The Gentle Art of Finance

I am generally office bound at work, but occasionally I am let out for a day or two! In February, I represented the Sovereign Art Foundation at ARCOmadrid, which is one of Europe’s most important art fairs. The event was well attended by buyers and collectors from around the world, and it was a hugely rewarding experience for an amateur art enthusiast like me.

The fair took place just after Picasso’s “Femme assise près d’une fenêtre” sold for £28.6m at Sotheby’s in London, where a further 18 sale lots raised more than £1m. The pieces at ARCOmadrid may not have been in quite the same league as those executed by Málaga’s favourite son, but I was struck by the “full” prices being demanded. It set me thinking as to why the art market should be thriving even at a time of financial stress.

In Gibraltar we enjoy a very well-established art scene and can boast an impressive number of first class artists. Several art groups – including Gibraltar DFAS with which I am associated – cater to the ever-growing public interest. Despite the downturn, I know several local collectors who continue to acquire art, much of it locally produced. Whilst it’s true that many artists around the world live from hand to mouth, it’s also clear that, here in Gibraltar at least, there is a living to be had from art.

Whilst the economic crisis has affected millions of people globally, there remains a great deal of cash available – if you know where to look for it. Much of this is corporate money, stashed on balance sheets around the world, but rich people – many of whom buy art – are still rich. Some have seen their wealth seriously eroded in recent years but others continue to do very well. Art offers a potentially attractive investment for a proportion of that wealth.

Interest earned on traditional bank deposits remains pitifully low – and some say this is likely to be the case for years to come. Equities are volatile – although several world “bourses” or stock markets have notched up impressive gains in recent months. When you ponder the possible choices available to a wealthy investor, it becomes rather easier to see why art might make an attractive alternative investment.

In a Gibraltar Magazine column a couple of years ago, I set out a few reasons why one might consider entering the art market as an investment. For the wealthy, successful entrepreneur, a lot of what I said then till holds true today – maybe it always has done so. But what about ordinary people like me who are interested in art but don’t have millions at their disposal. Is there scope for us too to combine that interest with investing?

There are some obvious areas to consider at the outset: the artist; the subject; the medium; the cost (not be confused with value); and the extent to which you have market knowledge and a discerning eye. All this may lead you to seek the advice of an art professional. Collecting should be fun but if you are also intending it as an investment, caution should be exercised.

So how do I go about it myself? My budget is limited so the question I ask before adding to my modest collection is always the same. Can I imagine having the piece hanging on my wall for many years to come? A year ago, I was passing the rather excellent Gibraltar Art Gallery and there was a piece in the window that simply had my name on it (not literally of course) or, to be more accurate, my partner’s name. Sure enough, after a couple of days’ deliberation we decided we just had to have it and soon another picture was hanging on our walls. So why did we do it? Was it because it might be worth considerably more in years to come? No. We bought it because we liked the piece and, as the Gibraltarian artist who painted it knows very welI, we have since come to love it.

That’s not to say that amateurs cannot be lucky. Two decades ago at a Fuengirola rastro (or street market), I bought a piece from a struggling artist who has since gone on to find critical acclaim and commercial success. The piece that I purchased for hardly any money – my weekly grocery bill cost more – is today worth the price of a small car. But am I likely to sell it? No fear. It’s part of the family now. Although it could be described as a “marmite” work – you either love it or hate it – everyone who visits us comments on it and we can’t imagine being without it.

So when acquiring art perhaps the first consideration should be “why”? If it’s to enjoy and hang on the wall, then forget the idea of selling it for a quick profit. If on the other hand, one imagines that a particular artist is going to sell very well in the future then acquiring one or more pieces early on in their career is likely to be a good move.

The second consideration should be where to put it. Storage might be the only option but I would always say “on display” for people to enjoy. And if not just for you and any visitors to your house, then you could consider reaching a wider audience in a gallery or on loan to a private or public collection. The latter may of course also help to enhance the provenance and value of the work as well as the reputation of the artist, however you should be careful to ensure that your ownership is watertight before undertaking such a move. Insurance is equally important. Protection from fire or any other catastrophic event is of course necessary, but so is the security risk.

There are also ways to get involved in the art market without necessarily buying the pieces themselves. In the same way that one can get invest in the gold market without purchasing “physical” metal, there are several specialist funds that invest in art. An individual investor is in fact buying into the fund which is itself undertaking the art purchase. I have even come across funds that allow investors to temporarily “borrow” pieces from the fund. It’s obviously not the same as owning the piece outright but, like car clubs, it may give you an opportunity to enjoy something that would usually be beyond your budget and which you can change when the mood takes you.

So is art a sensible investment to consider in uncertain times? As regular readers will know I can only express my personal opinion. Under the right circumstances, art is well worth considering as an alternative asset class, particularly for large investment portfolios. Exposure to the art market may also provide useful diversification.

As an art enthusiast, I’ve always felt that art can teach you so much about the world – a bit like the stamp collecting of my childhood. Owning a piece – any piece – can be a joy in itself. Acquire something you like; if the value increases over time, so much the better. If you are like me you will simply grow to love the pieces and never want to part with them, so the investment side becomes less critical.

A wealthy Hong Kong-based friend is a passionate collector. Even with more than one home, he has run out of space to house his collection. Once I asked, “why not dispose of some pieces?” His withering look by way of reply taught me that even sophisticated connoisseurs get to love their art. There is something out there for everyone on the art scene; I encourage you to take a closer look.