Like many other industries, the art investments sector also experienced a slowdown during and just right after the global financial crisis, but it remains an interesting niche market and has caught the attention of some Middle East investors, says Phillip Hoffman, CEO of UK-based The Fine Art Fund Group (TFAFG).
In the Middle East – home to over 400,000 high-net-worth individuals whose combined assets total $1.5 trillion (Dh5.5trn) as of 2009, according to Merrill Lynch and Capgemini’s
World Wealth Report – Hoffman said they have been in touch with at least half a dozen clients who are considering parking some of their money into art in the next three to five years.
While the global art market may have undoubtedly “paused” during the late 2008 and early 2009 at the height of the financial crisis, Hoffman said they have observed that some works of art managed to ride out the storm and still fetch impressive returns.
“Good art roared away and made huge records while bad art dropped by 50 per cent. So I think there’s now a [noticeable] divide between the good and the bad [works of art],” he said.
One of the transactions that they have handled during the crisis involved a painting by American artist Andy Warhol called “200 One Dollar Bills”, which was bought by their client in 1986 for $386,000. In November 2009, the same art piece was sold in a London auction for a whopping $43.8 million.
Perhaps one of the most impressive transactions that his company has ever handled in their 10-year existence was an art work by British artist Peter Doig, which they bought for a corporate client in July 2005 for $880,000. A year later, the piece fetched a hefty $2m at an auction, fetching nearly 130 per cent returns from its original buying price.
“Art is considered as a long-term asset and they act as a safe haven especially at a time when currency and equities are very uncertain. What we have seen is a huge interest in investing in art as an alternative asset class. There are interested investors in the Middle East and they are looking for advisers who can get them into the right type of assets,” Hoffman explained.
Mideast art investment young, but holds promise
The London-based chief executive believes that the Middle East art market holds huge potential, especially considering on-going projects in the UAE and neighbouring GCC countries aimed at promoting international and regional culture and art.
“It hasn’t taken off yet,” Hoffman said of the Middle East art market, “But it is definitely getting stronger. I think it has a long way to go once the museums [in Abu Dhabi] have been developed, the focus on culture will be very strong and it will bring huge interest in buying [in particular] Middle Eastern art,” he said.
His company, which in January partnered with Dubai-based lender
Emirates NBD to launch an art advisory services in the UAE, has began investing in the acquisition of Middle Eastern art and Hoffman said they remain committed to pursuing this initiative.
He cautioned, however, that prospective investors should understand that art is a long-term investment and while it may promise to provide huge returns, it is an “illiquid” asset and anyone wanting to get into the art market should give their investment at least a five-year view.
Outlook bright for the art market
Hoffman said the prospects for the art industry in general remains optimistic, particularly when taking into account the double digit profit that they have managed to achieve despite the worldwide economic slowdown.
“The returns have slowed up a bit, but on average for every asset we sold, we still managed to get a 27-per-cent compound return,” he said.
Hoffman added that there are opportunities to make money out of art, not just during the boom years of 2007 and 2008, but also post-crisis 2010 as the world economies enter a gradual period of recovery.
“We believe art is a very interesting inflation hedge and that [its value as an industry] will double, even triple, over the next five years. Why will it go up? Because the demand for top-end art is strengthening and the supply is static,” he said.
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