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O. Paul Andrew, Executive Chairman, AMET

It is a well known fact that the increasing demand for art collection and the investment that goes with it have soared in the past decade with sales hitting over $85Billion. The art market is currently dominated by the rich who have recently discovered the luxe-solace in investing their excess liquid cash in art and its related investments, art funds et all. While some HNWI/UHNWIs are quick to collect artifacts for personal amusement, others are employing the services of experienced wealth advisors with core knowledge in art as an investment to assist with their art collection. According to Delloite’s 2014 Art & Finance Report, “art buyers and collectors are increasingly acquiring art and collectibles from an investment viewpoint”. The report also claims that art as an asset class “will most likely increase the need and demand for professional and wealth management services relating to the management and planning, preservation, leverage and enhancement of art and collectible assets”.

Between reality and make-believe, the art-world is going through a phase of transition into the real-world of investments. Emerging as an asset-class is an art in itself! It takes creativity to design the investment framework and antecedents of the business of fine art. Perhaps It is now common knowledge why investors are craving for this raw-piece-of-talent with more passion-investors and collectors out there putting their money where their art is.

The Fine Art of Investment

I have spent more time listening to stylish and sophisticated wealth advisers and art portfolio managers than in any other investment related intelligence gathering efforts I made in recent time, specifically on how to table the case of art as an investment. It was a worth while adventure in my further quest for knowledge in the fine art of investment. What an art pace! There are negative and positive positions on art as an investment, but I would rather prefer to extinguish the extreme part of the subject matter due to the limited space in this column so as to balance the report.

Post analysis, it is apparent that there is a growing appetite for art collectors to invest in the art business which ever way you look at it, either from sentimental or emotional point of view. I cherish creativity. The point though is basically to share the minds of those in the business and more importantly, the artists who are behind these creative master-pieces. Compensating for a good piece of art in the form of cash in exchange for an art piece should be commended same way we invest in gold, wine, real estate, equities etc. Any process that could advance proper reward for a great piece of art, whether in an auction form, direct sale or through alternative investment vehicles such as a fund structure should be encouraged. And how it is valued should be properly regulated in a transparent and credible platform.

My experience as a small-time art collector is borne out of a genuine motivation to support any creative work of art! And that’s why I am so passionate about it. Not just because of the associated cash in exchange for it or made from it, but also because I paint and appreciate my paintings of which some are listed in this article. In the early eighties, precisely in 1986, I met with the Oshogbo School (a local Nigerian Art Cliques from Oshogbo) and collected few art pieces of prominent Oshogbo artists. This was my art investment grooming phase. It actually paid off at some time when an American acquirer bought those collections from me and made very good profit from it. I also sold some private collections of mine I commissioned a young artist from the same school to another collector in Africa and realised about 28% on my actual invested sum in 3 years. But that was at a local level.

What Art Investment?

The question is: At what point do you buy an asset you consider worth buying? On realising the value of the asset and its appreciation in the market, at what point do you think you should sell to maximise profit on the asset? And after realising the profit and happy that you have made a good investment, how would you plan to re-invest it? These are key questions we can easily find answers for. Whether equities, gold, wine, art etc, we all feel happy when an investment is made as in the case of marriage relationships. When you value a relationship, you tend to be content with it and there are some that are priceless and can be computed in dollar-sense. Art is in that space where conviction and happiness meet.

I started looking critically at the various answers I got from art investors, wealth managers, art collectors, gallery owners and my extensive research into the world of fine art of investment. This effort in no small way impacted me positively to see reasons in why people crave for art as an investment and art as a “passion”.

There is much analysis by some of the aforementioned professionals which does give a clue to why some people collect for investment and what drives such appetite when there is visibly an upheaval in the financial markets today. Some analysts believe the market of fine art is such a creative investment space for those who have the money and resources to be in that space. The rich who could afford it are the dominant players in this art business. The growth of the market is fuelled largely by the rich and they are driving the art investment world.

How would you invest in something that really does not have proper valuation methods and no data to subject the art to critical analysis outside the emotional part of creating a value that does not match the tone of science in investment analysis and valuation? This is the risk assessment part of investing in art. But some avid art collectors have been able to manage this part of the risk, which does bring us to the other issues of emotion playing a role in art investment. Why would I invest so much in something that does not give me joy and peace of mind, asked an analyst? We all at times invest money in some assets just for the love of it while seeking value appreciation on the side.

Reasons for Art Investment by the Rich

The rich have always had appetite for various forms of alternative investments. Art investment has triggered that appetite and it is growing by the day. So how do we define art as an investment in the true sense of it? What is a good investment and what is a bad investment? My experience in the investment world of art stems from my passion for creative works. Appreciation could be derived over time when one looks at other cases within the investment space. Why some would view art as an investment or asset class is how they have measured returns on their investments. Of course, it may not be as sophisticated in valuation as equities, gold, real estate, wine etc., but it does give you a feel of risk, reward accomplishment. Certainly there is investment value in return.

In Melanie Gerlis book titled “Art as an Investment? A Survey of Comparative Assets” I could see how her definition of art investment has been hugely contested and largely criticised. Some of these critical views are true, but does not generally represent the real posture of some collectors and investors who have invested heavily in art. The passion and emotional part of investment in any instrument (equities, gold, real estate, etc.) can still be flawed in real valuation. Placing a value on a piece of art is not different from how a property is valued. The extreme part of valuation in any commodity is when it is manipulated with an adverse plan.

There are certain elements of risk in any investment. Equity markets – private or listed – gold, wines, real estate all are exposed to flaws in valuation. Gerlis writes, “Art, for example, was seen as a great vehicle for capital appreciation, much like equities until the market crash of 2008”, when in-fact when the market tumbled in 2008, over $200 Billion worth of stocks also perished (and we still can’t bet on this as there are human and technological elements that could affect equities or stocks).

Coming again to the rich who are the prime investors in art, it is important to note that the way art is set as an investment is to encourage diversification. And again it is all about access to liquidity which the rich do have. An average art collector is someone who does so for the purpose I mentioned above – the emotional attachment to art. I have a strong passion and emotion for art as both a collector and investor. There are, of course, frustrations in the game of art investment, as Gerlis puts it: “a market that thrives on asymmetry of information”. This should not deter any sincere and honest investor or acquirer. Understood the dynamics of the industry which I believe would shape up soon. And we are canvassing for such transparency in arts dealing and investment. How we respond to this part of our behavioural investment pulse is what matters.