Navigating the art world in search of stunning works or high returns
The art market is vibrant, complex and somewhat difficult to navigate. Who sells art? How is the art economy organised? For anyone interested in buying art, it’s good practice to understand who the key players are.
Obviously, there would be no art market without collectors. The art economy depends on perceptive collectors who identify and collect the finest pieces produced by artists.
These people prefer to keep acquired artworks in their collections, rather than flipping them for profit. They enjoy sharing their passion and like to show off their collection to likeminded art lovers. They are also not averse to loan their prized pieces for exhibitions to contribute to the aesthetic quality of art shows.
The terms gallerist and art dealer are often interchangeable. The success of galleries is directly linked to the quality of the artists in their stable and the exhibitions they put on. Art knowledgeable and passionate gallerists play a key role in showing new original and sometimes radical works that will eventually contribute to our history of art.
Today, the traditional model of art galleries has changed. Due to the high costs of running a physical gallery space, many art dealers have opted to include their artists at art fairs in order to expand borders and their client base.
Some have even decided to close doors and only show at art fairs that now form a significant cornerstone in the art market. A growing portion of gallery deals are concluded at fairs, where exhibitors can engage with potential new clients and grow their private buyer networks.
Seasoned collectors and new buyers can enjoy the lively and less intimidating atmosphere to view a wide cross-section of art that has been vetted by curators and gallerists. They can also engage with experts and find out about new developments in the art world by attending the panel discussions that always form part of a fair programme.
The art market is broadly divided into what is known as the primary market, where an artwork is sold for the first time, and the secondary market, where a previously owned work is sold again.
Commercial galleries account mainly for the primary market — although some galleries also focus on selling works that had previous owners. There is ample information in print and online and it’s easy to identify the top galleries and their artists.
In the field of contemporary art, galleries like the Goodman, Stevenson, Momo, Circa, Whatiftheworld and SMAC offer collectors a selection of ground-breaking works by recognised artists.
It is more challenging to identify smaller galleries and selecting pieces by emerging artists, when there is no consensus yet about the quality of their work. However, acquiring an affordable, good emerging artist’s work can be intensely gratifying as such works may have a greater chance of appreciating in value, compared with an artwork bought expensively.
The secondary market accounts for 30%-40% of the total art market and is mainly associated with the auction houses, which are a great place to find historic art pieces.
Before an auction takes place, glossy catalogues are printed and previews are hosted, which provide collectors and enthusiasts the opportunity to view unseen artworks that largely originated from private collections.
The divide between old masters and pre-owned contemporary art works at auctions are becoming smaller due to a growing shortage of quality works by deceased artists. Most of the limited number of top artworks are now in private collections and private museums.
Due to the competitive nature of the art market, many auction houses are also focusing increasingly on private sales. These so-called private treaty sales are usually for clients who wish to keep their works under the radar, or who wish to benefit from a quicker turnaround time and avoid the risk of their works not selling at public auction.
The art economy is moving online too. Online art sales grew an estimated 24% in 2015, from $2.64bn to $3.27bn, according to the Deloitte Art and Finance report 2016. The online art market is dominated by auction houses, whether brick-and-mortar or online only. While auction sales in SA are mainly conducted during live auctions, online auctions are becoming popular too, with Strauss & Co taking the lead on this platform.
Online dealing can pose some risk. Buyers have not seen the original work, which may be damaged and they may fall victim to fraud. These risks are mitigated when buying from reputable sellers who have policies in place to protect buyers.
The advantages are that the online market gives collectors the chance to participate in auctions anywhere in the world and purchase previously inaccessible artworks. A word of caution though, shipping and taxes can inflict hefty premiums on the final price tag.
Art funds offer a further avenue to buying art, with a focus on art as an alternative asset class. The first fund dates back to 1974, when the British Rail Pension Fund invested in more than 2,500 artworks over six years. The scheme prospered, reportedly delivering an aggregate return of 11.3% a year compounded from 1974 to 1999.
Since then, several funds following various models have been launched. Successful art funds, modelled like investment funds, can offer benefits for the art market and investors.
Investors can expect returns while their invested funds can support the art market indirectly as their contributions can stabilise art prices in times of an economic contraction.
Over the past decades, returns generated globally by art have reportedly been comparable with the returns in equities. While the confidence in art funds remains mixed, results have shown that fund managers who fully understand the aesthetics and market dynamics of art assets are able to generate respectable returns for stakeholders with minimal risk.
In 2015, the Scheryn art collection was launched in SA. Its aim is to pool together collectors’ capital to build a prestigious collection of modern and contemporary African art and to position art from the continent on the global map. The Scheryn collection offers collectors the aesthetic rewards associated with the collection and a range of artrelated added value services.
With art funds and collections alike, what’s important is for art and financial experts to partner to deliver best results.