Selling dreams: art as an asset class

14 August 2019

As the art market has boomed in recent years, individual investors have profited while dealers and auction houses’ revenues are dropping1.

Art has a history of surprising traditional markets: the financial crisis saw all major asset classes nosedive, but returns on art remained comparatively buoyant.

In fact, as Lehman Brothers filed for Chapter 11 bankruptcy in New York on September 15, 2008, Damien Hirst sold £70.5m of his own work at Sotheby’s.

From Picasso to Warhol and Rothko, ‘blue chip’ art outperformed US stocks2 during the financial crisis3. In fact, returns on art rose by 9% in 20184.

Charles Humpleby, Head of Family Office and Funds at Barclays Overseas Services, based in the Channel Islands, says: “Many family offices are seeing art collections take up a larger segment of their founder’s balance sheet than before.”

“Collectors are increasingly buying masterpieces with an investment view - as well as for pleasure - aiming at return and value protection,” he explains.

It’s no secret that markets are at the end of a bull run. With a growing number of economists heralding the next global recession with increasing conviction, investors are looking to diversify their portfolios.

In 2009, the financial markets had their trading levels fall to figures not seen since the late-1990s. The same year, global sales at auction for masterpieces was reportedly US$625m5.

While this figure was a drop from previous years, the art market’s recovery was also far faster than that of financial markets. Between 2007 and 2017 returns on art grew by 78%, according to the Knight Frank Luxury Investment Index for Q4 2017.

However, that doesn’t make the art world a free lunch for investors. “It’s an opaque market and collectors need to know how to navigate it,” says Humpleby.

The importance of passion

Thomas Hug has worked in the art world for over 15 years, running international art fairs in Monaco, Geneva and more. He believes that genuine passion and interest in art is vital when looking to make good purchasing decisions.

“All good art investments are made by buyers who were very aware of what makes an interesting piece and what does not,” says Hug.

“If you look at art purely as an investment, you may have a bad surprise, because you’re following trends and trying to construct a result.

“The motivation for this investment has to be a real interest in art if you want a good investment result,” Hug adds.

Growing demand for female artists

As such, Barclays supports events for art collectors in the Channel Islands and beyond in order to support opportunities for clients with a passion for art, and an interest in growing their network within the industry.

Jersey’s CCA Galleries International is hosting a ‘Biophilic Feast’ exhibition this October 31, where Natasha Dettman, an art director, and India Hamilton, chef and food researcher, will exhibit.

They’re not the only female artists causing a scene in the Channel Islands.

Artist Louise Cattrell will also exhibit ‘subtly contemporary, yet timeless’ landscapes, in the CCA Galleries International on October 11.

Both exhibits reflect a growing trend for works from female artists.

Veronika Lukasova-Duthy, Director of Art Market Research, comments: “Works by artists of colour and women artists have long been considered undervalued, but this level of interest may have taken even the experts by surprise. I expect the trend to continue.”

This movement was reflected at the Tate Britain in December 2018 which celebrated 60 years of female artists with an all-female exhibition.

This is certainly a break from its past: women account for 74% of the UK’s fine art graduates, however, Tate was previously criticized for having only about 30% of its works from female artists. What’s more, only 13% of its annual budget is spent on women’s art6.

Making a purchase

Investors often buy art directly via their family office, says Humpleby.

“This not only can secure wealth across generations but also offers owners a higher element of control over their wealth than if they invested in an art fund, for example.

“It also offers wealthy families a way to give back to society as they can loan artworks to public galleries and museums,” he adds.

To release liquidity and support these purchases, securities-backed lending can also be used by clients when looking to purchase art.

These clients secure loans against assets under management with Barclays (either cash or investments) in order to buy works of art without having to release equity from other assets.

“Clients are able to use the cash and investments held with Barclays to secure a loan. This liquidity can then be used for lifestyle purchases, without interrupting the performance of longer term investments,” says Humpleby.

The client does not have to disrupt the performance of longer-term investments to obtain a loan for the purchase.

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Investments can fall as well as rise in value. Your capital or the income generated from your investment may be at risk.

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