How much can you earn by investing in art? Investment in art through an investment fund

Investment in art is one of the most popular topics on the art market in recent years. You can invest on your own, you can with the help of an art consultant, or you can contact an investment fund that functions like a mutual fund. About the latest relatively new way of investing within Synergy Art Forum told the leading employee Fine Art Group Freya Stewart.

Courtesy of Fine Art Group
How much can you earn by investing in art?
Fine Art Group gives a figure of 13% per annum or more. For example, a company bought a work by a contemporary artist for $13 million and sold it a year later for $18 million. At the same time, the internal return on investment (internal rate of return) was 18,9%. The company caters to the Impressionist, Modernist and Contemporary art market, buying multiple artists from the same circle and multiple works, selling at certain points, and made a 25% cut on the sale of an unnamed contemporary British artist.
Why do people invest in art?
In an era of volatile markets, investors are looking for alternative ways to preserve and grow their assets. One of them is investing in art. Painting, sculpture, decorative and applied arts are great subjects for home interior, objects for solitary contemplation and pleasing the eye. They have a worldwide recognized unique timeless cultural and educational component, inscribing them and their owner into the history of mankind. However, today most investors consider the purchase of art objects as an investment with to collecting and diversifying your assets (in 2017 – 85%, and in 2012 – 60%). Although not all investors openly express their investment goals. No one enjoys an expensive purchase that will soon go down in value, especially among people in the under 40 group. Unique works of great masters are constantly increasing in price due to limited supply. That's why people invest in art to avoid inflation. art market less dependent from fluctuations in traditional markets and functions differently at the expense of the object of sale and purchase. Investors in art investment funds include other funds, individuals and legal entities.
One of the clients of Fine Art Group collected 5 thousand objects, among them ¾ were acquired as a result of his “collecting passion”, ¼ - as investment objects that the company chose for him.
What is an art investment fund? Example Finish Art GROUP
Fine Art Group is the world's first and largest company that manages a fund consisting of art assets. The company invests in art through its investment fund, provides art consulting, and lends money against art. Fine Art Group manages $450 million in art assets, 130 permanent clients in 23 jurisdictions around the world, and offices in London, Dubai, Geneva and New York. The fund invests in the upper segment of the art market: the cost of works starts from $1 million.
What should you pay attention to when choosing an investment fund?
The investment fund must have a generally recognized stable position in the art market, as well as:
- Connections in the art market;
- Strong relationships with auction houses;
- Connections with banks that invest in art and provide similar services to their clients;
- Direct contacts with galleries and art dealers;
- Fame and presence in the public sector.
You should not pay attention to proposals for investing in art that offer you a profit in a year, since rising prices on the art market, with rare exceptions, are a long-term process. Fine Art Group offers investments for an investment period of 8 to 12 years. Other funds offer a period of 3 to 5 years. Art purchased as an investment requires a longer "aging period" (excluding speculation) than more traditional types of investment.
According to Freya Stewart, over the entire existence of the fund (since 2001), Fine Art Group has earned money on 90% of transactions, which is certainly a phenomenal success, confirmed by a large audit company. The remaining 10% of transactions represent less than 1% of the total transaction value.
Income from guaranteed sales and investments in “potential” stars
An integral part of the investment activities of Fine Art Group are the so-called guaranteed sales, i.e. the amount that the seller will definitely receive if he sells his work of art. For example, the owner of a painting wants to sell a painting from his collection at auction for $10 million (the cost is economically justified). A large auction house will guarantee the seller that he will receive his $10 million, and will find a third party for this, who will assume the financial risks associated with this guarantee. Fine Art Group provides these guarantees through its special guarantee fund. The company makes money on a percentage of the work's price at auction if it exceeds the guarantee. At Christie's New York sales in the spring, about 80% of transactions were guaranteed.
In addition to the traditional and guarantee fund, a component of the Fine Art Group’s investment activities is the search for and investment in artists who can potentially “shoot” in the art market in the near future, that is, increase in price. The threshold for investing in this fund is €300 thousand. Naturally, the company can create and manage your personal diversified portfolio.
Risks when investing in art
To avoid possible risks when investing, Fine Art Group recommends not investing all your capital in one artist and a small number of works, and also be sure to comply with the following three points:
- Deep knowledge of the art market, art and finance;
- Balancing income;
- Diversification of investments.
According to Freya Stewart, usually when investors purchase art for investment purposes, they overpay. When purchasing art for this purpose, you need to know who and where to sell it to.
Always remember that when buying a piece of art, the most important thing is information and knowledge, without which the art is worth nothing.
Synergy Art Forum – the first international forum in Russia, uniting art business professionals, organized by Synergy University, with the involvement of foreign and domestic experts. The purpose of the forum is to restore a genuine and relevant picture of the modern functioning of the creative and art industries, as well as active communication and exchange of experience among the event participants.