The Art of the Portfolio

The Art of the Portfolio
Art is about life, the art market is about money proclaimed the art world’s biggest seller, Mr Damien Hirst.
Modern Art is now viewed as a creditable alternative to mainstream asset classes. According to the Mei Moses All Art Index; the art market returned an impressive 11% gain in 2011, outperforming both the S&P 500 and FTSE for a second consecutive year. The Mei Moses has beaten the S&P 500 in six of the last 10 years, with an average annual return of 8 per cent compared with 2.7 per cent for the benchmark US index.
In the last couple of years, auction houses around the world have reported record sales as investors have shown more knowledge and interest in contemporary art, particularly in the Middle East.
Last year the Middle East was ranked the world’s biggest buyer of modern art by the Art Newspaper. Over the past seven years, the Qatari royal family has spent an estimated £1bn on western art. Recent acquisitions are believed to include Mark Rothko’s White Center (Yellow, Pink and Lavender on Rose), bought for £45.9m in 2007, Damien Hirst’s pill cabinet Lullaby Spring, bought for £9.7m in the same year, and the last privately held version of Paul Cézanne’s The Card Players, bought in 2011 for £157m, a record price.
Art has always been acknowledged to possess features that make it a particularly attractive alternative asset class, amongst seasoned investors. Following the financial crisis in 2008, alternative tangible assets such as art, precious metals, gemstones and fine wines have also begun to attract the attention of mainstream investors - especially as a way to diversify portfolios against the negative effects of volatile equity markets and risk of high inflation.
If you’re thinking about making an art investment, 2012 is a good time. Here is my advice on how to diversify an investment portfolio with art: Know the factors driving art values. Establishing the value and potential value of art can be as difficult as spotting the next Damien Hirst. But the factors which can influence prices for artist’s work are easier to identify. These include: the popularity and reputation of an artist, the views of art critics and previous buyers, especially if they are celebrities or high profile investors.
Go for aesthetic pleasure. Art is a long-term commitment. Buy what you would like to see on your walls. While sometimes you can manage to sell artwork that is in demand instantly, on the flipside it can usually take months to resell a less sought after piece.
Buy the best you can afford. It might appear attractive to buy unknown artists before their paintings rocket in value - but the odds of success and often quality of the art make it a high risk strategy. Owning the best art by established or emerging artists has the most potential for appreciation over time.
Finally look after your Investment. In the long term attrition is one of the basic reasons why art increases in value. If you look after your art investment, it will reciprocate by offering you more rewards than you ever possibly imagined.