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8 July 2012

Alternative investments: art

This is a bimonthly series of articles about the personal alternative investments markets available to the professional corporate venturer. This new section in Global Corporate Venturing magazine looks beyond our readers’ day jobs at how they manage their time and wealth using the same skills of insight, trend analysis and managing risk they bring to their professional careers.

Author: Marianne Abib-Pech, venture capitalist and writer

Pinta means paint in Spanish.

It is also the name of an exhibition at Earl’s Court, London, UK, dedicated to an up-and-coming Latin American artist that took place at the beginning of last month.

“This is the tree of life,” commented Sonia Falcone, a Bolivian artist showing a piece of wood and magnets representing the estimated 3,500 weekends the average human has in their one life.

Poetic or disturbing?

Art is about emotions, perspective and, at times, a uni-ersal type of beauty. So how can one bring something so personal and ethereal into the structured, facts-based world of investment?

“There are three key factors when investing in art,” advises Adriana Alvarez-Nichols, founder of Puerta Roja, a Hong Kong-based art gallery focusing on fostering the art trade between Latin America and Asia, and a former managing director of investment bank Barclays Capital.

First, decide in which part of market you want to play, second, be aware art can be an opaque, insiders’ market, and, third, note events that can trigger valuation changes.

There are two parts of the market – primary, that is buying from an art gallery or directly from a living artist, and secondary, that is buying dead or contemporary artists from other collectors.

The primary market can provide opportunities if you find an unknown artist with the potential to become recognised. But the chances of success can be limited and you have to invest in a large number of artists.

In Hong Kong, Sir David Tang successful bought early into Chinese artists who have since become prominent, such as Yue Minjun and Zhang Xiaogang, but he invested in hundreds of works, whose creators did not reach such prominence.

In evaluating a young artist on the primary market, you should look for the right ecosystem, such as art school, patrons and galleries, often country specific.

For more mature artists already known on the secondary market, there is a different game plan.

Make a point of assessing their artwork but also where they exhibit – a mix of private and museum exhibitions are necessary to establish reputation.

Make sure you read expert reports on their work, to assess how their style is evolving and how they are perceived.

As with any alternative investment, the experts make the market. Find out who their patrons are to help you assess the endorsement and marketing potential.

The secondary market, thererfore, might appear easier, as the artists will already be established, but there are other factors to watch out for.

The art world is opaque at every level. For example, public auction results address only what has been sold rather than how many remained unsold and the differences between valuation and actual sale price.

However, newer services, such as Art Price, are starting to extract the information necessary to investors.

In addition, as buyers’ identities are rarely revealed, it can happen that the artist himself, his dealer or his patron buys a piece at a higher price to increase valuation and reputation artificiall.

Who you know really helps.

Also, personal events can lead to changes in art valuation. Where is the artist on his personal journey? Is he entering a new phase of his life or marking a milestone, such as reaching the end of his life?

Externally, art is an extension of society, with conceptual art flourishingin boom economies and collectors going back to a stronger sense of technique and craftsmanship during downturns.

And remember big historical trends can bring arbitrage opportunities, such as the French revolution triggering aristocrats to sell art to the English, or, after World War II, Europe selling art to the US. In this light, Spanish or Greek art might be an interesting bet today.

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