Art is the oldest man-made asset class. It safeguards cultural values and preserves history. In addition to aesthetics, it can also offer very high financial security under certain conditions. Art has become the leading alternative asset class again after having lagged behind other tangible assets such as wine and classic cars in recent years.
"In recent years, the average value of art sold at auction increased by 21%."
It more than ten years ago that on November 11, 2008, the art market consolidated for a brief moment during the week of New York's main auction of the year.
It is the time of the great financial crisis:
The S&P 500 had collapsed 40% since the beginning of the year. JP Morgen Chase acquired Bear Stearns in March, the US government saved the two state-owned mortgage banks Fannie Mae and Freddie Mac with a historic bailout loan in September, and the renowned investment bank Lehman Brothers collapsed in October. The auction houses were prepared for the worst. In the end, Christie's, Phillips and Sotheby's each achieved only about half of their lowest price expectations at their evening auctions in November. The financial world seemed to be out of joint, disbelief about the fallibility of state institutions and global instability seemed to increase immeasurably.
And yet, despite all the adverse conditions and the poor results, the art market did not collapse. One or the other collector might have been forced to sell a masterpiece for quick liquidity, but overall the market remained stable and even grew. Art turned out to be crisis-resistant. In general, the development was slow, but steady and exceptional prices for great works were still achieved at upcoming auctions.
In Spring 2020 we have a simililar market condition and the end of the corona crisis is not reached. But the broad trust in art remains resolute, albeit temporarily challenged. The very wealthy, who are the foundation of the art market, are still very wealthy. Much of the slowdown at the top end of the market was due to uncertainty about how long the money should be left aside, rather than loss of trust, belief, or enthusiasm for collecting art. The collectors today are very knowledgeable and selective. This dynamic is reflected in the extremely high level of rarity and quality, both for masterpieces by the most important artists of the past 150 years and for artists who are just establishing themselves.
Investing in art, once reserved for the wealthy elite in Europe and North America, is now global. China already overtook in 2010
the United States as the world's largest art market.
Volatility in the art market has been determined in particular by the prices for post-war art and contemporary art in recent years. After a despondent market sparked great concern in 2016, the key players were won back by the auction houses in the following year. The desire among wealthy art lovers to expand their collections and private museums grew again, at the same time large institutions, such as the Louvre, which opened a franchise in Abu Dhabi, put the offer under further pressure. In this respect, the price development for the masterpieces of the 19th and 20th centuries, especially Afro-American and female artists will continue. However, the sensational sale of Da Vinci's "Salvador Mundi" gave rise to hope that a larger audience could be introduced to old masters in the future.
In art, the "masters of painting" from the 14th to the 18th centuries are referred to as the "old masters". These paintings have the longest track record and are therefore considered to be particularly crisis-proof and stable in value. The trade of these works has been documented over a very long period of time, which significantly reduces the susceptibility to "bubbles". The relatively high demand for old masters, who are the so-called "classics" in art investment, is only offset by a small finite supply.
In contrast to contemporary art, there is very little volatility and prices are hardly affected as the value of a painting has risen to a moderate level over the centuries. It is therefore a rather conservative investment, since the risk, but also the chance of returns, are capped. Since the prices for the art of the 19th and 20th centuries have so far made the headlines in the press, there is hope in the industry that the sensational sale of Da Vinci's "Salvator Mundi" in 2018 will attract a larger audience to old masters.
The concept of modern art is an incomplete but already historical epoch in art history, which is usually described with the avant-garde art of the 19th and 20th centuries. Modern art has only a medium-long track record compared to the Old Masters, since it has not been on the market for so long.
"Modern art is currently at the heart of the global art market."
It is the densest (about ten times the volume of the Old Masters) and the most profitable segment. American modernism is considered a particularly safe investment and has seen a continuous rise in prices for years. It should be noted here that a large part of the supposed security of dealers and galleries is artificially created in order to consciously counteract price erosion through aggressive shopping or hoarding of works.
Contemporary art is art that is produced by contemporaries and is perceived as significant by other contemporaries, produced in the second half of the 20th century or in the 21st century. Contemporary artists work in a globally influenced, culturally diverse, and technologically advancing world. It is the segment with the largest sales growth in recent years. However, investing in contemporary art is also a major risk as future developments are difficult to predict. On the other hand, low prices of unknown artists allow collectors to enter the art market with comparatively little investment.
Like no other era, contemporary art is shaped and driven by current trends. For this reason, a differentiated, conscientious analysis of the market, expert knowledge and personal expertise are essential to minimize risks as much as possible. The collections of 78 percent of the 200 most important players in the art market prove that the contemporary market can be profitable despite the high risks.
Provenance, the complete proof of the origin of a painting, has a strong price-driving effect, since this is the only way to clarify the authenticity and legitimate possession of a work. The buyer of a work is always obliged to inquire about the complete provenance, because in violation of the "duty of care" a good faith purchase can no longer be assumed. In connection with the confiscation of art and cultural goods in the Second World War by the "Einsatzstab Reichsleiter Rosenberg", the provenance of paintings before 1945 is particularly important. This is also shown by the case of the internationally renowned New York art dealer Adam Williams, who bought the painting "Portrait du Pasteur Adrianus Tegularius" by Frans Hals at Christie's in 1989. The said picture was part of the world-famous collection of the Jew Adolphe Schloss in the interwar period and was confiscated during the Second World War. Christies had omitted the dubious provenance in his exhibition catalog, but Adam Williams was sentenced in 2001 by the Paris Supreme Court to eight months' imprisonment and a fine for trafficking in looted art. The judgment was based on the fact that a thorough provenance research can be assumed for a specialised art dealer like Adam Williams.
The state of conservation is another price-determining factor. Unlike works of contemporary and classical modern art, the preservation of works before the 20th century is more difficult. Canvas paintings in particular react extremely sensitively to changes in their surroundings. Constant climatic conditions avoid cracks, paint peeling and mold. Damage caused by moisture and sunlight must be avoided. A good indoor climate prevents pictures from drying out and becoming brittle. In addition, antiques and paintings should not be constantly exposed to direct sunlight so that they do not fade.
Most household insurance policies exclude the insurance of valuable art objects. Therefore, financial protection with a special art insurance against possible theft or damage to nature can be useful. This also applies if the unique pieces were lent to a gallery or a museum.