Why Collectors and Institutions Should Consider Art as a Valuable Investment Vehicle | AOC

by | Oct 31, 2024 | Uncategorized | 0 comments

 

Introduction

Art has long been considered a symbol of cultural and aesthetic value, but it is increasingly being recognized as a viable investment vehicle. For banks, asset management companies, and other institutions, investing in art can offer unique benefits and opportunities. This article explores why art should be considered a valuable investment, with a focus on Nigerian art, and provides tips for choosing valuable pieces.

Art investments have evolved beyond traditional paintings and sculptures, incorporating a spectrum of contemporary and digital forms. As the art investment landscape continues to expand, investors navigate this dynamic terrain with a blend of financial acumen and an appreciation for the intrinsic value of artistic expression.

 

Types of Art Investment

In recent years, there has been a variety of emerging new art investment opportunities and mediums which cater to a diverse range of tastes and preferences. These different forms include traditional options such as Paintings, Sculptures and photography, There are also non – traditional options including Digital Art and NFTs. Other forms of art include more contemporary options such as installations, video art, and silk screen prints.

 

The Case for Nigerian Art

In 2021, Sothebys concluded its bi-annual Modern & Contemporary African Art auction, exceeding the lower end of its pre-sale estimate by over 40% to net £2.7 million ($3.7 million). Participants hailed from 34 countries, with over a third of buyers transacting with Sotheby’s for the first time, making the auction houses’ third online-only auction of contemporary African art a major successi.

Nigeria’s art scene has emerged as a vibrant and globally recognized force, producing masterpieces that have garnered staggering prices at international auctions. Nigerian artists such as Ben Enwonwu, Njideka Akunyili Crosby, and Toyin Ojih Odutola have seen their works fetch impressive sums. For instance, Njideka Akunyili Crosby’s “Bush Babies” sold for $3.3 million at Sotheby’s in 2017, making it one of the most expensive Nigerian artworks ever sold. In 2021, Enwonwu’s bronze Atlas sold for £378,000 ($519,826), setting a new world record for a sculpture. A record was also set for a work on paper by Enwonwu; his watercolor from the seminal Africa Dances series was purchased for £189,000 ($259,913).

Folly, by Nigerian artist Demas N. Nwoko, almost tripled its high estimate to bring £226,800 (311,895). The painting was well celebrated in Nigeria in the 1960s, then disappeared from the global scene. It was recently found in a modest home in South London.

 

International Trends

The global art market has experienced remarkable growth in recent decades, with total sales reaching billions of dollars annually. As economies expand and wealth accumulates, there is an increasing demand for art as both a status symbol and a way to diversify investment portfolios. Auction houses, galleries, and online platforms have made art more accessible to a wider audience, further fueling its popularity as an investment option.

In 2023, global art market sales adjusted to an estimated USD 65 billion, showcasing resilience despite a slowdown of 4% year-on-year and surpassing pre-pandemic 2019 levels of USD 64.4 billion. Although factors such as high interest rates, inflation, and political instability contributed to slowing growth at the top end of the market, there was a notable 4% increase in transaction volume, totaling USD 39.4 million. This growth in buyer activity was particularly pronounced at lower price levels, creating a more buoyant trade environment for dealers and auction houses in these segments of the market. The US preserved its leading position in the global art market, accounting for 42% of sales by value, down 3% year-on-year. China surpassed the UK as the second-largest global art market with its share rising to 19%, while the UK fell back to third place with a 17% share. France retained its position as the fourth-largest art market at 7% of global sales.

 

Advantages of Investing in Art

Art investments present a range of advantages for investors, encompassing the potential for substantial returns, portfolio diversification, and the enrichment of cultural and aesthetic value. Some of these benefits and advantages include;

  1. Diversification: Investing in art serves as a means to diversify investment portfolios. Positioned as an alternative asset class, art acts as a hedge against market volatility, inflation, and economic downturns, enhancing the overall resilience of an investment portfolio.
  2. Potential for High Returns: Art investments have the potential to yield impressive returns, evidenced by artworks fetching millions of dollars at auctions. Some collectors have realized significant profits, underscoring the lucrative nature of art as an investment. High-quality artworks can appreciate significantly over time, offering substantial returns on investment.
  3. Cultural Value: Art holds cultural significance and can enhance the prestige and cultural capital of institutions. Investing in art aligns with cultural and social benefits. It enables investors to contribute to the preservation and promotion of art and cultural heritage. Artworks can also be leveraged to support charitable causes or cultural institutions, fostering a positive societal impact.
  4. Tangible Asset: Unlike stocks or bonds, art is a tangible asset that can be enjoyed aesthetically while retaining its value. Art investments offer tangible and aesthetic value, as artworks possess intrinsic beauty, historical significance, or cultural importance. Owners derive enjoyment from their unique and appreciable assets, contributing to a well-rounded investment experience.

Disadvantages of Investing in Art

Despite the benefits, art investments carry inherent risks that demand careful consideration from prospective investors.

  1. Market Volatility: The art market is characterized by volatility and unpredictability, with prices influenced by demand, supply, and market dynamics. Predicting the future value of an artwork is challenging, exposing investors to potential losses if the market value declines.
  2. Illiquidity: Art is not easily convertible to cash, and selling a piece can take time. The art market’s illiquidity poses challenges in swiftly selling artworks at fair prices. Provenance, condition, and authenticity further complicate the selling process, potentially prolonging the time needed to find a buyer.
  3. High Entry Costs: Acquiring high-quality artworks often requires significant upfront investment. Investing in art entails high transaction costs, encompassing auction fees, commissions, insurance, storage, and transportation expenses. These costs can impact the overall profitability of an art investment.
  4. Maintenance and Insurance: Art requires proper maintenance and insurance, adding to the overall cost of ownership.
  5. Difficulty in Valuing and Authenticating Artwork: Valuing and authenticating artworks can be complex, particularly for non-experts. Factors such as condition, rarity, and historical significance contribute to varying values. Authentication challenges arise, with the potential for forged or misrepresented artworks.
  6. Possibility of Damage or Loss: Artworks are susceptible to damage or loss, affecting their value. Investors must implement protective measures, including insurance coverage, secure storage, and careful handling, to mitigate potential risks to their investments.

 

Tips for Choosing a Valuable Piece of Art

Allocating funds in the art market requires careful consideration. It’s important to strike a balance between high-risk, high-reward investments and more stable, lower-return options. Investing a portion of your portfolio in established artists with a track record of consistent sales can provide stability, while allocating a smaller percentage to up-and-coming artists might offer the potential for greater returns. Here are a few factors to consider;

  1. Research the Artist: Investigate the artist’s background, reputation, and previous auction results. The standing and importance of the artist are pivotal in influencing art values. Renowned figures like Picasso or Van Gogh, celebrated for their contributions to the art world, often command higher prices. Critical acclaim and prestigious accolades further elevate an artist’s profile, contributing to the elevated value of their works.
  2. Provenance: Verify the artwork’s history and authenticity. The historical and cultural impact of an artwork significantly affects its value. Pieces that played a pivotal role in art movements, documented historical events, or reflected cultural shifts hold considerable worth.
  3. Condition: Assess the condition of the piece, as well-preserved works are more valuable. The state of preservation and authenticity is integral to determining value. Well-maintained artworks command higher prices, and efforts in conservation and restoration contribute positively.
  4. Market Trends: The dynamic nature of the art market plays a crucial role in shaping values. Fluctuations in demand for specific artists, styles, or periods lead to changes in value. Investors keenly observe market trends, influencing their choices and investments, such as the increased demand for contemporary art in recent times. Stay informed about current market trends and demand for specific artists or styles.
  5. Consult Experts: Work with art advisors, appraisers, and auction houses to make informed decisions.

 

The Importance of Working with a Professional

Navigating the art market can be complex, and working with a professional can provide valuable insights and guidance. Art advisors and appraisers can help identify valuable pieces, negotiate prices, and ensure the authenticity and provenance of artworks. Their expertise can mitigate risks and enhance the chances of making a sound investment.

Engaging in art investment necessitates careful planning and consideration. Investors may employ various strategies, such as long-term holdings, diversified portfolios, value-based investing, and participation in art funds or collective investments, to align with their specific investment objectives.ii

 

Conclusion

In recent years, art has emerged as a compelling alternative investment opportunity, captivating the attention of investors and collectors alike. With its potential to generate substantial returns and diversify portfolios, art has transcended its traditional role as a cultural and aesthetic asset and has become a viable financial instrument.

Art, once considered a niche market for art enthusiasts and collectors, is now recognized as a separate asset class with its own unique characteristics. It offers investors the opportunity to own a physical object with aesthetic and emotional value, while also potentially providing financial gains. From paintings and sculptures to photographs and installations, art encompasses a wide range of mediums and styles, making it an attractive option for those looking to invest in something tangible and culturally significant.

Investing in art, particularly Nigerian art, offers unique opportunities for diversification and potential high returns. While it comes with its challenges, the cultural value and tangible nature of art make it an attractive investment vehicle. By conducting thorough research, consulting professionals, and staying informed about market trends, collectors and institutions can make informed decisions and build valuable art collections.

 

References

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