THE ART OF INVESTING IN ART

AN EXPERT GUIDE TO NAVIGATING THE WORLD OF ART INVESTMENT

Art is one of my greatest passions. When creativity finds its way into an expression of someone’s soul – or something that touches them deeply – it has the power to resonate with others in the same way, and to change the way they view the world. But there are certain elements that separate good from great, much like a plate of food where all elements come together in the most perfect way stands out above the rest, irrespective of your personal taste. I spoke to Stefan Hundt, art adviser for Sanlam Private Wealth, to get a better idea of what it is that makes art valuable and how we should invest in art.

In the world of investment, how would you answer the question, ‘What is art?’

An investment in art is often called a ‘passion’ or lifestyle investment. It refers to a category of investing linked to a particular personal passion (similar to an investment in classic cars or wine, for example) – it is therefore difficult to subject the ‘investment’ to the same scrutiny that one would be able to apply to more traditional assets such as fixed property or financial assets. Although much effort has gone into quantifying the rise and fall of art markets, the heterogeneous nature of artworks makes it virtually impossible to come up with interpretations of the data that can reliably inform an effective investment strategy.

What makes an artwork valuable?

An artwork becomes valuable when it is of recognised exceptional quality and produced by an identifiable artist, it is unique or of limited availability within its class, and its meaning or content will remain relevant beyond the moment and time of its creation.

How is the value of an artwork determined?

There are several factors that may impact the value of an artwork or how this is determined. A critical aspect of value determination is, of course, who is conducting the valuation. Is this person ‘qualified’? This doesn’t necessarily mean having a degree in Fine Arts or History of Art, although it would certainly help. Experience of and in the art market is also crucial.

There are many art advisers, galleries and auction houses out there offering art valuations – it’s important to remember that galleries and auction houses tend to have a bias towards their current inventory, which may lead to inappropriate or inflated pricing. This also applies to art advisers who may be operating as agents or dealers earning referral commissions from galleries. A truly independent art adviser will not carry inventory or negotiate sales on behalf of a gallery or supplier, but will instead provide an informed and unbiased view on the valuation of the work in question.

The main factors that influence how value is determined for an artwork, are quality, rarity, authenticity, supply and demand, provenance and agency.

Quality: This is not an easy concept to touch on briefly, given the broad range of art being made and sold. Quality is contextually dependent on the artist’s existing production, the type of medium used, and the time and place of the production of the work.

In South Africa and indeed the world there are many active painters working in a wide range of traditional styles. One can, for instance, look for painters that emulate Impressionist or Post-impressionist styles using South African subject matter. Painting like a French 19^th-century artist in South Africa has been done repeatedly, with varying success. Although highly popular for decorating homes in pseudo-lavish gold frames, these works do display a certain canny craftsmanship. However, they would in the end fail the ‘quality’ test. Artworks which are derivative of existing and historical styles, but are ignorant of contemporary context, amount in my view to nothing more than shlock.

To determine whether a work has any real ‘quality’, knowledge of the history of art and its practice, the artist’s own historical production, and the context of time and place are all critical to conduct an informed assessment. Even in the case of contemporary artworks, supposedly ‘cutting edge’ and just off the easel, the historical context of manufacture is critical.

Rarity: In most instances, rarity is fairly simple to determine. Prolific artists such as Picasso or William Kentridge work in a diversity of media and forms. Some of these individual works may be incredibly rare as there is only one of them. But both these artists have also produced many artworks, including etchings, linocuts, bronzes and ceramics, which are editioned. Depending on the edition size and its distribution, these items can vary considerably in value. Some research would be required to determine the ‘state of play’. Some artists ambitiously start editions in their 100s but then only manage to produce and sell 10 or 20 in their lifetime. This kind of knowledge could make a significant difference in identifying a valuable item.
Authenticity: Fakes unfortunately exist everywhere, including in South Africa. As the value of a certain artist’s work escalates, the more likely that fakes will begin to appear on the market. Usually, the fakers start by placing their fake artworks with smaller auction houses which may not do the necessary due diligence to determine authenticity. The fake is sold (possibly even back to the faker in disguise) and is then offered on a more established auction platform, citing the previous sale as a provenance. The work then is ‘legitimised’ by the market participants until a recognised authority or an expert identifies it as a fake. Since neither the seller, agent nor buyer wishes to be seen as a fool, the fake artwork is simply returned, only to re-emerge later in some other context.

Determining authenticity can be an arduous task, and sometimes uncertainty can’t be entirely removed. If you’re in any doubt whatsoever about the authenticity of a work, stay away from it or conduct a proper investigation. If the offer is too good to be true, it’s in all likelihood exactly that.

In South Africa, artists whose works have been faked include Irma Stern, Maggie Laubser, Pierneef, Frans Oerder, Gerard Sekoto, Tretchikoff and Frans Claerhout, and more recently, Ephraim Ngatane, Dumile Feni and Kentridge – we’ve even seen brand-new casts of Anton van Wouw’s ‘The Coffee Drinker’. Beware of buying on platforms with little or no established reputation for trading in artworks. Even the established auction houses are caught out from time to time and unknowingly offer fakes, but they do deal with the matter appropriately when this happens.

Supply and demand: Like rarity, supply and demand have a significant influence on the value of an artwork. A work may be incredibly rare, but if there is no demand for it, its value will be nominal. Demand is often determined by the social prestige of ownership. Many an upcoming artist has seen prices grow exponentially because of the ‘keeping-up-with-the Joneses’ phenomenon, only to see sales and prices decline when demand peters out.

For established artists, this relationship between supply and demand can vary significantly. It depends on economic growth in general, as well as the perception that the works of a particular artist are a worthwhile investment. Here, it’s best to be circumspect and examine the cold, hard facts about the market, not only in South Africa, but worldwide. Locally, up to 90% of the value of our art market can be locked into the production of only some 20 or so artists.

It’s also crucial to take into consideration the exchange rate. When Irma Stern paintings were selling at their highest prices in 2007 and 2008, the Rand-US dollar exchange rate was around R8 to the US dollar. A R17 million Stern would then have set you back around US$2 million. Now we’re at around R15 to the US dollar, so this painting should therefore sell today for at least R30 million to keep its value, without taking inflation into account. So, what we’re effectively seeing in the high-end market is negative returns – or bargains for US dollar buyers.

Provenance: The history of an artwork’s ownership, also known as its provenance, can play a crucial role in authenticating the work. Knowing how the work has come into the hands of the seller, where it was before, when it was first sold and at which gallery, and where it has been exhibited, all add to the veracity of the authentication. How important a work is considered by the market also contributes to its value – being part of a well-established private collection or corporate art collection could increase the value of an artwork considerably.

Agency: Who is selling a work and where it’s being sold, can make a significant difference to how its value is perceived. Although value should reside only with the artwork, buying through a well-known auction house or gallery has advantages in that these institutions can usually provide some form of ‘guarantee’ of integrity, authenticity and valuation. In my view, a good rule of thumb is whether a gallery is prepared to accept a work back for resale purposes or is willing to buy it back at a reasonable price. The art world has its fair share of sharks aiming to make a quick buck above all else. They often don’t have a permanent gallery to showcase their artworks, arriving on the scene when the market is on an upwards trend, and disappearing again when the market declines.

Why invest in art and not, say, shares, a fund or a trust?

It’s not a case of buying art instead of investing in these instruments. If you want to invest in art, it should form part of a broader investment portfolio strategy. One can’t compare art to financial instruments – artworks are in most instances unique, and they’re traded in an unregulated market. Anyone can deal in artworks and present themselves as experts, and the risks may be considerable.

Having said this, there is certainly a role to play for art in an appropriately diversified investment strategy – there are many examples worldwide of successful strategies which have included art as investments. Just bear in mind, however, that once you’ve acquired an artwork, you can’t just forget about it – you are responsible for its care. Artworks are exposed to many environmental factors that could impinge on their value if they’re not taken care of properly.

What would you invest in if you had R10 000, R100 000 or R1 million?

There is no straightforward answer to this question – each individual artwork needs to be assessed on its own ‘merits’. I can, however, provide some pointers as to what to consider.

There is much on the market currently for up to R 10 000, depending on your expectations and the risk you’re willing to take. For example, you can buy a work from a young artist at a graduate show or a limited-edition print from the many printmaking studios. If you keep your eyes open, you may find a recognised artist’s work selling for around this price level on an auction, but remember, you won’t be the only one on the look-out for a bargain.

For around R 100 000, you can buy a good work by an established artist still making his or her mark. Works by Blessing Ngobeni and Teresa Firmino sell for under this price, and you can also find many older works by well-established artists selling in this range on the auction market, including the likes of Gregoire Boonzaier and Irma Stern.

If you’re looking specifically at contemporary works, but want to reduce your risk, have a look at any artist over the age of 35 actively exhibiting through a reputable gallery. Just remember there are many shooting stars in the art world. Many burn brightly, but briefly – only around 1% of Fine Art graduates make it to the top end of the market and remain there.

If you’re willing and able to spend more than R1 million, you should cast your net beyond South Africa’s borders. There are, however, some local star artists who are recognised internationally. Kentridge, for example, is one of the foremost artists in the world and there’s no doubt that buying a good-quality, unique work by his hand is similar to investing offshore. Then there are the well-known names such as Stern, Pierneef, Sekoto, Kumalo, Legae and Preller, in whose works quality, rarity and demand still reside, but you have to be selective. In many instances, the market for these artists’ works is local, with a small buying coterie overseas.

When a client acquires an artwork, where does it go? Does it mostly get hosted by a gallery, or does it go to the client’s residence?

Most serious collectors I know want to live with the artworks they acquire and share their experience and enjoyment of these works with their family and friends. In many instances these collectors also share their works with the general public by lending them to museums and special exhibitions. The painting by Irma Stern of an Arab priest, which sold at auction for a record-breaking R35 million, was previously on loan to the Irma Stern Museum at the University of Cape Town for 30 years for everyone to see. Some collectors build their own museums or galleries to showcase what they own, such as the Rupert Museum in Stellenbosch, the Norval Foundation in Steenberg Estate, and the Javett Art Centre at the University of Pretoria.

Lastly, there are the select few whose exclusive interest is to ensure the best return from their investment in art. Strategies these collectors follow include loans to museums, or keeping their artworks in storage at a gallery or auction house ready for resale when the right time comes.

What role can Sanlam Private Wealth play when a client expresses an interest in investing in art?

Sanlam Private Wealth works closely with clients to craft customised investment portfolios that suit individual risk profiles and investment objectives. This goes beyond conventional investment management – it could vary from portfolio construction to intergenerational wealth planning and cross-geographical tax structuring. If you’re interested in investing in art, and require independent advice on the acquisition or valuation of an artwork, this can be done on behalf of Sanlam Private Wealth by Stefan Hundt, who is the curator of the Sanlam Art Collection.