Giving art investment more credit
Short of cash for that Pierneef? Bidvest might have the product you need
● Bidvest Bank, in collaboration with Aspire Art Auctions, has launched SA’s first product aimed at providing credit for the purchase of artworks.
The initiative mimics similar moves in European markets where art is a major asset class. The product will be taken to galleries and is expected to spur more interest in the market and possibly trigger further instruments of this kind.
Investors are increasingly looking at art as an alternative to traditional assets, though many academic studies question the value of the returns on offer and note that transaction fees with galleries and auction houses are often higher than those for other asset classes. This, the studies say, can reduce the attraction of art as a way of diversifying a portfolio dominated by property, bonds or shares.
Meanwhile, globally, the art auction market almost doubled in sales volume between 2002 and 2013 because of rising wealth and very low interest rates, according to a report from Investec.
The global art market is dominated by two auction houses, Christie’s and Sotheby’s. In SA, Strauss & Co is the largest art auction house in terms of revenue, followed by Aspire, which launched in March 2016.
Though the local art market is small compared with the world market, there’s been growth in the past few years, especially with the plethora of new art fairs and galleries.
Local banks have been paying a lot more attention to the art world, though often in a peripheral way in the form of sponsorships. There is the FNB Joburg Art Fair, RMB Turbine Art Fair and Investec Cape Town Art Fair; and Absa and Standard Bank have galleries which often showcase top exhibitions.
James Sey, marketing manager at Aspire, said there had been an increased interest in art. “It’s an unconventional asset class … People who know will know which signatures will bring returns. It’s an internationally established asset class, which is tracked against other asset classes.”
Sey said collecting art was not only for the top end of the market. At Aspire, he said, online auctions often featured editions of prints and artists who did not have a big presence at auctions and could be offered at lower prices — down to R1,000.
Aspire also handles art books on its online auctions. “These have a slightly different collector base, often book dealers. It’s a particular sales channel that is growing for us, but live auctions are our main focus,” said Sey. These take place three or four times a year.
Sey estimated the art market was worth “somewhere north of R1.5bn a year” in SA, though no reliable data was available. The global art market is sitting at about $60bn a year, “depending on your source”.
Repayment schedules for the newly launched Bidvest product range from a three-month minimum to 24 months. Interest rates are determined during the application process, for which the bank aims to have a turnaround time of 48 working hours. Normal credit checks are applied.
Brian Joffe, the former CEO of Bidvest, and Adrian Gore, CEO of Discovery Holdings, who both collect art, are shareholders in Aspire. But neither is involved in the daily running of the business.
Artprice, a French online art price database, recently reported that turnover for global fine-art auctions reached $8.45bn in June, an increase of 18% over six months. The market grew in the West and in China, with a whopping 48% increase in turnover in the US to $3.3bn. Turnover in China rose to $2bn and in the UK it was up 17% to $1.9bn.
Artprice said nearly half of the total global turnover was accounted for by the modern art segment, led by works by Picasso and Modigliani.
Experts caution that these eye-watering figures are only really possible for works consigned by museums or large art institutions, along with a small group of high net worth individuals.
Deloitte’s “Art & Finance Report 2017” said six of the seven major art indices reported positive returns for the year to April last year, led by Impressionists (up 10.5%) and contemporary (up 7.45%). Contemporary art has delivered a compound annual growth rate of 4.09% and old masters 1.72%, according to Investec.
Interest in South African art is growing, particularly in the work of prominent artists as William Kentridge, Alexis Preller and Gerard Sekoto. UK auction house Bonhams now has a dedicated South African department.
In the end, it comes down to risk and reward.
As the “Art & Finance Report 2017” said, there are some correlations between art categories and traditional asset classes.
“For example, Impressionist art and old masters are highly correlated with safehaven assets like bonds or real estate, while movements like contemporary or Chinese art tend to be correlated with riskier assets like equities and commodities,” the Investec report said.