How to trade the new golden age of art

November 18, 2015 06:02
Chinese artist Yu Chen created Red Babies Series No. 5 in 2011 (left). T'ang Haywen's 1985 water-ink painting is shown at right. Photos: Artcurial

The 2008 financial crisis prompted investors to include alternative investment in their portfolio to diversify risk.

As a platform for alternative investment, the art market is experiencing a new golden age previously thought impossible.

According to the European Fine Art Foundation Art Market Report 2015, sales in the global art market hit a record €51 billion (HK$427 billion) last year. 

Investing is sometimes referred to as an irrational behavior and art itself often appears subjective.

But not many realize that art investment can be a rational game.

What should investors consider before they bet on art?

Compared with other forms of alternative investment, art investment stands out in terms of its potential return on investment (ROI).

Les Femmes d’Alger (Version O) by Picasso, for example, was sold for US$179 million (HK$1.4 billion) at an auction in May, five times more than it fetched (US$31.9 million) in 1997.

Based on the experience of collector and art critic Paul Serfaty, his ROI ranges from one to 300 times and the average over 20 years is eight times his investment.

Serfaty sells from his collection but he says he collects art not for the sake of investment but for his genuine interest in art. 

“Everyone in the art world would advise you not to see art as an investment because it is a highly subjective new asset class which is subject to fashion," he says.

"It can't be recommended as a pure financial investment.” 

Art market vs wealth distribution

There is a close link between market performance and global wealth distribution, Serfaty says.

He cites the art market in the United Kingdom between 1860 and 1914 as an example.

A new generation of collectors who made their fortune from manufacturing and trading emerged and started collecting art.

Art historian Gerald Reitlinger refers this period as "golden age of the living painter”.

Serfaty says his ROI benefited from the rise of Chinese contemporary art. 

Moving to Hong Kong in 1988, he described China's art market in those days as mainly dominated by foreign buyers until it had a dramatic turn at the millennium.

“The Chinese contemporary art market is unique. A considerable amount of cultural heritage was destroyed and almost all art forms had been turned into tools for propaganda during the Cultural Revolution," he says.

"There was no capital and limited scholarship before the rise of the Chinese economy. It was only when a new generation of Chinese collectors emerged that their strong appetite for Chinese contemporary art heated up the market.”

Quality is king

The de Sarthe Gallery exhibits artworks by Chinese art master Zao Wouki and emerging artist Wang Guofeng, among many others.

Founder Pascal de Sarthe believes that the golden rule of collecting art is “quality first” because talented artists can lead the trend.

“If the secret recipe to real estate investment is location, location and location, art investment is all about quality," he says.

"You should always buy the best quality that you can afford and identify talented artists before they gain fame.”

Art collecting requires patience.

Take the Japanese Gutai Group: their artworks had been widely criticized when they first exhibited in the United States half a century ago.

Dore Ashton, commentator of The New York Times even wrote that in some ways, the paintings "so imitative of the formless movements of living that they might be called rather dull representational works”.

But now Gutai Group is widely popular. Their works were shown at the Guggenheim Museum in 2013. Keishizoku by Kazuo Shiraga sold for US$4 million at a New York auction.

Diversifying for auctions

Magnus Renfrew, deputy chairman and director of fine arts for Asia of international auction house Bonhams and former director of Art Basel, Asia stressed the importance of engaging with a new generation of collectors.

To specifically target this area of the market, Bonhams hosted its inaugural auction dedicated to prints, photographs and works on Nov. 14.

“There have been sales dedicated to these media in London and New York for many years yet in Asia they have not, up until now, been given the attention they deserve," he said.

"We want to apply international standards of practice to the promotion of these media. They can often provide a very accessible entry point into collecting and a good way to engage with new collectors. We have decided to make this sale truly global in content as collectors are now buying beyond their own national or regional boundaries.”

Last month, French auction house Artcurial hosted its inaugural auction in Hong Kong.

Sales included a range of categories such as comics, furniture and decorative art, modern and contemporary art and collectors’ cars.

Revenue from comics was the highest among the four categories. An Asian collector bought the Tintin story The Blue Lotus by Belgian cartoonist Hergé for US$1.24 million.

This is the first in a two-part series on art investment. The article appeared in the Hong Kong Private Banking Journal on Nov. 18. 

Next: What's hot and what's not in art  

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