It seems that this is truly the time to build an art investment portfolio. In fact, within a decade, art held by ultra high-net-worth individuals is expected to increase by $1 trillion.
This particular demographic are thought to have held art to a total value of $1.6 trillion in 2016, but that figure is expected to reach $2.6 trillion by 2026, according to a recent report by consultants Deloitte Luxembourg & ArtTactic. So why is it so popular to hold an art investment portfolio today, and what can the rest of us learn from those ultra high-net-worth trendsetters?
For the super wealthy, it makes good sense to start an art investment portfolio simply in order to diversify and avoid over-reliance on any one particular asset. For this reason, many individuals may choose to invest in art simply as a way to dip their toe into a new market.
“People who are very wealthy diversify their assets, but not in the sense of, “Oh, I’m in stocks in China, India, Japan and Europe,” Paul Harris, partner and portfolio manager at Avenue Investment Management, explained recently to The Globe and Mail. “The general public diversifies in the stock market by buying other areas, whereas wealthy people diversify by being in a different asset class.”
As a result, the wealthy have greater exposure to alternative investments in their portfolios. Nancy Grouni, certified financial planner for Objective Financial Partners Inc., explains: “I find that people with a higher net worth tend to be more comfortable with those non- traditional, alternative ways of investing.”
Fine art has little to no correlation to the stock market. This means that pieces can increase in value even when the stock market crashes, while many other typical investment assets will suffer from this economic turbulence.
For this reason, art investment represents a method of circumnavigating the risks posed by broader financial trends.
Unlike various other investments, art can be enjoyed as an asset in its own right. Arguably, stocks and shares don’t offer any aesthetic value to investors.
What’s more, art can be actively enjoyed without it affecting the value of the asset, unlike wine for example. While wine is also a fixed asset, it has to be hidden away in a cellar if you hope to hold its value, and you certainly can’t taste it. In contrast, art investments can actually complement real estate investments, with sellers using art to capture buyers’ attentions and drive interest in properties.
“There’s undoubtedly a close relationship between luxury homes and art,” says Knight Frank’s Rupert des Forges. “Buyers at the top end of the new homes market tend to be relatively young and focus on contemporary art in their collections. The careful placement of artwork by the likes of Hirst or Warhol can be the finishing touch that prompts a prospective buyer to make an offer.”
Last but not least, an art investment portfolio can offer strong financial returns. According to Artprice’s Contemporary Art Market Annual Report, the last 17 years have shown a well- diversified portfolio of contemporary art generating an average annual yield of 7.6%, representing a relatively strong return on investment.
What’s more, several well-publicised sales of works by Warhol, Basquiat, de Vinci and others have seen sellers enjoy truly incredible returns on investment. In our own experience, an average profit of 29.8% was realised by our clients in 2017 alone.
According to Deloitte’s 2017 Art & Finance Report, 55% percent of wealth managers stated their clients have asked for help with investments in art and collectibles.
If you’re considering investing in art to expand your portfolio’s horizons, it’s wise to seek out some expert advice. This is where we can come in. Get in touch with the team at Maddox Gallery, or visit us at one of our central London galleries. We’d be delighted to give you an introduction to art investment.
If you want to learn more about investing in contemporary art, take a look at ‘The Six Key Factors to Consider When Making an Art Investment.’ To find out more about any of our represented artists, please contact Maddox Gallery. Our Sotheby’s-trained art consultants will be happy to provide expert advice.
Written by James Nicholls, Chairman, Maddox Gallery.