Art Investing by Tuhin Mitra

The Essential Guide to

Investing in Art

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The Essential Guide to

Investing in Art Contents

Important information The Sydney Morning Herald Essential Guide to Investing in Art is published and distributed by Fairfax Media Publications Pty Ltd, ABN 33 003 357 720, the publisher of The Sydney Morning Herald. It is intended to provide general information of an educational nature only. Any information contained in this guide does not have regard to the investment objectives, financial situation or needs of any reader. Neither the publisher, Fairfax Media Publications Pty Ltd, nor the sponsor, Art Equity, ABN 88 104 300 950, intend by this guide to provide financial product advice and information in the guide cannot be relied upon as such. All readers should consider obtaining independent advice before making any decisions concerning investing in Art or any other financial product or service. To request a copy of this Free Essential Guide ph 1300 763 437 or visit www.smhshop.com.au/freeguides To order your copy of other Free Essential Guides browse guides at www.smhshop.com.au/freeguides To have The Sydney Morning Herald home delivered phone (02) 9282 3800. General Editorial enquiries store.help@smh.com.au All information correct at time of print (September 08) Cover image: Tim Storrier, The Night Run (detail), 2007, Acrylic on Canvas, 152.5 x 304.7cm. © Courtesy the artist.

1 – Introduction

2 – The starter guide

3 – Where to buy

4 – Following the market

5 – Art key indicators

6 – Investing strategies

7 – Choose your category

8 – Indigenous art

9 – The art of diversification

10 – The risks

11 – The pleasure principle

1 – INTRODUCTION

1 – Introduction Australian art has gained substantial recognition as an investment class and

Annual Australian art auction sales (millions $A) – 1997-07 180M

many investors now include artwork as part of their diversified portfolio.

160M 140M

Purchased wisely, art can provide strong returns as well as immeasurable

120M 100M 80M

pleasure.

60M 40M

The Australian art market has grown steadily during the past decade to a

20M 0

record $175 million at auction in 2007, up from $105 million the previous

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Source: aasd.com.au

Top 10 prices at auction

year. Australian art is today recognised by international buyers as one of the strongest emerging markets. The maturing of the Australian art market has seen 57 works (at the time of publication) sell for more than $1 million at auction since 1989. There have been many more examples of $1 million-plus artworks sold through galleries and by private treaty over the same period. Whether a collector, investor or first-time buyer, this booklet will set you in the

Price

Artist Name

Title

$3,480,000

Whiteley, Brett

The Olgas for Ernest Giles, 1985

2007

$3,360,000

Brack, Cecil John (John)

The Old Time

2007

$3,120,000

Brack, Cecil John (John)

The Bar

2006

$2,880,000

Whiteley, Brett

Opera House

2007

$2,400,000

Tjapaltjarri, Clifford Possum

Warlugulong, 1977

2007

$2,312,500

McCubbin, Frederick

Bush Idyll

1998

$2,040,000

Brack, Cecil John (John)

Backs and Fronts, 1969

2007

$2,040,000 Whiteley, Brett

Frangipani and Humming Bird - Japanese: Summer

2006

$1,982,500

A View of Geelong

1996

The Jacaranda Tree (On Sydney Harbour), 1977

1999

Von Guerard, Johann Joseph Eugen

right direction to make informed decisions within this exciting and potentially

$1,982,500 Whiteley, Brett

lucrative market.

Source: aasd.com.au

Year Set

2 – THE STARTER GUIDE

2 – The starter guide All smart investing begins with research, and art is no different. The best way to start is by visiting state and commercial galleries, reading articles in the arts and financial media and subscribing to art journals. Researching online will also go a long way to increasing your understanding of the art market. The gallery scene is known as the primary market, where predominantly new works by living artists are exhibited for sale. The secondary market, which typically dominates the media, refers mainly to auction activity. There are also specialised galleries and art dealers who facilitate secondary art sales by private treaty. Art works sold at auction are mainly, but not always, older works seeking a new home. As part of your research you should subscribe to auction catalogues and monitor results online. This way you can watch trends as they develop for particular artists as well as tracking the trading history of individual artworks. Be aware that not all artists have auction records. They can still potentially be a good investment, even though a formal secondary market may not yet have been established. In this instance, art reviews, institutional art exhibitions and inclusion in major art prizes are key indicators. These aspects are further discussed in this booklet.

The main auction houses in Australia are Sotheby’s, Deutscher and Hackett, Deutscher-Menzies, Lawson-Menzies, Bonhams & Goodman and Mossgreen. All have online and printed catalogues. You’ll have to pay for these unless you become a regular customer. It is also worth noting that commission structures (applied to both the buyer and seller in the premiums) vary between companies and should be kept in mind when putting your hand up in the auction room. A good fundamental rule for investing is to buy the best quality artwork that you can afford. Sound advice from art market professionals will assist you in making informed decisions within the strategy that best fits your investment timelines and goals. Always remember that art should be considered a long-term investment.

Artist categories For investment purposes, artists are generally grouped into three categories: emerging, mid-career and blue-chip. This is based primarily on their status and success in the formal secondary auction market. Winning major prizes such as the Archibald Prize will also boost the status of an artist.

Emerging Emerging artists generally don’t have an auction record but are keenly collected and well represented by known commercial galleries. As a rule, you will need to take a longer-term view when investing in emerging artists, and aesthetics play a major role – you may have the painting for some time. However, as with any speculative investment where the risk is higher, if the fundamentals are sound the potential upside can also be very strong.

Laura Matthews, Split Rock – Felled Tree, 2008, Oil on Linen, 186 x 246cm. © Courtesy the artist/Art Equity

2 – THE STARTER GUIDE

3 – Where to buy Mid-career

Art auctions

Blue-chip

Rick Amor, The Outlying Districts, 2001-2002, Oil on Linen, 60 x 80cm. © Courtesy the artist/ Niagara Galleries, Melbourne Jeff Makin, Brachina Gorge, 2008, Oil on Canvas, 168 x 168cm. © Courtesy the artist/Art Equity

Mid-career artists have established a solid career. In most cases they have an auction history with multiple trades and an auction record that is tracking positively. These artists are well represented in national and regional collections and have usually been published in the arts press. Many have a monograph profiling their work. Most mid-career artists have established a recognisable style or genre for which they have become well known. Good examples of these works can be an outstanding investment: ultimately, if the artist makes the next step then these works will become significant within the artist’s oeuvre. For example, Lavender Bay paintings by Brett Whiteley initially purchased in the tens of thousands and are now worth millions of dollars.

Blue-chip artists have a long secondary market history underpinning their prices. You can check the trading history of individual works over years. These artists hold national significance and are in all major collections. Many artists in this category are no longer alive. While many of their works will be valued in the hundreds of thousands or millions of dollars, it is important to realise that not all their works may be significant. Quality is essential. Often, a well-documented small edition of an iconic image will be worth more than a bad painting or study by the same artist. Blue-chip artists have better liquidity and are more tradeable, however, the returns are not necessarily going to be as spectacular, percentagewise, as with other categories of artists.

Buying or selling at auction can be daunting for the newcomer, so make sure you first attend a few sales as a spectator to see how the system works. It takes a certain level of confidence to bid in the public arena. A lot of bidding is done anonymously by phone or email. Some auction houses hold live internet streams for this purpose. Absentee bids can be submitted in advance. Some experienced collectors and investors hire consultants to bid on their behalf. However, attending an auction in person is an invaluable experience. If you intend to bid yourself, try to attend a pre-auction viewing to see your potential purchase in the cold light of day. It’s difficult to view a lot on the night and make a balanced assessment. Viewings are usually held in the week leading up to the auction. Catalogues are often a better guide to an artwork’s condition than an online image. If you cannot get hold of a catalogue, ask the auction house to send you a highresolution image online. You can also ask for a condition report. If you have any suspicions, get a consultant to check on your behalf. Both buyers and sellers are expected to pay a premium (a percentage of the hammer price) to the auction house. This varies but is generally 20 per cent for buyers and 10 to15 per cent for sellers (in some cases, a fee must be paid even if

the work doesn’t sell). The owner agrees to a reserve price and, if it is not met, the work won’t sell unless the vendor and the highest bidder come to an agreement “under negotiation”. This usually happens immediately after the auction or within the next few days. GST is also applicable to the premium and sometimes applies to the hammer price if the consignor is a GST-registered entity. In this case, the lot is identified with a diamond in the auction catalogue.

Auction stations. Courtesy Bonhams & Goodman.

Be aware that once the hammer falls, the work is sold. Most auction houses suggest the lowest possible reserve price, within reason, to encourage early bidding. This is an especially good tactic if they feel more than one buyer is interested – the more bidders, the greater the likelihood of a bidding war. If you feel the reserve is low this may be the reason. Wait for the early bidding to pass before making your entrance.

3 – WHERE TO BUY

4 – Following the market Bidding increments are set and vary between auction houses. Increments change at various value points during the auction of a lot. Very occasionally, the auctioneer may vary the increments on a specific lot during the course of the auction, so listen carefully. For vendors who want to avoid the volatile nature of an auction there are sales by private treaty. The price can be fixed in advance by a dealer or consultant, who seeks a suitable buyer on your behalf (dealer commissions will vary). This is a good option to explore because, if well managed, the work will not be overexposed to the broader art market – thus leaving open the opportunity for auction marketing in a shorter timeframe or if the private treaty sale is unsuccessful.

Art galleries and private dealers Commercial art galleries exist in almost every town and city across Australia and vary greatly in terms of the artwork they offer and service they provide. To get acquainted, it’s worth buying a copy of the Art Gallery Guide Australia, a bi-monthly guide to what’s on at the major galleries in each capital city as well as some key regional centres. Most galleries hold exhibitions once or twice a month. Join their mailing lists to receive invitations in the post. Art galleries tend to specialise in a certain sector of the market and represent artists (usually on an exclusive basis

within the state) that fit their niche, for example, contemporary Australian, indigenous, contemporary international, etc. A good gallery should work with clients to find artwork that corresponds with their collecting goals as well as offer an educational service. Experience and integrity are essential for a long-term working relationship with an art gallery or dealer.

Art consultants Art consultants generally operate without a gallery and may act as an agent to artists, working closely to develop their career. They tend to specialise in particular art categories such as indigenous, colonial or contemporary art – and/or may consult to specific institutions for their collections. Extra considerations Buying art usually involves costs and considerations additional to the artwork itself. When considering your investment, the following “extras” may be necessary depending on the value and type of artwork you choose: • Independent art valuation • Framing

• Insurance

• Shipping and transport (by a specialised art packing and transport company) • Storage (there are storage facilities that specialise in fine art)

Ongoing education in the art market is fundamental to good decision-making. You can keep informed to a far greater extent than ever before via the internet and print publications. As a starting point, get the facts and the inside market information from the following websites:

Art and Australia A quarterly that has been publishing art market news, reviews and artist profiles for more than 40 years.

www.aasd.com.au John Furphy’s comprehensive Australian Art Sales Digest compiles art auction results in Australia and New Zealand from the past 35 years.

LOOK A monthly magazine published by the Art Gallery of NSW.

www.artprice.com Artprice tracks and analyses auction prices and indices from 2900 auction houses across the globe.

Australian Art Collector A quarterly whose first edition of the year traditionally lists the “50 Most Collectable Australian Artists”.

Art World A bi-monthly glossy dedicated to the contemporary art scene. Art Gallery Guide Australia A monthly publication listing art exhibitions Australia-wide.

www.artequity.com.au/insight Sign up to Art Insight, a free online publication designed to keep collectors and investors in the loop with art market news, artist profiles and exhibition updates. www.artcollector.net.au Sign up for their free newsletter, This Art Week, for news on artists, auctions and “what’s on” at local galleries. And in print: The Australian Art Market Report A quarterly focused on Australia and New Zealand and emerging art markets in Asia and the Middle East.

5 – ART KEY INDICATORS

5 – Art key indicators In a market governed by visual imagery, aesthetics obviously play a major role. However, there are other key indicators that should be considered when assessing an artwork or artist for investment. An auction history, solid gallery representation and curatorial and art prize recognition leading to critical discussion in the art press and broader media are all good indicators for the currency of an artist.

Auction history Headlines certainly attract the attention of the broader market to successful artists at auction. Tracking auction results gives you some idea of whether an artist’s work is on the rise or fall but, while a solid secondary performance is a positive sign, most emerging and some mid-career artists have little or no auction history.

Gallery representation A long-term relationship with respected commercial galleries is a strong indicator of success. A leading gallery will not hold on to an artist if it has doubts about their future potential. Long-term representation also enables investors to track the selling history of exhibitions over an extended period of time.

Some of Australia’s most prestigious

buyers may have to join a queue of hundreds to secure an artwork.

art prizes include:

Art journals and media (see previous page)

Editorial in arts publications gives artists recognition – keep an eye on the art journals for profiles on artists who are doing well. Australian Art Collector’s “50 Most Collectable” edition is a good starting point. This issue comes out at the start of every year. Mainstream media are today more interested in artists and art investment. A television documentary on an artist can be another indication of a rising profile. The ABC often presents exciting contemporary artists on its Sunday Arts program.

Archibald Portrait Prize ($50,000) Portrait painting prize preferentially of someone distinguished in the arts, lLetters, science or politics. 2008 winner: Del Kathryn Barton Wynne Prize ($25,000) Landscape painting prize of Australian scenery or figure sculpture. 2008 winner: Joanne Currie Nalingu

Sulman Prize ($20,000) Prize for a subject painting, genre painting or mural project by an Australian artist. 2008 winner: Rodney Pople Doug Moran National Portrait Prize ($100,000) Australia’s richest portrait prize. 2008 winner: Fiona Lowry Moran Contemporary Photographic Prize ($50,000 - Open Section) 2008 Winner: Belinda Mason

Art prizes Winning a major prize will have a positive – but perhaps short-term – impact. The Archibald Prize dominates the media but a range of other prizes can boost an artist’s profile and may be enough to push an artist to the next level.

Sell-out shows An artist’s career is tracking well when their solo exhibitions sell out. In fact, don’t be surprised if you turn up to some openings to find red dots on the majority of work. For the most collectable artists,

5 – ART KEY INDICATORS

6 – Investing strategies Metro5 Art Award ($40,000) An acquisitive painting prize of any genre by Australian artists under 35. 2008 winner: Fergus Binns The Blake Prize ($20,000) Prize for works that explore religious awareness and spirituality. 2007 winner: Shirley Purdie Fleurieu Art Prize ($50,000) A biannual acquisitive art prize for Australian landscape painting. 2006 winner: Ken Whisson Dobell Prize for Drawing ($20,000) Award for drawing in Australia. 2007 winner: Ana Pollak

After you have done some research, the next step is to set your budget and determine your investment goals. Risk level, liquidity, aesthetics and potential rental income from your art investment are all factors to take into account. Whatever your strategy, you should take a conservative mid- to long-term view on your art investment rather than a buytoday, trade-tomorrow outlook.

Telstra National Aboriginal and Torres Strait Islander Art Award ($40,000) Annual prize for adult Aboriginal & Torres Strait Islander artists. 2008 winner: Makinti Napanangka Basil Sellers Art Prize ($100,000) Annual acquisitive award for an artwork on the theme of sport. 2008 winner: Daniel Crooks Glover Prize ($30,000) Annual acquisitive prize for landscape painting in Australia. 2008 winner: Neil Haddon

Here are some strategies to consider: Hold & Hang The traditional strategy of collecting and hanging in your home or office is based on the premise of aesthetic enjoyment while your artwork potentially gains value. It is a strategy that has been employed for hundreds of years. Available hanging space can be a limitation, so collectors and investors often opt for storage to protect their asset, allowing for rotation of the collection.

Earning Income from Art The corporate sector has long displayed works of art in offices and a recent trend is for businesses to rent rather than buy. This involves less capital outlay and allows businesses to change displays more often. Art Equity and Artbank are the two largest suppliers of rental artwork to the corporate sector in Australia. The corporate rental market has opened up an excellent opportunity for art investors to buy portfolios of artwork that appeal to the corporate sector for rental. The investor retains full ownership of the artwork during the rental period and can expect returns of between 5 per cent and 10 per cent a year. Typical contracts run for two to three years. In most circumstances, a rental portfolio can be bought with self-managed super funds. As always, talk with a financial adviser first.

DIY Superannuation Funds Many investors use their superannuation funds to invest in art. The Australian Taxation Office sets strict guidelines on how it can be included in a fund. If you are considering using your superannuation fund to invest in art it is important to consult an accountant and/or financial adviser to ensure you comply with these guidelines.

7 – CHOOSE YOUR CATEGORY

7 – Choose your category While oil paintings tend to dominate the auction market there are many more mediums in which artists work. Some have been less understood in past years but have gained an enthusiastic following in the last decade. Paintings: Oil paintings on canvas, linen and board generally attract the premium prices. Other popular mediums include acrylic, gouache, and enamel paint and watercolour on paper. Printmaking: Not to be confused with mass-produced posters, limited edition prints involve the artist working with a printmaker to produce multiple original artworks. There are a number of printmaking processes with their own distinctive aesthetic. Most common are etchings, collagraphs, lithographs, woodcuts and linocuts. Limited-edition prints, numbered and signed by the artist, are an ideal way to get a toe in the market if you are on a modest budget. Many of the blue-chip artists produce prints that have potential for significant capital appreciation.

Consider Jeffrey Smart’s colour aquatint print of The Dome, sold in 1978 as a limited edition of 100 prints in the low hundreds of dollars. Smart is now considered one of the best-performing artists. A signed and numbered edition of The Dome sold in 2006 for $15,600, a record for a print work for the artist at auction. 14

Drawing: Many painters also work with pencil, charcoal and crayon on paper. Often these are studies for more major paintings, however, some artists are well known for their drawings. Some of these, notably Brett Whiteley’s, attract big prices. Mixed media: Some artists mix a variety of mediums to create a single artwork. Paint, pencil, wax, stencil and various “found objects” are applied to a surface. Photography: Works by Max Dupain, Tracey Moffat and Bill Henson are already considered blue-chip investments. As with prints, photographs should be signed and if produced as a limitededition print, numbered.

Sculpture: A less transportable medium, sculpture has tended not to carry great weight in the secondary auction market. However, there have been some significant auction results in recent years, including Robert Klippel’s Opus 361, a collection of 18 miniature sculptures which sold for $507,800 (estimate $250,000-$350,000) at Christie’s in 2006. This set a record for Australian sculpture at auction. New Media: Works in new media, including video, DVD and street art, are at the cutting edge of art practice. These newer forms of art speak to the contemporary generation and serious indicators from world auction markets predict this is a space to watch.

8 – INDIGENOUS ART

8 – Indigenous art The Australian indigenous art market has undergone exceptional growth since the inception of indigenous art auctions in the mid 1990s. Worldwide enthusiasm by investors and collectors has catapulted artworks into the hundreds of thousands, even millions, of dollars. At the end of 2007, indigenous art represented 13.5 per cent of all works traded by dollar value through the Australian auction market, from $4.28 million in 1998 to $23.87 million. A word of caution: not all indigenous paintings are of investment quality. There are many examples of cheaper works by well-known artists on the market that are of questionable quality. These should be avoided. Look closely at the artist’s profile, the authenticity of the work and the provenance. Above all, look at a number of examples by the artist to see if the work you are considering stands up in their overall body of available work. A reputable gallery or art dealer can confirm this. Whether buying through a gallery or an indigenous arts community, be sure the work has been painted by the artist as claimed. Insist on well-documented provenance. Often, the work comes with a set of photographs showing the artist at various stages of painting the artwork. With the emergence of the secondary auction market for indigenous works, it’s possible to track trading history – just as you would with non-indigenous artists.

Dorothy Napangardi’s first work traded at auction in 2001 for $3055. In 2004, she set a personal record at auction of $129,750. However, her work has been available on the primary market for the past 10 years for prices in excess of $50,000. Other artists to experience similar results include Ningura Napurrula (a record $116,018 in 2006), Naata Nungurrayi ($216,000 in 2007), Judy Napangardi Watson ($216,000 in 2008) and Bill Whiskey Tjapaltjarri ($72,000 in 2007 up from $12,000 a year earlier). 16

Judy Napangardi Watson, Mina Mina Dreaming, 2008, Acrylic on Linen, 183 x 122cm. © Courtesy the artist/Warlukurlangu Art Centre

Bill Whiskey Tjapaltjarri, Rockholes near Pirupa, 2008, Acrylic on Linen, 286 x 184cm. © Courtesy the artist/Watiyawanu Artists

9 – THE ART OF DIVERSIFICATION

9 – The art of diversification For many start-up investors, in particular, an important question is whether to buy one major work or look at smaller pieces to diversify a portfolio. Both strategies have merit but depend on individual investment goals and the overall risk profile of the artists. Diversification allows for more effective management of market liquidity. But how do you diversify to maximise the potential return on investment? Here are two typical examples for investing in lower-budget categories.

you to carry some blue-chip established names – for example, the Tim Storrier collagraph Flight Home within a rental portfolio at purchase prices ranging from $4800 to $5800. This work has already sold at auction for $6600 through Deutscher-Menzies in May 2007. Not only is there tangible evidence of secondary market trading, but rental clients are also receiving an income of 7.5 per cent a year. Good edition works by well-established artists are always going to be worth considering closely.

$10,000-$15,000 High-yielding rental portfolio of limited edition prints

$25,000-$30,000 One major mid-career oil painting

Three or four edition works with a spread of risk within the portfolio. This allows

A large-scale painting by a mid-career artist with established credentials and Geoff Dyer, Cockle Creek II, 2007, Oil on Linen, 150 x 210cm. © Courtesy the artist/Art Equity

primary market demand. Auction results are important, but not necessarily a key indicator of market value. An example is Geoff Dyer, the 2003 winner of the Archibald Prize. His work is included in many of Australia’s major collections and is sought by private collectors in Europe and the United States. Dyer was invited to exhibit at the Guangdong Museum of Art in China this year as well as having been a finalist in the 2008 Glover Prize. Despite critical acclaim, his auction record is relatively low, currently $12,760 for an oil painting. His record for a

watercolour and gouache work is $4500. However, at his exhibitions his major works sell for between $25,000 and $50,000. From 1986 to 2005, only seven of his oil paintings were offered at auction in Australia. Dyer is considered a little soft in the auction market, partly because collectors have held on to his work. If we consider the average growth in prices realised at auction for Dyer’s paintings – despite the relatively meagre auction record – the average CAGR from 2000 to 2006 is 22 per cent. Thus, he is considered a strong investment.

10 – The risks Lack of research is often quoted as the main reason for making a poor investment decision. Impulse buying is fine if you are collecting mainly for your own enjoyment but for those intent on a profit, the art market should be studied as carefully as the stock market. Be particularly prudent when assessing the following: • Authenticity

• Quality

• Condition

• Price

Common mistakes are buying poor quality art while on holidays, where the chances of doing research are limited, or buying at exhibition openings when the bubbly is flowing and logic is overruled by emotion. You should always check the artwork’s authenticity, particularly for indigenous art and major works sold on the secondary market. Reputable auction houses make a point of supplying the provenance of the work, including previous owners and the name of the original dealer or gallery.

It is important to know that your artwork has a solid objective history of production and ownership. If you have any doubt talk to a consultant, who will confirm that the work is actually what it is claimed to be. When buying at auction, be sure to get a condition report for any significant works. When buying indigenous work, only buy from a trusted source and if you have any doubts, get an independent valuation. Before buying over the internet, it is important to have built trust with the dealer of the gallery concerned and to always request the best quality highresolution images. With any organisation you deal with – art gallery, auction, consultant or dealer – make sure you check their terms and conditions of sale before committing to a purchase. Businesses have varying policies for returns.

11 – The pleasure principle While many investors enter the art world mainly for the hope of future profit, most gain a lasting appreciation of art along the way. We consider this a free bonus. As well as the pleasure to be gained from studying

the history of art, there is also enjoyment in knowing that you may be supporting a new generation of artists. Something to think about while their work hangs on your wall ...

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