within the framework of an auction. Depending on the artist and the work itself, pricing can be established by various methods. At the time of price negotiations between experienced buyers and sellers, most often the relevant factors are the current demand situation, the length of time since the artwork was created, and the reputation of the artist.

 

Many art transactions lack transparency for uninvolved parties, and therein lies a significant difference between the art market and the equity market. The practical functioning of the art market presents newcomers as well as seasoned collectors with similar challenges. Required in this regard are independent and sustained advice, a profound sense of value, and professional support during transactions.

 

Private banks and specialized consulting firms today offer their clients essentially three services in this field: advice on transactions, support in the management of collections - including arrangements for insurance and custodianship - and art-collateralized lending. Regardless of whether art is viewed as an aesthetic commitment or merely an investment, the collector is well advised to develop a clear understanding of the personal approach one must take in dealing with artists, works of art and business partners.