Contemporary Art: Banking On Banksy?
Beautiful art may look great on your wall, but can it actually be a good investment? The short answer is it depends on your taste. In 2000 total auction turnover for the contemporary art sector was just $92 million. By 2019 it had hit $1,993 million. That’s a massive 2,100% jump in under two decades.1
Even the COVID-19 pandemic has done little to dampen collectors’ appetites. According to the Citi Global Art Market chart, as of December 2020 the sector has delivered an average annualised return of 14% over the last 25 years. Not bad considering the same chart shows annualized S&P returns averaging 9.5%.
It goes without saying, though, that these figures refer to investment-grade art rather than the best efforts of your seven year old (unless your kid happens to be a child prodigy like Advait Kolarkar). Let’s take a look at how to identify investment-grade art and what you should know before you shell out for that Banksy original.
Market Overview
In the last full year before the COVID-19 pandemic, Deloitte's Art & Finance Report estimated the total value of the art and collectibles market at US$1.7 trillion, with projections to reach US$2.1 trillion by 2023. While the pandemic has certainly dented sales thanks to the closure of galleries and art fair cancellations, the latest Art Basel and UBS Global Art Market Report expects a swift recovery:
“Global sales of art and antiques fell from $62 billion in 2008 to $39.5 billion in 2009 but returned to its pre-crisis levels by 2010. The bounce-back was fuelled by a stimulative fiscal and monetary response similar to what we’ve seen this year. We expect the art market to take a similar path forward.”
Notably, the report found that many HNW collectors did not lose their appetite for buying art even during the pandemic. 66% of HNW individuals reported an increased desire to collect fine art last year, with 33% reporting a significant increase. Institutional investors also held firm, with 78% of the International Association of Corporate Collections of Contemporary Art (IACCCA)’s 56 members still acquiring art during the pandemic.
One individual who increasingly dominates the contemporary segment, defined as art produced in the late 20th and early 21st centuries, is street artist Banksy. Thanks to his refusal to reveal his true identity and his provocative artworks that mysteriously appear overnight in public spaces, Banksy is one of the world’s most enigmatic and popular contemporary artists. He’s now the top-performing living artist according to Artprice, with turnover of $123 million in H1 2021 alone.2 The other high-flying artists in Artprice’s top 5 ranking for H1 2021 are Picasso, Basquiat, Warhol and Monet.
NFT Art
A sector that’s trending big time right now is NFT or “non-fungible token” artworks. While digital art has been around for a while, blockchain technology enabled these artworks to be “tokenized”. This token is an identifier which makes this digital asset unique. Just like with regular art collecting, only one person can own the original or NFT artwork.
NFT art has been flying off the digital shelves in the last year or so. The most expensive piece of digital art sold so far is Beeple’s “Everydays: The First 5,000 Days” which went for $69.3 million at Christie’s in March 2021. As of mid-2021, the NFT art market had rocketed by an impressive $429 million or 800% since the beginning of the year.3
Since this is such a new marketplace, it’s wise to be cautious when investing in NFT art. Some market commentators have expressed concerns that the meteoric rise of NFTs may be followed by a dot-com-style crash. The best approach is to do your homework thoroughly before buying and stick to popular artists with a proven track record. If you do opt for lesser-known artists, make sure you pick artworks you really love. That way you’ll still benefit from a beautiful artwork even if the piece doesn’t deliver an impressive return.
Key Players
While some art investors do go it alone, most rely on art advisers and galleries to source investment-grade work that matches their taste and their financial goals. In the case of artwork sourced directly from the artist, having the right gallery contacts can be essential to get access to certain “blue chip” artists. Big names to know include Gagosian, founded by the eponymous Larry Gagosian who has shown many of the world’s top contemporary artists at his original LA gallery, the Kohn Gallery in Hollywood, and David Zwirner which also specialises in contemporary art.
Another popular way to acquire or sell investment-grade art is at auction. It is here on the secondary market that popular pieces can soar in value. For contemporary art, auction sales are dominated by just three auction houses, Sotheby’s, Christie’s and Phillips, who account for 70% of the market by turnover. Their primary marketplaces are New York, London, and Hong Kong.
By now you’re probably wondering if your pockets are deep enough to splash out on a Basquiat or Banksy. The good news is that nowadays smaller investors have plenty of options to choose from. One opportunity is fractional art investing which is offered by the likes of Masterworks and Maecenas. Their platforms enable individuals to buy and sell part shares in blue chip investment-grade artworks. Another option is to seek out emerging artists which have the potential to make it big, but for this to work you’ll need to know what to look for. We’ll take a closer look at this later in this article.
Risks & Rewards
As with any alternative asset, contemporary art comes with its own set of risks and rewards which you’ll need to consider carefully before deciding if it’s right for you. One potential benefit of art investment is that it’s an opportunity to diversify your portfolio, and if done right it can offer a degree of capital protection.
Value drivers in the art sector include an artist’s reputation, their sales and exhibition history, and the general availability of their work on the primary and secondary markets. Emerging artists who are still building their presence in the market have greater growth potential in the long run. Generally, though, more established or “blue chip” artists are the preferred option for risk-averse investors since they hold their value better during downturns.
On the flip side, contemporary art is no get-rich-quick scheme. Liquidity can be an issue, with most advisers recommending a 5-7 year hold or even longer in the case of emerging artists. There’s also the risk that unscrupulous galleries may overhype a new artist to artificially inflate prices. The best way to limit your risk is to only work with established galleries who already have a good reputation in the industry, and stick to work by artists who already have a healthy international following.
Other factors to consider are possible additional costs like storage fees if you don’t plan to keep your collection at home or in your office, insurance, framing, and management fees or sales commissions.
Identifying Investment-Grade Art
Still with me? Given all the potential pitfalls, you might be wondering if art investment is still worth it. The answer is, it depends on the artwork you pick and your long-term financial goals. Take the world-famous street artist Banksy as an example. In 2002 his prints were selling for around $300 on the primary market. Today they regularly change hands for five- and six-figure sums, with his top-selling print of 2021, “Girl With Balloon”, going under the hammer for $2.8 million in June.4
Choosing the right artwork to invest in is critical, but it can be hard to gauge potential even for seasoned art experts. Some investors stick to big name blue chip artists like Banksy since their work is very unlikely to decrease in value. Banksy’s work comes with the added benefit of guaranteed authenticity, thanks to the artist’s “Pest Control” which is the only organisation permitted to authenticate his work. The downside to this approach is it typically requires a big upfront investment and that capital is likely to be tied up for an extended period.
Others scour the market for up-and-coming established artists like McArthur Binion whose stellar performance at Art Basel this year has generated intense interest. Two of Binion’s striking abstract pieces sold for $300,000 at the fair, despite his work only surpassing the six-figure mark five times up until now.5
Maximising Returns
Now you know what to look for, let’s talk about maximising your returns. As with any alternative asset, the best approach is to build a diversified portfolio and take expert advice from market experts or other successful investors. Visiting big art fairs and art galleries is a good place to start as it will help you get a feel for the breadth and complexity of the market and which hot new artists are trending right now.
For investors who are open to a bit more risk in exchange for higher returns potential, look at emerging artists who are still at an early stage in their career. For best results, focus on newer artists that already have a significant collector base or social following, a growing number of exhibitions under their belt, and interest from art critics or galleries.
These artists won’t have a secondary market track record yet, so try to work with an established art gallery or adviser to identify future top performers. You’ll have to wait a bit longer to reap the rewards of this strategy, but you’ll also get the chance to support a young or emerging artist and be part of their artistic journey. This experience can be uniquely enriching in itself, which is the reason why many investors are so passionate about the art world.
Art As A Passion Investment
Remember that investing in art shouldn’t just be about the money. Try to only purchase pieces you genuinely love that also have good investment potential. Even if your art collection doesn’t deliver the financial returns you were hoping for, that way you can still enjoy it for its intrinsic beauty. Now that’s something you can’t say about share certificates!
Disclosure: Investing involves risk and past performance may not be indicative of future results. Therefore, no current or prospective client should assume that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended or undertaken by Delphia) will match historic results. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a client or prospective client’s investment portfolio.
Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed in this material.
Artprice, “The Contemporary Art Rush”
Art & Object, “The NFT Market Explained”