Other - JULY 27, 2016

An appreciation of art

by Benjamin Cole

The collectibles market is faddish, sometimes manipulated, illiquid when compared to securities or even real estate, difficult to measure, offers no yield, and poses middleman fees. Not only all that, even success in collectibles brings burdens, such as the need to insure and provide physical security for, say, portable works of valuable art, easily secreted stamps, or rolling automobiles.

Yet there is no denying segments of the collectibles market are booming, even as Wall Street takes an extended breather.

For example, hardly a week goes by that one new record or another is not breathlessly announced in the art world, as in late June when it was reported an all-time high had been set at a Sotheby’s auction for a cubist painting, daubed by Pablo Picasso in 1909. The tidy sum of $63.7 million was paid for a canvas entitled “Femme Assise” that last traded hands in 1973 for about $500,000, adjusted for inflation.

For the curious, the overall record for a Picasso was set in 2015 with the 1955 painting “Les Femmes d’Alger (Version ‘O’),” parted with for a mere $179.4 million at a Christie’s gavel-pounder. The all-time record for any canvas is about $300 million, the amount fetched for Paul Gauguin’s 1892 work “When Will You Marry,” and also for “Interchange” by Willem de Kooning, 1955; both sold in 2015.

For sellers, if not buyers of fine art, 2015 was a very good year.

But despite the boodles of lucre being tossed about for famous-name art, niche investing — or the buying and selling of collectibles such as automobiles, furniture, jewelry, coins and stamps — is not an asset class that gives most investment advisers much comfort.

The thought of making a mint while attending wine-and-brie art salons is tempting. But investors should be forewarned art acquisitions today do not fall into the “getting in early” category. While many buyers no doubt thrill for aesthetic reasons to own a well-known work of art, the financial world has fewer illusions. Deloitte Luxembourg reported in 2014, 76 percent of art buyers and collectors were primarily investors, up from 53 percent in 2012. Deloitte Luxembourg followed up that report in 2016 with a study that claims 78 percent of wealth managers think “art-related services should be included as part of their wealth management services.”

By Deloitte’s reckoning then, art nearly has both feet in the world of finance, or perhaps that is vice versa. Not only that, Wall Street has joined the art crowd, and retail investors can plunk down money in funds, such as those from London-based The Fine Arts Fund Group, led by CEO Philip Hoffman.

For now, there are signs the art market has crested, as witnessed by 2016 auctions that are generally falling below 2015’s record-busting levels. Typical of trade literature, BlouinArtInfo recently reported, “For the June [2016] auctions in London, specialists espouse a more cautious market outlook for postwar and contemporary art.”

As if that were not enough, forgery and fraud are hardly unknown in the art world.

In sum, collecting a Salvador Dali for profit may suit one’s taste, but returns could be surreal as well.

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