Monday, August 15, 2011

Adding art to your portfolio

I have three topics on my mind:

(1) investing in art,

(2) putting money in lower income by rising minimum wage(the new PM of Thailand is pursuing that, China vows to double the minimum wage in 2 years time). Will the multiplier effects work or more of a popularist policy?

(3) classic car collection.

Among the three topics I finally decided to post on item 1. I think it's make sense because hard asset will do better over soft asset in current environment. But it has also its own caveat, guys, gals, never forget caveat emptor.

(Business Times) Art market professionals tell MINDY TAN collecting art is different from investing in art, and that caveat emptor applies in a big way

WHILE art has traditionally been linked to the romantic notions of art-for-art's sake, it has also long been seen as an investment vehicle.

In England, for instance, art auctions date back to the latter part of the 17th century. As testament to the burgeoning art market, Pablo Picasso's Nu au plateau de sculpteur was auctioned for US$106.4 million in May last year; this 1932 painting currently holds the world art auction record.

If you appreciate the finer aesthetics of this asset, this alternative investment might provide that splash of colour to your investment portfolio.

Art pieces

According to Ng Cai Lin, co-founder of Artyii, Asia's leading community for emerging paint artists, investors should familiarise themselves with an artist's provenance (his/her education, exhibition history), the artist's collector community (whether or not they comprise established institutions, museums, or individual art collectors) and the seller to assess their credibility.

'The ability to appraise the fundamental value of an artwork is integral in art investing. This is not a gift, but a skill acquired through experience. Consider if you really need to invest in art to hedge or diversify your portfolio.'

Equally important is to ensure that one has sufficient capital. 'From the moment you start trading in art, there will be hidden costs (in the form of) insurance, specialised transportation and storage. Having capital just for the art will not be enough,' she warns.

Apart from clear-cut risks such as liquidity, other risks unique to this asset include forgery, theft and physical damage, says Ms Lin. She adds that hedging against these risks involves costs such as insurance, restoration and maintenance expenses.

Ser-Keng Ang, senior lecturer of finance at SMU's Lee Kong Chian School of Business adds: 'If you invest in physical art, you need to take into consideration the storage, insuring of, and care of the commodity. Taking care of artwork is very delicate and unless you have the space and environment for it, you might want to consider alternative asset classes.'

Art exchange

In what may be an effort to raise art investments' transparency and enhance investibility, the world's first art exchange was launched in Paris, the city of romance.

Launched by A&F Markets in January, the exchange provides the opportunity to buy and sell shares of famous artworks.

Investors are also able to look at the list of available artworks on the art exchange website, all of which have been authenticated and certified. Each artwork is accompanied by a detailed dossier of presentation, their financial progression, as well as factual information on the artists and the art market in general.

Howard Rutkowski, partner of Fortune Cookie Projects, says: 'The top end of the art market is driven by a variety of factors: rarity and importance of major works, supply and demand and, of course, the capital required to play at the upper echelons.'

While he acknowledges that art can be a valuable investment, he also warns that the factors affecting art are varied, and may be confusing especially for investors used to the objective evaluation.

He says: 'Art can be a valuable investment opportunity for those who know what they are doing, but art is subject to many more variables. It is a subjectively acquired asset that is not weighed against standards that one might find in stock exchanges or other forms of investment.

'There are many examples of a 'hot' artist being acquired by all sorts of collectors. Like the bull in the pasture, the art world moves on and another new thing takes its place. The former darling is no longer so interesting and perhaps not as valuable.'

Adds Wen-Li Tang, representative for Christie's, Singapore: 'Studying auction prices alone gives some insight into the art market., the Mei-Moses Art index and (Chinese art) are all useful references. In addition, auction house catalogues, many of which can be found online, are also a great resource for information that goes beyond figures, to help collectors understand more about particular works and their background.'

Art funds

Art funds are generally privately offered investment vehicles that acquire and dispose of art works. They are managed by professional art investment managers, or an advisory firm that receives a management fee, and a portion of any returns delivered by the fund.

Mr Ang of SMU says: 'If you invest in these funds, the quality of the manager is very important; credentials are very important because you are basically buying into their expertise.'

Mr Rutkowski of Fortune Cookie Projects adds: 'Art is not as liquid as people like to think. The market is subject to emotion . . . perceptions and a fixed calendar. To unload at auctions, which most art schemes recommend to guarantee 'transparency', is to be at the mercy of an unknown future. Things can change within six months leading up to a sale. Selling privately takes time as well. One just can't hang a 'For Sale' sign on a work of art and expect it to be snapped up for a profit. Furthermore, the bazaar nature of the art market means considerable negotiation: 'You want $6 million? I'll offer you $4 million.' Nobody negotiates other instruments in that manner.'

Ms Tang of Christie's adds that given that pricing indices and performance data analyses are still in the early stages, they may not be widely available across all art categories - a factor that may hamper investors' research.

Is investing in art a good idea for young investors?

Ms Lin of Artyii emphasises that there is a clear line between collecting art and investing in art. She says: 'I do not recommend art investing for young investors, especially those new to art. The ability to appraise the fundamental value of an artwork is integral in art investing. This is not a gift, but a skill acquired through experience.

'Consider if you really need to invest in art to hedge or diversify your portfolio. There are many other hedging vehicles that are less complicated than art.'


james said...

Thank you for another essential article. Where else could anyone get that kind of information in such a complete way of writing.
Art Lovers

artmarket analyses said...

Nice post.
here valuable information.
Thanks for sharing with us.

art investing