ART AS AN ASSET CLASS

I will state for the record that I enjoy collecting art and am a self-proclaimed all around “design junkie”. For those that get hooked, few other activities can provide such an exuberant level of enrichment.

This is one of the reasons why a few of the senior members of Intercontinental Wealth Advisors that have served as patrons of the arts in our local communities decided to establish an art advisory department. We initiate our discussions with our clients by informing them that a fundamental motivator needed to procure paintings, sculptures, or even vintage or antique furniture should essentially be motivated by a qualitative desire to truly enjoy a work’s visual allure or the masterwork techniques and accomplishments of many of the artists we revere. Our art advisory practice believes that should be a key factor.

Art is a legitimate asset class, as witnessed by the record-breaking Sotheby’s and Christie’s auction sales seen in the contemporary art world over numerous years. However, if seen uniquely through the lens of being just an investment, one may end up being disappointed. The few art funds that are in existence tend to hold a basket of “bellwether” art works that have historically not kept pace with the private equity funds we collaborate with, nor the major market indices.

The illiquid nature inherent of this asset class should lead potential investors to consider long term investment horizons as well. We also educate our clients on the artist’s pedigree and his/her role in shifting the paradigm regarding how art is conceptualized. For instance, until Donald Judd introduced his breakthrough three-dimensional sculptures, we tended to think about sculptures in terms of primarily the figurative.

Purchasing works of art may require a high concentration of risk for the following reason: One of the factors determining a blue-chip painting’s valuation is its recent sales price at one of the major auction houses. This could demand minimum entry points anywhere from $50k to $250k. You can purchase at a lower price point, yet obviously the risk encumbered would increase substantially, thus one needs to tread carefully. Acquiring a separately managed account that holds a basket of small cap stocks should provide a superior risk/reward ratio than a handful of pieces.

The art advisor must also be keen to observe a work’s holdings in prominent museum collections, as well as the caliber of galleries that are representing these artists. An established gallery that is entrusted with managing the portfolio of a living artist, or the estate of a deceased artist, can influence and manage the portfolio with greater impact than one found outside the poles of New York and Los Angeles. Their nurtured relationship to pivotal actors such as museums and wealthy buyers who have amassed important collections cannot be overstated.

As you can see, this can become quite a complex and rarified ecosystem. Nonetheless, with the proper strategic guidance through an experienced art advisory team, one can begin to develop a patrimony with one of life’s rich pleasures!

Sincerely,
Kenny Korngold
International Director at Intercontinental Wealth Advisors