The Clarion List

For the last decade, the market has been abuzz with the emergence of fine art as an asset class. Now, perhaps more than at any other point in the history of art collecting, purchase decisions are heavily influenced by an artwork’s value as an investment.

Leslie Rankow, an established art consultant, said, “It’s hard work to be a good collector. It requires a lot of time - reading, learning and traveling.” As a consultant, she tries to direct her clients to works not only that they will enjoy for many years, but also that are likely to also appreciate in value while they are being appreciated! She said, “Anyone can choose a work of art. It’s my job to say ‘no,’ as often as 'yes' and make sure that the work has additional reasons for being purchased, i.e. its quality and potential value.”

So how do consultants and other professionals in the art market know where to steer their clients?

These advisors often turn to art market research companies like Art Market Research (AMR) that specialize in data-driven valuations, thereby providing an essential road map.

AMR has been providing this kind of analysis since 1978. Director Sebastian Duthy said, “Before you buy or sell art, antiques or collectibles, it pays to triangulate available price information. Our data is organized in ways to help understand the market from different perspectives. Looking at the middle and top end of the market is a good place to start.”

According to the company’s website, “Transactions on Art, Antiques and Collectibles are recorded from auction houses worldwide and updated to AMR’s database every month. Data analysts with specialist knowledge of art history, then categorizes each individual lot into Painting (unique two-dimensional works), Sculpture, Photographs and Sculpture. For Antiques and Collectibles, we employ experts in each field to value a ‘basket of goods’ and update prices once or twice yearly.” AMR also offers a “revaluation tool” to help users estimate current open market values. Art market professionals can access AMR’s data and tools with a quarterly or annual subscription.

Apart from informing purchase decisions, in what other ways can data from art market research be used?

Duthy said, “Our indexes are relied on by a range of industry players. Art market professionals, US and UK tax authorities use the indexes to calculate fair market value on discretionary goods, while insurance companies use them as benchmarks for calculating premiums. Our indexes are also very popular with students of correlation analysis and journalists looking for data to support breaking stories.”

Robin Kalota is a passionate collector with a background in wealth management and estate planning. When her parents passed and she inherited their collection of art and collectibles, she realized that many families might need help to plan or manage this complex process. She founded Plan Art LLC, which provides collection analysis, procures valuations, identifies transfer options - such as gifting, donating or selling - and evaluates how, when and to whom collections will be transferred. She said that informing clients of the current market value of their holdings is the first step in helping them to make transfer decisions.

Kalota uses a wide range of databases and online tools to research works for her client. She said, “Clearly value means different things to different people. However, I do think that there are universal standards that art collectors look for that bear up over time. Things like the provenance and condition of the art work, rarity of the work, market demand for the artist and genre, and cultural and historical relevance in the art market. Those works that seem to hold their value over different market cycles tend to meet high standards in those categories. There will always be popular artists and genres that fetch high prices in any market cycle and are reflective of changing tastes and trends. Those works are reflective of our popular culture and will always appeal to a portion of the market. Whether they can sustain that value over time and reflect a new and enduring mode of expression is another matter.”

What causes fluctuations in the art market?

When presented with the question, Kalota said, “Art is truly a discretionary purchase. In my opinion, economic trends have the far greater impact on the buying public, i.e. through such factors as income growth and individual debt levels, plus the effect of taxes on personal wealth. Perhaps it is my background in investment management, but I think keeping an eye on interest rates and trends in economic growth are critical to assessing the health of any marketplace.”

Socio-political change also appears to play a role. Duthy said, “While the average value of artworks has grown three-fold in the last ten years, we have also seen increasing market uncertainty. Ten years of growth may have encouraged many new collectors into art but most are focused on familiar name artists. Less attractive works can be left behind as buyers fight for museum quality pieces. With the tide of populism and the threat to global co-operation showing no signs of abating, uncertainty in the art market is likely to be exacerbated this year. Whether heat taken out of the market proves to be good thing for the long term future or not, remains to be seen.”

So what does the future hold for the art market

Kalota spoke of an increasing democratization of collecting. She said, "Along with other market observers, I’ve watched the gap between the high-net-worth buyer and the middle market continue to widen both in terms of the buying public and among the gallerists and dealers that sustain them. The drivers of demand in those markets couldn’t be more diverse. At the same time, we are seeing a broadening in the foundational base of the market through art fairs and the use of social media, which has made the art world far more accessible to the average collector. Given the shift in buying habits that new generations are bringing to the table, I consider that a major positive for the long-term sustainability of the overall art market.”

Duthy was similarly optimistic, but stressed the importance of making informed, data-driven decisions. He said, “Tastes in art change and so art dealers and auction houses have learned to adapt. These abilities were never more evident when Christie’s capitalized on their presence in the Chinese market during the financial crash of 2008. Values in Chinese art grew 35% in the two years until the end of 2008 and the growth continued again in 2010 and 2011. Saffronart in India was also recording impressive stats and the opening of Salcedo auctions in the Philippines in 2010 and Tehran Auctions in Iran in 2012 proved that serious buyers could now be found all over the world. However, while the globalization of the art market has entered the collective consciousness, what has emerged is not a homogenous entity. Now, more than ever, knowledge supported by quality data is essential before buying and selling art.”