Art is now viewed as an asset category. Mohnish MAthur gives the low-down on investing in art funds.
Beginning with the days when most painters had to borrow money to even buy paints, till M.F.Husian''s famous, "Even I can''t afford my own paintings'''' statement, Indian art is in step with India''s economic progress. Enter art funds!
The question that most investors and fund managers ask is whether art funds would behave like the bellweather Sensex/Nifty with their famed volatility. Art analysts - though a mere handful, unlike analysts of other asset classes like equity, commodities - are extremely gung-ho about the prospects and base their opinion on the successful India story. Not only are Indian investors more affluent, global investors also have a huge appetite. Blending art and money, these funds for contemporary Indian art aim to trade the way mutual or hedge funds do - buy low and sell high, while collecting fees in the process as also a percentage of the profits.
Although the going has been slow so far, there has been a paradigm shift in the way people approach art funds. Art is now clearly viewed as an asset category - a mainstream asset class. Among discerning investors, art funds have emreged as a credible, alternative investment avenue. But this clearly is one side of the story. The art fund industry is at a nascent stage in India. We do not have much empirical data to base our investment decisions. That the art market is frothy and will not go up forever is evidenced by the fact that Japan''s market saw a massive shake up and a downturn which lasted more than a decade. Art funds worldwide are viewed as risky. As a major global art investor is fond of saying "Investing in art or art funds isn''t about beauty , truth and passion its about making money. One has no choice but to take a cold, clinical view about the funds invested." We cannot deny that a Husain sold at 486,000 USD last year at Sothebys, compared to a peek of 16,00 USD in 2000. Or that Osian raised over Rs.150 crore for its fund.
Any investor in art funds would agree that trading art pieces isn?t like trading equity or treasury bills and forex where the entry-exit process is much easier and more calibrated simply because art is extremely hard to value and really difficult to buy and sell.
One can never make art a commodity like sugar or soyabeans. Art isn''t easy or tough to buy and sell institutionally and an investor fund manager may never get the opportunity to demonstrate how quick he is on his feet. When one buys art, one is not getting a quantifiable investment. While an individual may value the piece at x, another may be unwilling to pay more than 50% of that value. There is the likelihood of getting saddled with an investment the value of which is notional.
Any hard nosed investor or fund manager would ask himself how works of art stack up as investments vis-a-vis the other asset classes. For one thing, there are no bonuses and dividends coming in. maintenance and storage would also be really important constituents of any investment decision. And then there''s the important question of the shelf-life of the artist. For every Husian or Tyeb Mehta or Atul Dodiya, there are a whole lot of artists who will simply disappear into oblivion a few years from now. There''s also the factor that most art funds will insist on a minimum investment and a lock-in period.
A few more issues surfaced in the course of my discussions with potential investors e.g. how do you evaluate a work that remains unsold? The fund manager, in spite of all his insight and foresight, may just find a few such albatrosses around his neck. Also the difference in quality, even in works by the same artist, makes it impossible for plain vanilla, arithmetical valuations. On many occasions even serious art collectors who collect a particular artist aren''t interested in all his or her work. According to insiders (read, those who''ve made a career of trading in art), most art specialists including art fund managers, do not always have really in-depth information about the art market.
Most funds would use the services of auction houses to carry out valuations since they can feel the pulse of the market in an on-going way. Their estimates would reflect the realisable value of the piece. It''s interesting to note that art objects have been classified as capital assets in the union budget this year. Naturally, what were mere objects of delight and passion have turned into investments attracting the attention of the taxman. Dipali Bhattacharya, the famous painter from Kolkata, seeing the influx of unaccounted money into the art trade, has summed up the development in one word "unhealthy". According to out taxmen, this field is now another avenue for laundering money.
Touching upon portfolio valuations, I looked at the model adopted by a leading art fund
a)The bank balance
b)The portfolio value as valued by an auction house.
c)The value of objects outside the expertise of the auction house. Valuation on current market quote.
d)Realised sale value yet to be banked.
It is parameter ''C'' that requires attention. There''s scope for big manipulation here, bolstering the argument that when one buys a work of art, there is a great deal of subjectively involved in the value.
So whether art is a good investment depends on changes in the price of art more than the ability of an art fund to attract investor. For the moment, however this sector is rocking. It might, therefore be a good idea to enter it but to do so with caution incidentally; did I mention the biggest downside of an art fund? You, as the investor, will never actually be able to put an art work on your walls.
A Beginner's Guide To Investing In Art
Art is now overtaking traditional avenues like stocks, property or gold. Farah Siddiqui, an art consultant, tells you how to enter the new field.
After years of relative obscurity, modern art from Asia is now going through and unexpected boom. As the world economy globalizes, art connoisseurs across the world are exploring the possibilities of collecting art from countries like China and India.
According to investment advisors, art enjoys a prominent position as a percentage of and investor?s portfolio in the West. Though collecting art has still not reached that stage in India, the trend is very apparent. The returns in the art market have been extraordinary and have outclassed traditional asset such as stocks, real estate and gold. As in any investment it is advisable to know as much about the subject as possible. One can seek sound advice from an art consultant or a senior collector to know more about artist?s visions, the market and its dynamics.
The first step is to be acquainted with the artist?s body of work and his/her best period. Apart from regular research through books magazines and the Internet, visit as many art exhibitions a possible to understand the nuances of art appreciation. Awareness and media attention has contributed to developing and building buyer understanding. Auction houses publish the prices of art works, which means there is a greater transparency and information available. Unfortunately unlike the west, India is yet to have museums of contemporary India art, private and public, where one can browse and learn more from the curators.
Buying works of well-known artists is a smart move for returns in the short term. Blue-chip artists include Tyeb Mehta, M.F.Husian, S.H.RAza, F.N.Souza, V.S.Gaitonde, Ram Kumar. There are several mid-career artists who have immense potential. However if you spot talent early, your returns can grow manifold over a period of time, if you are prepared for the gestation period (3 to 6 years). Generation next artists which include the famous ?Bombay Boys? such as Anant Joshi, Bose Krishnamachari, T.V., Santhosh, Baiju Parthan, V.N., Jyothi Basu and Riyaz Komu have accomplished phenomenal growth since 2005, Contemporary artists who are sought after by international buyers and galleries worldwide include avant garde artists like Subodh Gupta, Shilpa Gupta and Jitish Kallat.
With art, rarity, quality and condition equal value. One-off original are, therefore, more valuable than multiples, prints, copies or reproductions, Paintings, drawings and collages are usually on-offs, but sculptures often come in editions of nine. Prints like etching, silkscreen, lithographs are produced in limited editions: the smaller the edition, the higher the price. The print must be signed and numbered to hold value. The same is true of photographs.
For investors, probably the most essential element is authentication of the work/the provenance of the piece they are investing in. Over the years, works often pass through multiple owners before coming to the secondary market owners before coming to the secondary market. Considering the number of fakes floating around in the market, one needs to be careful about the source. The artist?s signature is normally on the front or the back (or both) of the painting but it is not uncommon for artists to leave some pieces unsigned. Therefore it is best to buy from a credible source. Art works documented and published anywhere including exhibition catalogues and newspaper articles, support the authenticity of the work. An authentication certificate (most common document accepted) from an established gallery or dealer is essential for re-sale purpose. Beware of suitcase dealers trying to offer you a bargain. Galleries and reputed dealers are likely to maintain stable prices prevailing across the country. Art auctions are a great way to track prices of art works, but this does not necessarily indicate a standard price for the artist since each piece is different in quality apart its period.
When you want to sell art, visit a art consultant or an advisor who will be able to evaluate the work and guide you for either a private sale or consigning the art work for an auction.
It you are apprehensive about investing yourself, one can buy shares in an art fund, a consortium that buys and sells art for profit by taking the advantage of consolidating buying power. The downside is that you will not get art to put on your walls and the lock in period is between 1-4 years, but the upside is that art funds are often backed by experience to deliver returns in a professional manner and allows investors to participate in the Indian art market without the risks.
Art cannot be purely for investment for the simple reason that it is not as liquid as your regular stocks. You cannot buy and sell art as frequently as you can a stock. Though art is an appreciating asset, it is less liquid when compared to other asset classes.
The demand for Asian art has been up the price of work by many contemporary Chinese and Indian Artists. Art is no longer considered only of pleasure for aesthete, but it has emerged as an exciting alternative investment opportunity.
Price of Indian contemporary art have clocked phenomenal growth over the last five years. In order to understand the dynamics of the market, collectors must update themselves and be informed of significant changes in the value of particular pieces of their art portfolio. Valuators can advice how best to expand and enhance the collection by guiding the collector in estimating the financial risk and providing a written educated opinion of value of their collection.
Valuation of art is of utmost priority while buying and selling art works. The net asset value of the piece of art is based on access of various components such as prevailing market prices, historical data, latest auction results and trend analysis. Besides the square inch rate other factors to be considered are condition, rarity, quality, period, provenance and documentation.
Art evaluators provide independent professional services to private and institutional art collectors. Art insurance is absolutely essential and hence its valuation. A qualified appraiser should have formal education in the field of expertise-appraisal theory, principles, methodology and ethics.
Evaluations are also paramount in case of equitable distribution of wealth among heirs and for tax purpose. In recent times, every major insurance company employs art specialists to evaluate art works. International auction houses like Christies and Sotheby?s who have no vested interest in art works, are impartial evaluators.
Gallery owners and collectors offer tips on how to buy art.
Only buy what you like. Don?t put your money on a work you don?t like no matter how big the name.
Who you talk to matters. Get to know good collectors and build a relationship of trust with art galleries, so that you can call upon them fro good advice. If you have friends who purchase art get opinion on who they like.
Do a lot of background work. Check on the internet, or source auction catalogues to get a realistic idea of the worth of a particular work or artist. The net is also an unbiased. If unwieldy, source of information.
Every gallery has a large amount of inventory of artworks left over from previous exhibitions. The inventory contains a wider selection of works and, if the prices of certain works have not been updated offers better prices as well. So, always ask to see a gallerist?s stock.
Whether photographs paintings or prints, it?s important to see the quality of the work, the kind of surface it has been printed on, and take a look at the previous work of the artist to see his history and the thought behind each work.
Serious collectors of upcoming artists should pay regular visits to art schools to check out student work. All art schools conduct exhibitions of final year students etc. These are great opportunities to get in before the market gets them.
Young artist will also do especially commissioned works for buyers.
Trawl public galleries and spaces that show low-budget works to locate interesting works by lesser-know artists.
Look at the price history of a particular artist to get an idea of market value appreciation.
You have a right to ask for options, so talk to the galleries and ask to see choices within your price range, or of a particular artist.
Most artists are easily approachable. And though most artists only sell through galleries, use exhibitions and openings as an opportunity to meet directly with the artists and talk to them about their work or where to look for upcoming works.