Art investment is a risky business. Even “insiders” such as auction houses, art dealers and experienced collectors make mistakes and sometimes lose money on what they consider to be ‘investment grade’ art. On the other hand, returns can be very high, making art investment a potentially high return, but risky enterprise.
The centre of the art investment market tends to cluster around financial centres such as New York and London and a lot of interest tends to be focused on art that meets the ‘Goldilocks’ principle of being in the middle: not too old that it is considered an antiquity, which often raises issues of heritage, ownership and fakery and not so contemporary that it hasn’t appeared at a major auction house.
In this middle ground, there are a number of factors that can help to reduce risk. Artists that have stopped producing (bluntly artists that are dead) are often less risky than those that are alive for the simple reason that the supply of art is well-defined (although not perfectly so because of the possibility of new works coming to light and of forgeries). Researching the track record at auction and establishing provenance including things like history of exhibition and proof of ownership by an expert and establishing marketability (and hence liquidity), all help to reduce risk.
However, being in the middle also means that there is a lot of demand, and hence prices can already be high which reduces the potential for future returns. Given this, a number of galleries have another approach to investment art, which is to target the less well-trodden area of established and emerging contemporary artists who haven’t yet established a track record at major auction houses. As with the middle ground of art investment, there is risk, but there are steps that can be taken to help reduce these risks. Different art galleries have different approaches, and whilst none are unique, there are methods that you can learn from and use yourself as part of your own due diligence process.
Example criteria that can be applied are restrictions on artists by background (e.g. having to have formal training or studied in a certain ‘school’ of art), had a certain number or type of exhibition (e.g. solo shows or international exhibitions), track record of selling art in some way, some inroads into the secondary market. Other criteria might include using in-house art consultants to review the work to ensure that it of sufficient technical merit and checking on the level of supply of the artist. If you ask about the gallery client list and find out whether it included high-profile private collectors, this will help you to gain a sense of the ‘reality’ behind pricing as the judgment of high-profile collectors tends to reflect the market value of the work. Amongst the various approaches there tends to be a common strand of using techniques to ensure that supply is measured, that art is of a certain quality, that there is some track record of price increases and that there is some form of secondary market. Whether you are buying at auction, through a gallery or in the secondary market asking quetions about the criteria used above will help you judge whether your investment in art is more or less likely to make money.