How good is the art market as a port in this financial storm?

Share markets are down, bond markets are down, property prices are down, consumer and business sentiment are down and the New Zealand dollar is down.  The only thing that isn’t...

Share markets are down, bond markets are down, property prices are down, consumer and business sentiment are down and the New Zealand dollar is down.  The only thing that isn’t down is inflation, oh and Government spending but that’s a topic for another day.  But in spite of all this turmoil in financial markets, there is one asset class that has remained remarkably resilient.  In fact, record prices have been achieved this year for some of the standouts within.  This asset class was even given special treatment in the recommendations from the Government’s (hair-brained, might I add) Tax Working Group back in 2019 to be excluded from its otherwise sweepingly broad capital gains tax.  I’m not talking about your family home, your boat or the few Bonus Bonds you may have had squirrelled away.  I’m talking about art.

According to an article in the UK business newspaper The Financial Times a couple of weekends back, the ARTBnK Index, which tracks prices achieved by repeat sales from active artists, has risen more than 50% this year despite the worries of recession, inflation and higher interest rates.  Combined sales from the three largest three global auction houses (Christie’s, Sotheby’s and Phillips) were up more than 20% in the first half of 2022.

Here at home, the recent big art story was the sale of the BNZ Art Collection.  Notwithstanding some critics bemoaned the sale on ethical or moral grounds, the owners proceeded to auction at which the first tranche of the Collection, cleared a remarkable $13.5 million.  New, all-time price records were set for artworks by a total of thirteen New Zealand artists including Tony Fomison and Robin White.  At $2.45 million, a Colin McCahon work set a new price record for an artwork sold at auction.  Extraordinary, given the abovementioned financial markets turmoil.

Although the biggest and best-known artists seem to do the best and are often seen to be the safest bet, their works do tend to cost the most.  The higher the profile of the artist, the lower the risk of not being able to sell his or her work, which reduces the potential illiquidity of the asset, liquidity being an important consideration in the investment world.  But where does that leave the everyday person interested in participating in the art world for either or both aesthetic and investment / financial reasons particularly if they don’t have the requisite millions for a McCahon?

Internationally, we have seen the rise of fractional ownership – a type of Sharesies but for the art world. This facility gives investors the chance to buy a share in, say, a Banksy and then one day in the future sell it on without the work ever changing hands.  This feature is useful for those wanting access to the asset class, but not for those that actually want to enjoy a painting on their wall.

And then there are NFTs or Non-Fungible Tokens.  This new medium has found favour in the art world, as a way to authenticate ownership of digital art through the blockchain.  NFTs can be collected, sold, or traded.  A lot of the early heat has come out of this market but Glorious Digital, a local player has seen some early success since its launch earlier this year.  Glorious offers a new and novel way to own a Rita Angus or a Karl Maughan and is much cheaper than buying the physical work.

Here are a few tips for those interested in becoming involved with art as an asset class.  The first is from a very successful Japanese fund manager that had an amazing art collection, and all its walls and meeting rooms overflowed with beautiful works, some even just in storage!  His very “practical” but perhaps tongue-in-cheek advice was to go to an artist’s exhibition and buy all their works for sale!  Now this isn’t advice I’ve ever followed myself, but he did say it enables you to achieve a special relationship with the artist and if their fame rises over the years, you’ll be in pole position!

A far easier piece of advice to follow is simply to educate yourself.  Go to an art gallery such as Gow Langsford, an art show, or an auction house such as Art & Object or Webb’s.  The auction houses record all their past sales and there is a treasure-trove of information online including previous prices.  Anyone can go to a show at a gallery – just get out there and do it.  If you put your name down on their mailing list, you’ll most likely get an invite to their upcoming openings – and then you might get an opportunity to be the first people to see and potentially buy a new work.  Or maybe not:  up and coming local artist, Grace Wright, had the privilege of all her works in a recent show being sold before opening night and a waiting list of over 100 purchasers for next time!  Many schools these days are holding art fairs as fundraisers, but they can also be a great place to see works by young and upcoming artists as well as from those who are more established.

You don’t need to spend a fortune, and this is one of the greatest misnomers about the art world.  Art as they say is in the eye of the beholder.  What I think is art might be very different to what someone else thinks is art but that also means there are a wide variety of price points.  If you go out and look you may be able to buy an emerging artist that years later could be a future Gordon Walters equivalent.

I am a fan of Fiona Pardington, Michael Parekōwhai, Heather Straka, Wendy Hannah, Tim Christie and Roger Mortimer to name a few.  But to what extent do they indeed all artists benefit when / if their works appreciate in price over time?  Well, to date nothing apart from hopefully being able to easily sell successive works at higher prices.  However, this is changing with The Equity for Artists initiative making significant ground in developing an Artist Resale Royalty Scheme.  The Government agreed in August this year that a 5% royalty payment will be made to visual artists or their estate each time their works resells on the secondary market.  I am not one to advocate any new tax, which what some people will think this royalty scheme is, but I think it is a step in the right direction to see that artists are able to participate in some of the upside for their works in secondary market prices.  Details so far are scant, but legislation is reportedly being drafted and implementation is slated for late 2024.  Although collection and distribution costs may see the actual amount the artists receive being somewhat less than the 5% rate, the scheme will nevertheless be warmly received by the artists, I’m sure, and a contribution I wouldn’t mind paying.

The final and most important piece of advice is buy what you like and enjoy it.  I’ve never been one for purchasing art purely as an investment, in fact I find it very difficult, as I like to enjoy the art I own.  If you have to live with the art on your wall, it can be risky to buy something just because you think it will appreciate in value.  What if it doesn’t?  However, if you buy something that you like but it doesn’t necessarily rise in value, that’s fine as you’ve enjoyed its company over the years.  There are two meanings of the word “appreciate”.