Published in Wealth Briefing
Jan 11, 2011
Katheryn Campbell ~ Founder & Director of Alpha Art Advisory
Editor’s note: As part of a continued series of articles looking at the investment market in art, Katheryn Campbell, of Alpha Art Advisory, sets out what is meant by “investment-grade art”, a term that has been thrown around but is sometimes not always precisely defined.
Everyone knows what an investment-grade bond is, but what is investment grade art?
In today’s post-crisis economy with paper assets fluctuating frantically, fine art is being
sought out as a store of value with potential to appreciate over time. Intelligent investors
started buying high quality art as an alternative investment when they first suspected
trouble in the real estate market. The trend to collect investment grade art as a store of
value has been growing steadily over the last three years and has now reached critical
Clearly, there is an obvious chasm between financial and art markets, one many bankers
are not comfortable crossing. However, the super rich possess and collect investment
grade art and the saavy wealth manager should know about this bankable segment of the
Auction houses, art dealers and experienced collectors are fully aware of investment grade
art’s potential to draw exponentially higher rewards than ‘non investment grade art’. This
is referred to as the Masterpiece effect and why dealers advise buying the best quality art
one can afford. Auction houses and dealers also know investment grade art can be used
for leveraging, inheritance transference, tax deduction when donated to charities and as a
Logically, the heart of the market for investment grade art happens in the world’s financial
and art hubs:London and New York – the highest concentration of the world’s wealthiest
collected around the world’s busiest auction houses and banks.
So what exactly, is investment grade art? There are five basic components.
First of all, investment-grade art must be proven original and therefore must be
authenticated by a secialised expert. The art must be proven real in document form and
the document must be verifiable.
Second, the provenance or history of exhibition and ownership must be sound. Thus, a
clear title must accompany the provenance. The stronger the provenance, the greater the
value of the piece.
Third, marketability is essential for art to be deemed investment grade. The key to liquidity of any work of art is an active market. Therefore, the artwork must appeal to an
international market of buyers and should not be dependent upon any single demographic
for sales. Therefore, the artist must be internationally recognisable and preferably hold
significant status when compared to other artists in general.
Antiquities, sadly, can not be considered investment grade art as issues of national
heritage, archeological plundering and other such complications can cause serious sales,
possession and ownership issues that may hinder the sales of the piece.
As illiquidity is the biggest problem the art seller can face, investment grade art, being the
most liquid of all the art market, is art with an exit strategy.
Fourth, the artist must have an established track record at auction. Auction estimates and
sales prices are recorded into art market data banks. There is transparency in the art
market through this data, one with which the art analyst can generate bespoke reports
comparing one or more artists to art sectors (such as Modern or Impressionism) and the
art market in general. For this reason contemporary art does not qualify as investment
grade art as it does not have a sufficient track record at auction. Too, investment grade art
is in limited supply and thus rare, if the artist is still living they could conceivably create a
duplicate or future artwork that could alter their receptivity impacting the value of existing works.
Finally and importantly, investment grade art possesses its own profound allure. There
should be a consensus among art taste-makers (critics, dealers, curators, etc.) as to the
relative superiority of the work. This means investment-grade art must also pass through
filters of content. One wouldn’t want to own a painting of a vase of flowers by Francis
Bacon but one would of Van Gogh. Content is important as not every painting by a master
artist is investment grade. This is where many collector-investors miss the mark. Its not
just about the brand but rather the specific piece. Unfortunately, content and quality are
not quantifiable and art historical expertise is necessary.
This philosophy behind investment grade art is not buying art as an outright investment but rather if one chooses to buy art one can do so intelligently as well as passionately. By
possessing an investment grade art collection, one will also own an investment vehicle
rather than carry a sunk cost that looks good.
The entire purpose of delineating investment grade art is to bring a level of clarity to the
wealth manager by equipping them with a check list of sorts they can use to flag
investment grade art. Clearly, not all art is created equal. Not all art appreciates in value
at the same rate or at all. By qualifying a select subset of the art market with
authentication, superior pedagree, an established track record, international marketablity
that is in high demand, issues of illiquidity are mitigated and potential to appreciate
Furthermore, the term ‘blue chip art” is misleading. It implies the most prolific artists offer
the best ‘dividends’, that the desire to own them is constant for consistent, relatively high
returns at low risk. This thinking does not apply to art. Some artists created thousands of
works, some dozens. Stocks trade in multiples, art is heterogeneous – each work (and
each sale) is unique. Rarity, quality and demand are the passengers in the supply-driven
art market. The term “Investment grade art” respects the collector’s intelligence and the
art market’s stratification.
So how much investment grade art is out there? Impossible to say, however, a very loose
estimation based on auction numbers and auction to private sales ratio implies
approximately $5-$10 billion worth of investment grade art sold in 2009 alone.
Some financial journalists argue that art is not investment-worthy; the risks and costs are
too high. Some of these concerns are valid. The collector-investor should know the costs
of collecting art are numerous and can be considerable. Additionally, art’s comparatively
high illiquidity and thinly traded market are genuine concerns for the general art market.
For this reason art should be considered a very long-term investment of five to ten years at least. However, focusing on investment grade art is focusing on the most highly liquid of
all art. The likelihood of recouping costs, increasing gains and in most cases reaping
handsome profits is expanded.
We can buy art wisely. With proper advisement, the collector-investor can strategically
buy and sell art and look at their art collection as one of passion, and taste as well as a