BANKING & FINANCE

‘Monet talks’ as Mideast art investment proves a pretty picture

Pictured: Bids underway at Christie's auction house in Dubai. (Photo courtesy of Christie's)

‘Art for art’s sake’ may be the prevailing view of many visitors to galleries and exhibitions.

Yet for a small but growing band of global investors, art can be as attractive for the bank balance as it is hanging on a wall.

And making money from Monet – or any number of less famous artists – is beginning to take off in the Middle East, experts claim.

“As an investment, it’s beginning to be acknowledged,” said Salma Shaheem, who heads up the Middle East business for art investment house The Fine Art Fund Group.

The group currently claims $200 million under management worldwide, and represents 11 families around the region, Shaheem told Al Arabiya.

La Lutte de l'Existence by Lebanese artist Paul Guiragossian (b.1926-d.1993). Price estimate: $600,000-800,000 (Photo courtesy of Christie's)

Real returns can be made from investing in art. Shaheem claims that as of 2012, the group’s inaugural fund delivered a return of more than 15 percent.

“The inaugural fund has performed between 15 and 20 percent since its inception,” said Shaheem, noting that the figures are based on a valuation of the fund’s art. This rate of return could not be independently verified by Al Arabiya.

The funds offered by The Fine Art Fund Group resemble a classic private equity structure, charging investors - who are not guaranteed from loss - an annual fee of 2 percent. If the fund reaches its own investment targets of between 6 to 8 percent, then a 20 percent fee is charged on investment gains above those targets.

Uncertainty

Investing in art comes at a time of ongoing economic uncertainty.

While the U.S. Dow Jones Industrial Average stock index rose by an average of 1 percent a year from 2001 to the end of 2012, art prices auctioned in New York during the same time rose by more than 5 percent annually, The Economist noted earlier this year.

Yet not all art is created equal – and investing in the field is by no means a sure way to make money.

“We’ve seen a slight dip in very contemporary art, because it’s very risky,” cautioned Shaheem.

Michael Jeha, Middle East managing director for London-based auction house Christie’s, agreed that investing in art carries risks.

Give and Take by Iraqi artist Hayv Kahraman. Price estimate: $40,000-60,000 (Photo courtesy of Christie's)

“[With] the contemporary side of the category, the younger artists, is a bit more like the technology sector in the sense that you’re buying artists who, five or ten years from now, you can’t be sure that all those artists will still be highly sought after,” Jeha told Al Arabiya.

Shaheem said that investing in a diverse range of styles is important when buying art. “If you have a good mix and your portfolio is really concentrated on blue chip, museum-quality art, from a range from the 14th century to impressionist, to modern, to postmodern, this is a very interesting way to allocate some of your money,” she said.

Negative correlation

Shaheem said that art enjoys a negative correlation to the values of more traditional assets that rise and fall with the global economic situation.

“You can’t pick up your apartment and sell it in yen or dollars. But you can pick up your Picasso and it’ll have a euro value, a dollar value,” said Shaheem, adding that art’s movability creates opportunity for arbitrage.

Jeha noted that there is a correlation between individuals who buy for aesthetic reasons and those who make a profit.

“First and foremost, buy what you like,” he said. “We tend to find that people who buy what they like and what they’re interested in are the ones that also tend to make the best returns.”

A Christie's auction underway in Dubai. (Photo courtesy of Christie's)

However, not everyone agrees that art is the best investment.

Ray Waterhouse, an art dealer and advisor with New York-based Fine Art Brokers, who says he has sold $10 million of art to one Gulf-based private collector just to furnish his house, noted that the high transaction cost of buying and selling art eats into potential profits.

“Unlike when you buy or sell stocks where the percentage might be 0.2 percent, [with art] you’ve got a substantial buyers’ premium of 25 percent and then the seller’s premium is 10 percent, so things really have to go up a lot in value,” Waterhouse told Al Arabiya.

Art bubble?

But is art investment just a bubble waiting to burst?

“I don’t think it’s something that can come in and out of fashion,” said Shaheem. “All investments have an element of risk. Your Canaletto, for example, will never go down to zero like a stock or bond or in an Enron situation.”

Waterhouse noted that art investment was far from being a passing craze. “There are serious art fairs and serious collectors out there [in the Middle East],” he said. “You’ve got governments, royal families, serious businessmen, all of them interested in buying art because it increases their prestige, just like buying Manchester City raises the profile of Abu Dhabi.”

While the art investment market continues to increase around the Middle East, Waterhouse notes that religious conservatism may stunt the sale of art in certain markets such as Saudi Arabia.

“[Saudi Arabia is] a long way down the line given the religious restrictions [and] what one’s allowed to buy in terms of subject matter,” he said.

Jeha agreed that there are limits to the type of art that is likely to be purchased in the region, but said that many collectors have increasingly similar interests.

“We’ve seen over the last seven years that tastes in the Middle East are becoming more and more like collectors globally,” said Jeha.

“They’re starting to look at the same things, acquiring similar things, similar tastes and similar styles,” he added.

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Last Update: Thursday, 19 September 2013 KSA 22:49 - GMT 19:49
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