Art making solid returns

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It is fair to say that 2011 was an ‘interesting’ year for the art market, both domestically and in the international arena. The major auction houses are yet to publish their annual sales reports, but on the surface, figures for Sotheby’s at least suggest an increase in auction turnover of around 12% to US$4.9billion.

The first half of the year had a runaway freight-train quality about it (Sotheby’s recorded its best first half in its illustrious history), with sales meeting expectations and, in many cases, exceeding them. It seemed as if 2011 would not only consolidate, but surpass the remarkable recovery experienced in 2010.

However, from September to the gavel falling on the last lot of season, the results became far more sporadic – an issue that has plagued the Australian auction scene for the past 24 months. Many analysts have suggested this trend is directly correlated to the continued concerns surrounding sovereign debt in the eurozone. This has been a contributing factor, but is it really the only reason? I’m not so sure about that.

Art vs equities

The Mei Moses All Art Index points to another very solid year for 2011 with the index ‘closing’ up 11% from 12 months ago. Some reports go on to reference that the All Art Index has outperformed the S&P 500 Total Returns Index for the second consecutive year and the sixth time over the last 10 years.

However, we shouldn’t make direct correlations between the results of the All Art Index and that of the S&P 500 TRI because both markets are governed by their own nuances and fundamentals which often don’t translate into each other’s markets.

One of the significant attractions in Fine Art Investment is that it provides a level of true diversification for the underlying reason that it is largely uncorrelated to the more traditional asset classes.

If we take the Mei Moses results in context, then the comparative allows us to see the confidence levels in the market as opposed to a direct comparison – after all, there is no mechanism to trade the index returns in Art as there are in equity markets. As an investor in this space, it is paramount that you don’t find yourself comparing apples with bowler hats.

Top sales for 2011

It is believed that the most expensive work ever sold was transacted by private treaty in 2011, with reports suggesting an undisclosed buyer paid US$250 million for The Card Players by French artist Cezanne (1839–1906). The identity of the buyer will eventually surface, however we will never really know how much they paid for the work such is the beauty of private treaty and testament to how opaque the art market can be when it wants to.

The highest price for a work sold at auction in 2011 was set in Beijing, China, in May, with Qi Biashi’s Eagle Standing on Pine Tree selling for US$65.29 million through China Guardian Auctions. Despite there being murmurings about the nature of the reporting of results from auctions on the mainland, the impact China as both a market and as a buyer on the Global Art Market can no longer be under-estimated nor ignored. While activity on the mainland will inevitably subside, Hong Kong has fast established itself as a major hub for the world art market.

The top prices at Sotheby’s and Christie’s were for American abstract expressionist and Pop Art. The previously underrated Clyfford Still soared to a record price of $61.9 million for 1949-A-No.1, while Roy Lichtenstein’s I Can See The Whole Room!… And There’s Nobody In It, fetched $43.26 million in the November sales in New York. The 1961 Lichenstein is widely regarded as the very first Pop Art painting by the artist and is most certainly the first of his works inspired by cartoons.

This painting has also proven to be a fantastic investment. The painting last went to the hammer in 1988 when it sold for US$2.09 million (a then record for the artist’s work at auction) giving the vendor a Compound Annual Growth Rate (CAGR) of 14.08% when they sold in 2011. The buyer in 1988 returned a staggering CAGR of 36.71% over a 27 year period for the previous owner, who purchased the work in 1961 for a meagre US$450. So, it has generated a CAGR of 25.79% over the last 50 years!

The Australian market

The Australian auction market didn’t enjoy quite the vigour in 2011 that the broader art market enjoyed, however the auctions turned over $99.92 million. Despite closing down 3% on 2010 in terms of turnover, the Australian market was far less reliant on the $1 million-plus works than the previous year, with nine works that breached this level accounting for 14% of turnover.

Along the way, 29 new Australian artist records were set, which included the $1.2 million for Arthur Boyd and $1.02 million for Jeffrey Smart. From these high prices we also started to see a shift in buying patterns and behaviour.

The likes of Margaret Olley (who sadly passed away in 2011), Ray Crooke and Eric Thake saw significant gains in prices, but it was the move in the contemporary sector that was of most interest. Ben Quilty’s Frog Torana smashed his previous record, selling for $88,000 (inclusive of buyer’s premium), while Del Kathryn Barton continued to move ever higher. But it was the emergence of the likes of David Noonan, Andrew Browne, Peter Powditch and Jon Cattapan that marked the year.

Who to watch in 2012

I’m a firm believer that the best investments in the Australian market are ensconced in the Mid-Career area of the market. Results like Quilty’s Torana pay homage to this thought. With that, below are 10 artists that I am keeping a keen eye on for the year:

  1. Jeremy Kibel
  2. Adam Nudelman
  3. Rick Amor
  4. Nicholas Harding
  5. Wentja Napaltjarri
  6. Rosemary Laing
  7. Adam Chang
  8. Maclean Edwards
  9. Tim Storrier
  10. Chen Ping

And a couple of blue-chip players:

  1. Ron Mueck
  2. John Olsen

Just remember though, when all is said and done, don’t just buy art for a name – the investment lies in the quality.

Alistair Bailey is the executive director of Art Equity.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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