Last week, amidst an uncertain economic climate when “stock markets are sinking, debts are rising and the looming threat of double-dip recession cannot be entirely eliminated,” record breaking Modern and Contemporary auctions in New York ensure that the buoyancy of the sector is in plain view. In fact, according to this article in the New Statesman, over 50% of the most expensive auction sales of all time have taken place since 2008.
We all know that art has been viewed as an asset class for some time now, but more recently, it has been hailed with a new name and falls under the category of a “SWAG” asset.
According to Kamila Kocialkowska of the New Statesman:
The term, coined by analyst Joe Roseman of Investment Week denotes “alternate investments” which manage to defy economic gravity – namely silver, wine, art and gold.
As well as being decidedly sexier than the FTSE 100, the trend of investing in luxury assets makes a lot of economic common sense. SWAGs often outperform other equities in times of economic downturn for several logical reasons. Firstly, they benefit from the uniquely profitable principle of “scarcity economics” (their value is related to their rarity). Secondly, in an unsteady market, people are drawn to stability, and all the SWAG assets are durable – they have a historical precedence of desirability and can be bought and stored almost indefinitely. Lastly, as their returns are not related to the patterns of the stock market, they add a sensible diversity to any portfolio, the literal asset equivalent of not keeping all your eggs in one basket.
In 2011, the Financial Times reported that the art market made an 11 per cent return to its investors, a frantic outstripping of stock market return.
However, buyer beware, as the old saying goes. The contemporary art market is no easy place to tread.
It is wholly speculative and subjective, and therefore constitutionally unpredictable. The valuation of contemporary art, in particular, is based on a collection of changeable and changing opinions. It is constantly affected by external circumstances, and trends are capable of crashing out of fashion just as swiftly as they crashed it.
Still, it cannot be denied that the sector is prosperous, with more and more industries and businesses springing up as the demand for fine art continues to escalate. In today’s art market, there are art investment advisors with whom investors can consult, private banks offering advisory services to their clients, specialist companies such as “Fine Art Wealth Management and The Art Investor assisting buyers on making choices for bespoke portfolios which can maximise returns.”
Other industries have, too, sprung up in reaction to the demand of fine-art investment, notably the specialist storage port. Investment art is, emphatically, not bought to be hung on the wall. Instead, collectors are increasingly storing their assets in state-of-the-art warehouses.
These large-scale warehouses offer highly regulated storage controls with humidity and light protection as well as extensive on-site security. They also have a notably appeal to the money-minded collector in that they allow the temporary postponement of VAT and customs duty payments.
But with the increased view of art as a SWAG asset comes a great threat to the integral core values of art.
The implications of this are vast. Not only with regards to the valuation of art, but with an entire overhaul of its purpose. Art bought as an asset and stored, indefinitely in a warehouse, far from the damaging light of day denotes a new mode of art ownership – one where the object d’art is reduced to a purely monetary transaction.
Investment Art: A Beginners Guide (New Statesman)