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Collecting + Investing, Market Reports
4.23.2018 by Ray Waterhouse

There have never been more opportunities to buy fine art and be well informed, given the extraordinary range of art fairs, auctions, dealers and galleries - all accessible in person and online, as well as the increasingly informative online art platforms. What to choose is the problem. I always remember one of my best friends, Ian, an extremely clever and successful private equity lawyer and negotiator, telling me years ago that he didn’t know what he should like, let alone what he actually did like. Ian has gone on to form an exceptional collection.

Whatever one’s motives for collecting art, nobody wants to lose money and so studying art data and educating one’s eye are important factors. Assessing investment potential in art is very different to analyzing traditional asset classes. Some very general pointers to art collectors in the 2018 art market are:

• Good purchases with investment potential can still be made at all price levels.
• Inside information is legal and can be very valuable, and need not be expensive to acquire.
• Overpaying is all too easy for medium quality paintings which might seem inexpensive, yet paying a premium for certain top works can be a very good investment.
• Sales planning is crucial - despite globalization most artists/styles still sell better in certain places.

My colleagues and I enjoy getting to know our clients’ tastes and reasons for collecting, and we tailor our advice accordingly. One of our main functions is to say ‘no’, in other words to prevent eager clients buying art which in our opinion won’t stand the test of time - both in terms of their own appreciation and also the market. We also help our clients acquire art from a myriad of global sources, and as many are too busy to travel, we go on their behalf to view art at fairs and auctions around the world, and to view in person art sourced online.

It is easy to be blinded by all the available data on the art market, but I was particularly struck by one statement in Art Basel’s report on 2017: last year 52,105 living and deceased artists appeared at auction (and many more who didn’t), but only 1% accounted for 64% of sales value. So when competing for these top artists, collectors should be especially careful about what works to choose. The market was dominated by high-end sales in 2017, with 71% in turnover coming from sales in excess of $1 million (versus 51% in 2016). Sales at this level more than doubled in value year-on-year.

This concentration on 500 or so artists means that there are many buying opportunities elsewhere at all price levels. There are a number of artists from the late 19th and early 20th centuries who are currently out of favor, and some of their work can be bought for less than it would have cost 15 years ago. Such purchases could prove great investments, but short-term liquidity will be an issue.

We expect that the market will become increasingly selective and driven by brand names. One aspect of the current market I find depressing is that a few mega galleries are increasing their market share exponentially. Artists’ estates and living artists are attracted to galleries with multiple locations, and as with retail in general, the powerful few are dominating taste and pushing out innovators and individual dealers with flair.

One good trend is the large increase in the number of private buyers who have entered the market. Many of these have been tempted by the marketing machines of the large auction houses. What new buyers do not realize is that auctions increasingly achieve higher prices than those asked by dealers. Clearly this is not across the board as dealers still sometimes buy at auction and reoffer in their galleries. But all buyers should be very aware of the whole market and art advisors can help enormously in this regard by informing their clients of suitable works with private collectors, private dealers, galleries and fairs. Without a good advisor, collecting well is very time consuming.

We argue that the real return on art is visual and cultural, while its financial return is only achieved when it is sold. But we keep our clients informed about trends and market movements and while we encourage them to be aware of data we also warn them to be skeptical about how they read any graphs and data relating to art sales and art funds. Most available data is incomplete, because it is derived almost entirely from auctions which is only about 60% of the market. But even if one accepts that issue, one must also factor in the impact of unsold paintings and commissions for buyers and sellers, both of which are usually ignored. Data from auctions quote the sales price plus premium, while the vendor will typically only receive 65% of that figure.

The global art market reached $63.7 billion in 2017, up 12% from 2016. The US had an increase in sales of 16% from 2016, and was the largest market worldwide, accounting for 42% of sales by value with China in second place (21%) and the UK the third largest market with 20%. Post-War and Contemporary art was the largest sector by value in 2017, accounting for 46%, followed by Modern art (27%). Somewhat against expectations, between 1996 and 2018 Impressionist and Post-Impressionist art grew in value by 50% but this figure is dominated by high end works as low and middle range works were more static.

The online art market, somewhat surprisingly, is in danger of stagnating, with lack of trust and transparency becoming increasing deterrents to buyers. I always advise my clients that all art has to be viewed before purchase, at least by proxy, and if we are not able to view on a client’s behalf and a vendor is not willing to ship on approval, then we should pass.

I recommend that one should be aware of trends, but one should concentrate on what one likes and on individual artworks. At the time of writing, I am assessing the extraordinary offerings at the May auctions and art fairs in New York, and I will then move onto the equivalent in London and Paris in June and July.

Ray Waterhouse
New York, April 2018

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