Interchange by Willem de Kooning, an abstract piece of art, was sold at auction for US$300 million in 2015, making it the most expensive sale of contemporary art in history. It previously sold in 1989 for just over US$20 million – which was also a record-high at the time.
With returns like this, it’s not surprising that people have increased their interest in acquiring art as an investment, and maybe they’re onto something.
A Citi Global Art Market report stated that contemporary art (meaning art produced after 1945) has offered an annual return of 14 per cent over the last 25 years, versus a 9.5-percent annual return from the S&P 500.
While the seller of Interchange likely would have made a hefty sum from the sale, not all art is created equal, and it can be difficult to gauge what’s a good investment and what will drop in value over time.
A “good” alternative investment?
Fun alternative assets – like fine wine, art, and even comics books – have gained traction over the years as a so-called good investment. But experts say there are serious considerations to take into account when thinking about jumping into these types of investments including liquidity concerns, insurance costs and storage. Plus, you have to know what to look for, and it can be difficult to predict what will be of interest to consumers in years to come.
“The market is in a funny place right now because we have so many categories that are dying. That is largely due to just the way our generations are living now,” says Cailin Broere, a consultant for international auction house Bonhams.
“You’ve got this incredibly large group of baby boomers who inherited things, who collected things, who lived in these larger homes with space and basements.”
Items made of silver or bronze, or Louis XIV-style furniture, that may have fetched a handsome sum at auction a few decades ago are dying off as a market. But a depressed market creates opportunity, says Broere.
“That’s really where to invest, frankly. If you’re looking for something that’s just so, so down and depressed, you can really get a lot of great deals within those markets because there’s just so much available and so few people are still buying,” she explains.
One market that Broere says is consistently hot is celebrity memorabilia. Bonhams recently auctioned off items from Barbara Walters’ estate, including her engagement ring, and has previously sold everything from photos to cars owned by the famous, including a 1964 Aston Martin DB5 formerly owned by Paul McCartney.
Ongoing interest
But despite the uncertainty in these alternative assets, people continue to dive in.
In 2021, the global comic book industry was valued at US$7.14 billion and is expected to attain a compound annual growth rate (CAGR) of 10.5 per cent from 2022 to 2030, according to a market analysis report by Grandview Research.
The Deloitte 2023 Art and Finance report advised that the art and collectibles category “is well-positioned to reap the benefits of the coming global wealth transfer and a finance industry increasingly oriented to holistic wealth management.”
In fact, the report states that in 2022, ultra-high net worth individuals’ (UHNWIs’) wealth associated with art and collectibles was estimated at US$2.174 trillion, which could grow to an estimated US$2.861 trillion in 2026, “due to the increased number of UHNWIs across the world and their increased allocation of wealth to art and collectibles.”
And asset managers are getting on board too, as approximately 63 per cent of surveyed wealth managers have already integrated art into their wealth management offering, according to the report.
Passion projects
But Teresa Black Hughes, a financial advisor at RGF Wealth Management, says these types of investments should be done, first and foremost, for passion.
“The things we’re talking about are tangible. That means they’re going to take up space somewhere and that might require paying a storage fee,” says Black Hughes. “On top of that, it might mean that you need to pay insurance for them.”
Liquidity is also a consideration when it comes to these types of assets.
“If you’re thinking about your retirement funds, you’re often thinking about something that’s going to generate cash flow and that’s going to be liquid,” says Black Hughes. “Any of these types of investments that we’re discussing from a fund perspective, I wouldn’t deem them to be liquid.”
While collectibles can definitely be investments, Broere echoes the advice that it’s important to buy for passion. Although headlines about paintings and wine that sell at auction for high price tags can lure in those who think they are going to make a big return on their collectible investment, she says this is often a rarity and should be treated as such.
“I’m speaking quite generally but with all of these markets you find in the lower, harder times, people do still stay in them, but they become more discerning about what they want, and they’re looking for really high-quality pieces for good prices,” says Broere.
“It’s very cyclical honestly,” she adds. “Every market has its own landscape depending on what you’re speaking of.”