- Switzer Report - https://switzersuperreport.com.au -

It’s a buyer’s market in art, but be wary at auction

[1]

Five bidders battled it out for 12 adrenaline-fuelled minutes at Christies, New York, last month, and when the gavel fell, Edvard Munch’s The Scream was crowned the most expensive artwork ever to sell at auction, netting a cool US$120 million (inclusive of buyer’s premium).

Art history continues to be written in the major, and increasingly minor, auctions, and it is easy to see why such headlines draw the attention of the more sophisticated investor.

Buyers market

But while some exceptional artworks are breaking auction records, it’s generally a buyer’s market for artworks at present.

Perhaps it was the cold, concerns over the eurozone or simply inertia, but the Menzies auction in Melbourne last month really failed to fire, despite some good results. It was encouraging to see a new auction record set for Angus MacDonald ($34,864) and Adam Cullen ($27,000) for one of his now infamous Kelly series.

The Tim Storrier (Lot 30) also performed well selling for $146,272, however a number of good works were passed in, including an excellent Rick Amor and a fantastic Anthony Lister.

The sale did see the fourth Australian work to breach the $1 million mark at auction, with the sale of Brett Whiteley’s Sunrise, Japanese for $1.32 million – but that was the same price as its 2009 outing.

The need-to-know

Collectables now account for up to 10% of portfolios held by individuals with more than US$1.5 million in investable assets, according to a recent report by a wealth management firm in London. Of those holding collectables, which the report goes on to describe as ‘treasure’, 85% hold ‘Fine Art & Sculpture’.

But if you plan to invest in art, there are some things you should be aware of when buying and investing through the auction markets.

Auctions, by their very nature, pray on the finer and less desirable traits of humanity. The immediacy of having to make a decision can be daunting. It is also an environment where the foolhardy or brash are cajoled into spending more than they arguably need too. Auctions play on insecurities, greed and pure, and sometimes irrational, desire. Combine these elements with scarcity, whether it be real or induced, and you have a potent cocktail. The bidding for the Scream saw the price rise by US$1 million with each wave of the paddle – or blink of an eyelid.

One of the big criticisms of fine art as an asset is that it is an opaque market. In the larger markets, the use of Irrevocable bids, third party guarantees and similar functions mean that catalogues have a series of hieroglyphics that require an enigma code-cracker to decipher, but all indicate there has been an inside deal hatched to facilitate the sale of the item. In Australia, these sorts of mechanisms are less evident and largely left unpracticed.

The next point to consider is that auctions are largely only going to be as successful as the works presented for sale.

Shopping

The emergence of a Whiteley ‘fresh’ to market at the Menzies auction in Melbourne last month should have been a major draw card, however the work failed to sell on the evening potentially because it may have been ‘shopped’ around the market privately prior to being consigned for the sale.

Understanding whether or not these works have been ‘shopped’ privately beforehand is important information to have as an investor. I can recall in late 2007 being offered a major work at about $400,000. The work was withdrawn from market and then appeared at auction within four months. I spoke to the auction house concerned and was told categorically that my buyer would need to spend $400,000 otherwise don’t bother bidding. We didn’t and nor did anyone else for that matter as the work was passed in.

Auctions also operate under the ‘caveat emptor’ clause, i.e. buyer beware. Now in their defence, auction houses do an excellent job of allowing serious buyers access to works and do ensure that their condition reports are conducted by well-regarded independent experts. However, if you enter into any market that operates legally under buyer beware and you are green to the market, then doing so without expert advice is foolish and negligent.

When it comes to buying at auction for the first time as an investor, you must consider those common bedfellows of sound portfolio management – research, market expertise and advice.

To do anything less is simply taking a punt because at the end of the day, if you are the winning bid, then you have decided to pay more than anyone else in the room for that work. Having the compulsion and necessary information to make this an informed decision is paramount because you must always remember the investment will always lie in the quality.

Alistair Bailey is now based in London and is the managing director for Art Equity’s UK office.

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. Anyone should consider the appropriateness of the information in regards to their circumstances.

Also in the Switzer Super Report