The broad strokes of investing in art
Acquisitions of artwork has become an option to diversify portfolios
David Heffel says he likes art as part of an investment portfolio because it provides daily dividends.
“They’re assets that you can live with and enjoy on a day-today basis, but, more importantly, you can share them with family and friends.”
The sentiment is part of a wider trend among wealth advisers who see art as part of growing passion-based investments.
Heffel, president of Heffel Fine Art Auction House, has seen his share of paintings bought for a pittance that sell for hundreds of thousands — or even millions — that prove to be fantastic returns on investments.
“It’s another way to diversify a portfolio, which is important, and it’s a good way to support culture,” said Michael Taglieri, who studied art history and worked in the art world before becoming senior wealth adviser at Assante Capital Management Ltd.
Deloitte’s annual art and finance report finds that 88 per cent of wealth managers polled believe art and collectibles should be part of wealth management offerings. About half say diversification is one of the strongest reasons to include art in wealth management.
The 2017 Deloitte report noted the market can provide steady returns, citing website Artnet’s indices that showed the global contemporary art market had a compound annual growth rate of 8.54 per cent over the previous 15 years.
Investors shouldn’t, however, bank on such returns. Some high-end art segments have shown negative returns in recent years. As well, average investors generally don’t have access to the higher-end art tracked in the indices.
Taglieri’s advice to potential buyers is to look for young or emerging artists, since the costs of entry tend to be much lower.
“If you’re going to an auction and buying from the secondary market of an established artist, your investment is a bit safer, a bit more solid,” he said, “but you’re going to pay for it.”
Investors seeking to dabble in art should look around at a variety of galleries, magazines and auctions to find what style they like, and make sure they love what they’re buying since it’s quite a speculative purchase, Taglieri said.
“You really have to enjoy a piece because it may take a long time to appreciate.”
Heffel said while the costs of entry are higher, he prefers more established artists.
“I like to focus on mid-career painters that have some track record of some museum recognition, a public record inclusion,” he said. “And if you’ve had an opportunity to meet those artists, that they have a lifelong dedication.”
To improve the chances of making a sound art investment, Heffel recommends exploring online databases of private auction sales and other online tools to understand the art market itself and what kind of art holds or increases in value.
Buyers should also factor in insurance costs and ensure paperwork is in order so the provenance of a piece can be proven, he said.
As well, there are art funds where investors pool capital and buy pieces that would otherwise be out of reach. However, the funds are generally only accessible to high net-worth individuals, and can have opaque structures and sometimes onerous terms.
The funds also run counter to the advice of collectors like Heffel, who recommends buyers explore the creative world of fine art and carefully buy according to your taste — and budget.
“In the early stages, look at as much art as you can ... standing face to face in front of as many artworks as you can to educate your esthetic eye.”