Is Art Investment Worth It?
I am no expert in art appraisal or investing. However, as a Wealth Manager and Advisor to numerous highnet- worth individuals over the past decade-and-a-half, I have enjoyed a front row seat to the actual art investing experiences of my clients have over the years.
As they grow in wealth and stature, there comes a point in every investor’s journey that the banalities of the equity markets, bonds and mutual funds just do not cut it anymore. Their hands itch to do something different with their money. While this tendency may, in part, be attributed to an extended version of the Action Bias; it really involves, at the very root, the intrinsic desire to ‘break away from the pack’ and differentiate oneself with respect to what one does with – and how one deploys – their wealth.
That is the stage when the superrich start seeking the thrill of alternative assets such as early stage investing, private equity, precious metals, jewellery, and of course – art. I have rarely seen an investor reach this stage before their mid-fifties or even sixties. In fact, the youngest art aficionado I had in my investor portfolio was 57 years old! There was a brief period in the previous decade when art Funds were in vogue, and a number of my wealthy clients rushed into them headlong. That did not end well. In many ways, the unfortunate OSIAN Art Fund saga embodies all that was and is wrong with collective Art Fund investing in India. A nascent market, expertise that is dubious at best, lack of transparency and regulation with respect to cost and fees, high entry loads and questionable liquidity; all contributed to the quick and dramatic waning of interest in this category. The fracas that followed between SEBI and numerous Art Funds is now a forgettable chapter in the investment history books.
What about direct investments in art? Numerous global studies point to ROI’s from art being a mixed bag, at best. A detailed study of the Canadian art market discovered that long term returns from art were lower than equity returns. In my own experience with UHNI’s, I have also found that ‘investing’ in pieces by new and emerging artists are really a hit or miss proposition much like venture capital investing, with the potential for bothwild upsides and frustrating stagnation or even capital erosion. However, art also has what economists refer to as “psychic benefits”. In other words, it is something to be enjoyed, experienced, or flaunted. It also symbolises prestige, power, and good taste. In that sense, the actual “ROI” from art must be assessed from a qualitative standpoint, too!
On the other hand, I have witnessed first-hand, investor clients earning handsome, even exponential returns through bold large ticket investments into works by contemporary masters such as Husain, Raza and Gaitonde. This anecdotal evidence has led me to believe that masterpieces make for a more sound and predictable investment that the work of emerging artists, which necessarily require extremely canny advice – and a stroke of luck – for a payoff to take place.
Behind this dynamic, of course, is the penomenon that economists call “conspicuous consumption”. As people become wealthier, their demand for high-end art increases. This curious counterbalance of investment and consumption, stoked by limited supply, is what keeps the work of the modern masters going up in price over the years.
Successful art investing is a high risk, large ticket, indivisible and relatively illiquid investment bet. According to Christies, the upcoming sale of a Husain piece will set you back a neat Rs 45 lakh or more. But if it returns that you seek more than the psychic benefits, you should stick with the masters. If you are fortunate, you may just be able to snag a fabulous distress sale deal amidst the unsettling times that we live in. My advice: stick with equities as your portfolio core and let art be a satellite investment that is no more than 10 per cent of your overall portfolio value. That way, you’ll enjoy the best of both psychic returns and tangible financial returns, without putting all your eggs in one basket.
