Art is considered to be a subset of the alternative investment asset class and has been rising in popularity amongst investors. From providing aesthetic pleasure and being less affected by normal market conditions than other asset classes, art can be a great way for investors to diversify their portfolio. Over the past year, the global art market has shown remarkable resilience and adaptability, despite uncertainties in the global economy, as highlighted in a report published this year by Art Basel and UBS.
According to Knight Frank’s Luxury Investment Index (KLII) in 2022, art was the best-performing luxury asset, partly driven by several blockbuster sales which helped raise average prices by 29%. The top-selling items included Andy Warhol’s “Shot Sage Blue Marilyn” (1964) which was sold at Christie’s for $195 million.
Andy Warhol’s “Shot Sage Blue Marilyn” (1964)
Where and how to buy a painting largely depends on its painter, its rarity, and hence its assumed value. There are both primary and secondary markets. The most valuable paintings in the secondary market tend to be sold by a prestigious international auction house, such as Sotheby’s or Christie’s, usually via a public auction but private sales are also common. At the lower end, there are numerous websites where paintings can be purchased and these tend to be aimed at the primary market. The primary, low value, market also includes art school shows, which can be a great way to find ‘undiscovered’ artists. Middle value art can be purchased at auctions, from galleries and dealers, private sales, and at fairs and exhibitions such as Frieze, Art Basel and Armory Show.
Once a painting has been identified as a potential investment opportunity, it is important to determine with a high certainty that it is authentic, i.e. it has been painted by the stated painter and is not a forgery. Sotheby’s states that “some experts estimate that up to half of the art market might be plagued with forgeries or misattributions” and that “Salvador Dalí is by far the most counterfeited artist in history.” Therefore, a certain amount of due diligence is required before purchasing the painting. This can either be direct or indirect, for example by seeing evidence that the seller has completed due diligence.
A good starting point is to see if the painting is on ‘The Art Loss Register’ (ALR). The ALR states that it “is the leading due diligence provider for the art market, and maintains the world’s largest private database of stolen art, antiques and collectables.” This will identify whether the painting has been stolen and may raise questions about previous dubious ownership of the painting.
If the painting is not on the ALR, the most common form of due diligence is then provenance research, which is effectively verifying the chain of ownership. This starts with the seller, then working backwards verifying every owner of the painting since it was created. This is usually achieved by considering contemporaneous/primary evidence such as auction catalogues, photos of the painting in a house, exhibition catalogues (if the painting has been publicly exhibited), and sales receipts. A catalogue raisonné has usually been published in respect of the most established artists. This is an authoritative document of all the known paintings produced by the artist, and hence is a further source of provenance research. However, it’s important to note that its inclusion in the catalogue raisonné doesn’t necessarily mean it is the original painting.
Another form of due diligence is forensic analysis, which can include both scientific and non-scientific methods. The former includes analysing the pigments used in the painting to see if they were available at the time the painting was meant to have been painted and if they were typically used by the painter. The latter can be done by comparing the pigments with pigments from a painting definitely known to be used by the painter. For example, the English artist L. S. Lowry was known to have used only five types of white pigment. Other scientific methods include infrared imaging, carbon dating, and the analysis of the canvas and frame. Non-scientific forensic methods include analysing the style of the painting, such as brushstrokes and composition, compared to known paintings by the painter. Nevertheless, these could still be copied by highly experienced forgers.
Whilst there are some challenges with investing in art, particularly when it comes to due diligence and authentication, art’s lower correlation with other asset classes is a benefit not to be understated for diversification strategies. It’s also important to undertake research if the painting is being purchased for reasons other than pure personal enjoyment to ensure that its value is properly assessed. By doing so, one can truly appreciate the painting’s historical and cultural value, as well as hoping it will positively contribute to a diversified investment strategy.
Sotheby’s London | Art Auction & Sales
