International investors will often see extraordinary amounts of money being paid for different works of art at the major auction houses of Christie’s and Sotheby’s. Making an investment in art is not something that can be done without some thought. This past month the a Barnett Newman painting “Black Fire I” sold for an incredible $84.2 million USD (United States Dollar). The recent sale set a record for this American contemporary artist. Christie’s alone sold over $4.5 billion USD worth of art in the first hald of 2014. There is no doubt that the art world is booming. Keeping this in mind there is no doubt that collecting and investing in art have begun to merge.
Investors last year were witness to six bidders fighting over another painting by Barnett Newman. The painting known as“Onement VI” would finally sell at Sotheby’s for $43.8 million USD. This was far greater than the amount paid in 2012 for another canvas in the series ($22.4 million USD).
Although record prices were being set for the rarest works of art, second tier paintings were seeing far less action. At the high end of the market there is more then sufficient interest in a variety of different artists, styles and paintings.
At the major auction held at Sotheby’s where “Onement VI” would be sold, of the 64 art works for sale that day, a total of 11 paintings would not find buyers. However, the total value of the sales made was $293.6 million USD.
An important piece that was for sale at the auction was “Domplatz, Mailand [Cathedral Square, Milan]” painted by German artist Gerhard Richter in 1968. The Pritzker family who are majority shareholders in the hotel chain, had bought the painting in 1998. The price paid at the time, (3.6 million USD) was a record for the artist. It now would sell for $37.1 million USD.
Another famous work “Blue Unconscious,” painted by Jackson Pollock in 1946 went for 8.5 million. It was from the series titled “Sounds in the Grass.” It was put on the market by an unidentified collector from Texas who had bought the painting in 1965. The amount paid then, was $45,000.00 USD. In 2013 it would sell for $20.8 million USD with fees.
Abstract expressionist artist Clyfford Still, also had one of his paintings sell for $20.8 million USD with fees. The 1962 work “PH-21,” beat the estimates of $16 to $20 million USD in 2013 as well.
The “Ocean Park”series by Diebenkorn saw the painting“Ocean Park #46,” created in 1971 expecting to bring in from $6 to $8 million USD. An anonymous bidder would pay $11 million USD with fees. This would be far above expectations.
Some items for auction would bring more varied results. Although the painting “The New Jeff Koons,” by the artist of the same name, was only expected to reap between $2.5 to $3.5 million USD the result was different. The 1980 painting would actually sell for $9.4 million USD with fees. Another work of art by the same artist, which was four vacuum cleaners encased in acrylic was expected to go from $10 to $15 million USD. They were no takers at all for the piece.
Some additional works did not find any buyers. A painting estimated to bring $30 to $40 million USD did not get any interest. The picture “Study for Portrait of P.L.,” a 1962 creation of Francis Bacon utterly failed at the auction.
The prices paid for some of the most popular works seems somewhat high, excessively in other cases. It seems today, that there are far more savvy investors with well-informed and sophisticated tastes. There also is far more money being invested in art.
When making an investment in art, it is important to remember that final prices will include the buyer’s premium. This would represent 25% on the first $100,000 USD, 20% from $100,000 to $2 million USD and 12% for anything higher than those amounts. Transaction costs are much higher in fine art than in real estate or stocks, but the opportunity to make gains are also much higher in the short term. One can easily make 100 % returns on deals.
When estimates are made what paintings and other works of art will sell for, commissions are not included.
Collecting works of art has moved beyond a simple hobby for many already, wealthy individuals. As ever larger parts of portfolios are tied up in art, it was only natural that investors would begin to consider future profits as part of the equation.
In addition to traditional individual and institutional buyers, there are now new types of hedge-fund like investment groups, that buy and sell more expensive pieces of art. Any profits generated are divided up by the shareholders. This commercial enterprise has only been around for about a decade.
What kind of returns can an investor expect to achieve in art? The average for successful business people in the industry is from 7% to 12%. Although, often it can actually bring in much lower rates of return. That is below 5% on an annual basis.
One can easily expect to hold onto artwork for 5 years at least.
However, all investors must understand that investing in artwork is somewhat risky. One successful or a series of good decisions, can easily be followed by a series of mistakes. Long term investors often make less money in art, then what they could achieve in the stock market or other types of investment.
In determining what art to invest in there are several routes to follow. The old masters category has been relatively stable and is likely to remain so. However, there is less room for growth because prices are already high. There are very few new discoveries to be made here.
Prices for contemporary and postwar art are now reaching record highs.
With the number of investors increasing in art and the supply of first class museum quality paintings dwindling, one can expect prices to continue to rise.
Prices are now slowing their upward trajectory for artists of the 20th century. This is particularly true for the impressionist and the modern sector which would include artists as varied as Pablo Picasso to Andy Warhol.
The contemporary sector is where most of the true growth can be seen today. It is important to note for potential investors, this is a volatile market. This particular period is seeing the most growth at the moment but in the market crash of 2008 for example, this period of art saw declines in prices upwards to 50%.
The growth side for example, saw a Francis Bacon painting sell for $142 million USD in November 2013. It was the highest ever paid for a painting at an auction.
If one is interested in investing in art, you need to know what you are buying. You will either have to hire this expertise or learn the trade yourself.
An investor must determine whether they are going to stick to more established artists or wish to discover new creators of art. This is somewhat more difficult, but can also be most rewarding and lucrative.
One can remain anonymous in the art world of buying and selling. Many paintings are bought secretly by investors in art. It is not really necessary to travel to auction houses to make purchases or sales.
The most important thing to remember is that it is possible to totally prepare for new trends and movements in the art world. Good instinct and sometimes pure luck will enable one to register good and occasionally fabulous returns.
Today upcoming artists are being discovered all over the world. There are a wide variety of culture and styles that will be the finds and gems of the future. Latin American, Asian, Polynesian and African art have all especially gained new followers and interest in the art world.
A portion of any investment portfolio can be devoted to purchases in art. The trick is to understand that the art world can be somewhat fickle and one has to understand the risks along with the potential gain.