Sunday, March 11, 2012

Art Investment

The concept of investing in art received a major boost from Peter Wilson, head of Sotheby’s in the 1970’s, who monetized the art market far beyond anything before.  He is responsible for convincing wealthy collectors that they could buy a work of art and sell it at a  vast profit a few years later.  He is also responsible for convincing the trustees of British Rail to put part of their Pension fund into art.  They finally decided to take a small portion of their fund, 40 million Pounds, and put it into art.  While some sections of the investment came out on the plus side, other’s did not.  Though overall the fund made a profit, In the end, it was said that the fund might have been better off invested in the stock market.

In the late 1970’s when British Rail was still collecting, a friend invited me to lunch with a very successful captain of industry.  He had decided that he too wanted to enter the art investment area.  He had a fascinating idea.   We would form an investment consortium around an international group of experts.  Since the fund was going to be buying older European Art they would be individuals in France, England, The Netherlands and Italy. 

The concept was that each year the fund would be re-valued by this same group of experts who would receive a commission commensurate with the increase in the fund’s value.  Obviously, the businessman felt that this would encourage the experts (mostly dealers) to buy well.  Also these were the years that the art market in many of its fields was flourishing.  But I was concerned that since there are no market tools with which to measure values, even the most scrupulous would be tempted to err on the high side of  an estimated value.  This, however, was seen as a detail that could be worked out later.

In any case, it was an exciting idea.  It did not take too many months before I had  commitments from a most illustrious group of experts.  Most of them were dealers and all were raring to go.  Being professionals, and therefore realists, they were not yet counting their profits, but all were ready to take a chance.  The financial mogul kept the project on hold, from what I remember, for a  year.  Then from out of the blue I received a phone call saying that my financer “had heard” (those words I do remember) that diamonds would be a better investment and therefore was scrapping the art project.  Quite a disappointment for all, but I think none of us were convinced it would ever come to fruition in the first place. Many such schemes that have received wide-spread publicity since, have also not come to pass.

Art investment funds always sound glamorous and exciting.  These days they are usually focused on contemporary art which has in recent years been a hot market, particularly at auction.   It is, however, also the most capricious.  The hot artist of yesterday is not necessarily the hot artist today.  You ask a collector about his/her collection and they will tell you about all their successes, but what about the artists who did not pan out?

Investing in any area is not just about the wins but rather the percentage of wins over losses.   Of course, much depends on timing.  In 1990 my father, who collected Paris School pictures, said to me, “someday you will be upset with me for not selling the collection now”.  The comment did not register until years later when I realized he had actually pegged the height of the market, when the Japanese were collecting voraciously in this area.

The reason that British Rail Pension Fund did as well as it did was the breadth of the collection.  Also, they held onto their collection for quite a number of years, and  they sold their best investment of Impressionist paintings at the height of that market when the Japanese were spending their fortunes on Impressionism.

As a final comment on the subject, over the years I have acquired for my personal collection works I fell in love with in several fields.  Of course, I have had no objection if a work of art has appreciated in value, but , I have never thought of it as an investment.  Interestingly, the area where I thought about this the least was in our photography collection.  If I had, I would have bought a lot more!

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