Jabre Capital Partners founder, CIO and CEO Philippe Jabre benefits from four decades of experience of the wealth management industry. This article will look at art as an investment vehicle, providing not only a source of aesthetic beauty but also a potentially lucrative wealth-growing tool.
For wealthy investors, art and collectibles often represent a significant percentage of their balance sheet, with the potential for that share to grow for a number of reasons. Record-high valuations for traditional assets such as paintings and sculptures are providing motivation for increasing numbers of investors to turn their attentions to the art world, in turn driving art prices higher. Simultaneously, the art market is currently under the influence of one of the most significant wealth transfers in global history. As a result, more investors who do not meet the traditional mould of an art collector are taking an interest in the sector.
Artwork offers numerous intangible benefits in addition to building wealth. Nevertheless, successful investors recognise the importance of aligning their investment decisions with an overall strategy. This is particularly important with art investing, as this form of asset is less liquid and more idiosyncratic than other asset types.
Whether inherited or amassed over the years, a prudent art investor with a significant collection will catalogue their artwork, understanding the value of key pieces as well as that of the overall collection. Gaining a thorough understanding of this is integral to making informed decisions, including whether to maintain the collection, if and when to sell a component, and how to incorporate art into their estate planning.
Individuals keen to start getting involved in art collecting need to consider how art fits into their bigger-picture goals. Those with a passion for collecting must still maintain balance, deciding what percentage of assets they should earmark for art, keeping in mind their time horizon, liquidity needs and ancillary costs related to insurance, security and storage.
In today’s climate of economic uncertainty and geopolitical turmoil, many high-net-worth individuals are focussing on alternative assets such as art and other collectibles. In addition to the social and emotional value intrinsic to art and other collectibles, this asset class has demonstrated a low correlation with traditional asset classes, presenting an ideal hedge against inflation and making it an attractive option in terms of portfolio diversification.
Over the long term, art has the potential to outperform equities, with The Economist Valuables Index of Art and Other Collectibles rising 64% faster than the MSCI World Index since 2003. Nevertheless, research conducted by ArtTactic and Deloitte reveals that 83% of art collectors polled agreed that the emotional value of art was their key motivation.
While the art market tends to echo trends in the broader financial world, the two do not move in lockstep. For instance, when the global economy takes a tumble, the art market tends not to feel the immediate effects, with a year or two’s delay due to the characteristic illiquidity of art assets. With big auctions typically only staged twice a year, this can make it difficult to transact quickly. As a result, collectors who can afford to hold onto their masterpieces until calm returns will be unlikely to take the risk of selling during turbulent economic periods.
When considering investing in art, it is important to consider how economic conditions may affect liquidity and pricing. In addition, it is also crucial to keep in mind that, in the world of investing, diversity is key. Nevertheless, with the art and collectibles category having the potential to outperform equities over the long term, the sector is providing unique business opportunities, fuelling double-digit growth. Art financing also enables high-net-worth individuals to turn their art collection into liquid assets, providing untapped opportunities for financial institutions to not only generate revenue but also increase their share of wealthy customers.