The colour of money.
| Author | Prickett, Ruth |
| Position | Business Alternative Investments - Investment in art market |
When money is tight, shareholders frown on directors 'squandering' money on art, antiques and fine wines. But, as Ruth Prickett finds out, if you have an eye for quality and an instinct for good publicity, there are many ways to invest in the arts which will warm the pocket, impress your staff, charm your customers and feed your soul. Above all, it's such fun.
Some investors like to play it safe; others prefer to gamble on high-risk equities offering high returns--and then there are those who fall in love with the art, antiques or" wine markets. Such investments have always been seen as a category apart. And for good reason.
The art world in particular is perceived as glamorous and dangerous. Record prices for a famous artist always hit national headlines and the fact that skilful investment requires arcane knowledge as well as what is ambiguously termed "a good eye" make it all the more intimidating (therefore attractive). In the polite frenzy of the auction rooms and glittering hush of Mayfair galleries, buyers and dealers in Jermyn Street suits bandy names in a muted received-pronunciation murmur. It's a world away from the tipsters at your local dog track.
Yet, as with so much in art, image is a key element of value. Investing in art is a gamble--not only on the quality of the artist and their work, but on fashions, taste and marketing. Two determined bidders at one auction can ensure a record-breaking sale. A new book or exhibition on an undervalued artist can send prices soaring. Similarly, the sale of a vast collection could flood a glutted market, and popular taste can swing violently against the darlings of the previous generation.
"The art market is the last great unregulated financial market. This makes it enormous fun and highly dangerous," says Robert Hiscox, chairman of Hiscox insurance. "Sooner or later some minister will buy a Rembrandt that turns out not to be a Rembrandt and will insist on lots of new rules and regulations."
This, in his opinion, would be a tragedy. His firm collected and then sold a fabulous collection of 20th-century art when it went public. Hiscox, a passionate collector, amassed works by artists including Ben Nicholson, Henry Moore, David Bomberg and Mark Gertler. The catalogue, published in 1996, reads like a Who's Who of modern masters.
"The first purchase was a Thomas Rowlandson cartoon showing the meeting of an insurance company after a heavy loss. I felt I could justify that," he explains.
The other directors agreed, although his accountant pointed out that it was not an efficient investment since it had to be insured and kept safely. The collection was sold when the firm went public because of a combination of pressure from external analysts and "common sense".
The collection, however, produced significant returns, and not only in terms of profit. "It was a good investment. If the eye is good and you get good advice, you do make money," Hiscox says. "But, if you are getting constant pleasure from the art and, in our case, great publicity, even a low return is a good bonus."
Hiscox has not given up collecting, but he now concentrates on contemporary artists. The firm also runs an art cafe at its London and Munich offices and exhibits works by new artists who don't yet have agreements with galleries. "It's constant marketing: people come in for coffee and see the pictures," Hiscox says. "There are at least 10,000 modern artists in Britain and you have to find the 40 or so who will last. It's very exciting."
The Bank of England and several investment institutions, including Barclays, own large numbers of old masters, silver, furniture and sculptures. Many have been built up gradually over hundreds of years. "Banks can justify this, because it shows their success and indicates reliable performance and status. It says 'we have arrived and we have traditions'," says Harry Smith, managing director of art advisory company Gurr Johns.
Other firms, such as merchant bank Flemings, build up a collection that reinforces their corporate identity. Flemings, a Scottish bank, decided to invest in Scottish art. David Donald, one of its directors, started the collection in 1968 and bought when artists from the now collectable Glasgow school and Scottish colourists were undervalued.
"The collection was never regarded as an investment, but rather as a means of promoting a pleasant, stimulating and sometimes challenging environment for both staff and visitors," a spokesman says. When the bank was sold in 2000, the collection went to a charitable foundation which opened a gallery in Berkeley Street, London.
But corporate art collections have recently fallen from favour, according to Mark Poltimore, senior director of business development at Sotheby's.
"Companies have had such a tough time over the past few years that they have moved away from art because it can look irresponsible to invest lots of money in an object when you are making people redundant," he argues. "Art is not politically correct in today's market."
Poltimore says that his firm is often called in to value a collection before a merger or acquisition. "As soon as the deal goes through, the collection is put up for auction," he says.
But, as public companies shy away from art investment, partnerships are buying more of it, according to Philip Hoffman, chief executive of the Fine Art Fund. This decision is usually driven by one or two partners who are interested in art and keen to diversify their investment portfolios.
The fund has taken two and a half years to put together and has invited investments of more than $250,000. The final trading stage is now being completed and the organisation plans to start buying shortly. It will invest in five key areas: impressionists: old masters; modern; contemporary; and very contemporary (post-1985). It...
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