If you're considering dipping your toe into alternative investments, you may well have considered the ever-lucrative world of art. James Nicholls, Managing Director and Curator at Mayfair's Maddox Gallery, outlines the six key factors to consider before making an art investment...
Art investment has long been associated with prestige and pleasure. The right artwork can represent a tangible, beautiful asset that carries an intrinsic value for its owner.
As with any investment however, you need to do your research and perhaps even go beyond your comfort zone. The art investment market can be difficult to navigate, but with thorough research and forethought you can purchase works which will appreciate in capital whilst also being visually stunning assets for you and your family to enjoy.
In order to help you better understand the art market and make well-informed investment decisions, we have outlined six factors you need to consider to find your ideal art investment.
1. The primary and secondary art investment market
If you are making an art investment for the first time, it is vitally important you understand the distinction between the two key art markets – primary and secondary.
The first sale of an artwork directly from an artist or dealer occurs on the primary market. This can include specially-commissioned works. Thereafter, all sales of the artwork are referred to as secondary. Sources can include galleries, private sales and art auction houses.
The primary market should set the benchmark in value, and this is where the skill of identifying a potential future art star really comes into play. The secondary market is where the value of a piece of art can increase dramatically, sometimes as much as tenfold.
In the last decade, this trend has applied increasingly to artworks in the contemporary sphere. At the height of the boom in 2007, total auction sales of post-war and contemporary art exceeded those of impressionist and modern art for the rest of time in history.
2. Three Types of Artists
It is vital for any investor to recognise the standing of an artist in the holy trinity of ‘emerging’, ‘established’ and ‘blue-chip.’ These three categories go a long way to determining the value of an artist or artwork in the public domain.
An emerging artist is one who is in the early stages of their professional career, and their work will usually be sold on the primary art market. They will have begun to become noticed, and may already have a minor auction record. Their work is now being collected and is likely to have won prizes and started to attract press coverage.
You may have to wait some time for their prices to appreciate and for their work to become more established on the secondary market. However, this sector is can be incredibly attractive to investors, as the opportunity to buy work at this level offers the potential for large returns on investment.
Established artists are more widely known within the art market, with their work regularly changing hands at auction. They will have a solid sales track record within art galleries, and their work will be found hanging in private and public collections.
These may well be names you recognise from various press articles that place them in the public sphere. The best examples of their work often represent outstanding art investment opportunities.
Blue chip artists are household names, widely known even outside of art circles. Their works can be found hanging in national galleries and international collections. However, many blue-chip artists are now in the twilight of their careers or are no longer with us.
The most desirable examples of their work will sell for six or seven figure sums. Although blue-chip works are very tradable, returns may not be as impressive in percentage terms as those from the emerging or established sectors.
Identifying Investable Artists
All established artists, and even blue-chip artists, were once emerging artists. We therefore recommend that investors purchase work by an emerging artist tipped for success, since this is likely to accrue in value as the artist becomes a more established name.
3. Originals and Prints
Prints are almost always cheaper than originals, and for good reason. An original is just that, a one-off unique piece of art. The original version of any artwork will therefore always be a lot more desirable, valuable and investable than a print version.
However, some prints can make a very good art investment too. For instance, small editions of prints numbering between 25-250 copies can sell out very quickly.
Take the artist Michael Moebius, whose small Audrey and Marilyn limited-edition giclee prints (seen in our featured image) were produced in an edition of 250, and sold out worldwide within 12 months. Originally for sale on the primary market in 2016 for between £3,000 and £4,000, they are now changing hands on the secondary market for in excess of £5,000. This drastic price increase in just a matter of months is simply down to the fact that all 250 from the primary market sold out – via the artist and Maddox Gallery.
4. Supply and Demand in Art Investment
The main challenge in the art investment market is not demand, but supply. Simply put, more people want to buy significant art than those wanting to sell it. Reduced supply increases scarcity, and scarcity increases appreciation.
If you attend a solo or group show where ‘red dots’ are in abundance beside the works on display, this means the artwork has already been sold. An artist that is in such high demand will usually have representation in several respected galleries, and a waiting list for commissions. Both of these factors are great signs for asset appreciation.
This level of demand is particularly worth taking into consideration when investing in emerging artists, such as Bradley Theodore. His solo show at Maddox Gallery in April 2017 sold out in a matter of days, and unsurprisingly this popularity led to a backlog of commissions.
5. Galleries and Dealers
When you are considering investing your hard-earned money in a piece of art, it is vitally important you can trust who you are dealing with.
Unscrupulous gallery owners will tell you that buying art is purely an emotional decision, but if you are considering art as an investment you need to establish all the facts. For this reason, it is important that investors only purchase art from established galleries or reputable dealers.
If you’re considering a piece by a renowned artist, look for quality. Do not buy anything in bad condition. Also be sure to research the gallery, their patrons and owners. Reputations and business practices speak volumes within the art community, so ensure you are only dealing with those who are worthy of your business.
6. Authenticity of Provenance
Authenticity of provenance means that the origin or authorship of a work of art has been correctly identified. This has not only financial but also profoundly moral consequences.
Regardless of the appearance of an artwork or the quality of workmanship, there is great importance in knowing whether it is genuine or just a clever forgery.
To ensure the integrity of the art investment market and the wider community, there is a need to guard against forgeries. To this end, a certificate of authenticity is essential to prove that a work of art is authentic. When it comes to contemporary art, individuals collecting recent works will find that provenance can more easily be proven, perhaps even by a direct statement from the artist.
When investing in a piece of art, it is of the utmost importance that you can establish its authenticity. A Certificate of Authenticity (COA) is therefore an essential document. Our advice is simple – never buy a piece of art without a COA.
Making the Right Art Investment Decision
Financial markets are in flux due to a volatile political climate, and investors are looking for opportunities that don’t rely on government subsidies or input. The growing trend in high net worth investing is to seek out asset classes with scarcity, and this includes art.
Modern portfolio strategy dictates that investors should have 5-7% of their portfolios sourced from the art market. The low correlation of art to equities and traditional asset classes provides valuable portfolio diversification, which in turn can lead to an increase in overall returns.
We believe you should buy art that resonates with you first and foremost. However, there should also be an awareness of how it can benefit you financially. With a burgeoning demand for the asset class, there has never been a better time to consider an art investment.
Written by James Nicholls, Managing Director and Curator, Maddox Gallery.
To find out more about investing in art, head to maddoxgallery.co.uk, where Sotheby’s-trained art consultants are on hand to provide expert advice.