How to Conduct Proper Due Diligence When Investing in Art
As art has grown to be an accepted asset class, more families are leaning towards investing in art as a storehouse wealth. As both a current long-term financial growth plan and an optimal way to transfer wealth to heirs, art as an investment has become critical when broadening investment portfolios. With a wide range of pricing and many options for various tastes, there are so many reasons to take advantage of the opportunity to invest in art.
However, in today’s art market that has become full of brokers who are unable to fulfill orders and due diligence requests, collectors, investors, family offices and investment banks have become even more cautious when artworks are presented, and moreover, how to ensure the artwork is authentic and viable for trade. Viable for trade is not a term often used, however, it is the key to completing a successful transaction, and essentially means that the artwork has all the proper documentation needed at closing to be processed by any major bank.
Things to look for:
1) Catalogue Raisonné: All artworks have their version of a Catalogue Raisonné. For each artist, they may have a different name. For instance, for Monet, it is called the Wildenstein. Picasso’s is called Zervos. Each master artist has a Catalogue Raisonné for which the artwork is listed, and essentially, like an MLS listing for the property is listed as an authenticated and acknowledged artwork. Not all authentic artworks have been properly listed in the Catalogue Raisonné, however, for the most part, it is an essential element for closing the art transaction.
2) Proper Certificate of Authenticity: For the artwork, a collector is looking to acquire, the right authentication is required at closing. Many art sellers use certificates of authenticity as a means of adding facts about an artwork to prove its authenticity. The certificates contain information such as title, medium, date, signature, etc., which can possibly make an art buyer more comfortable with buying an artwork. One Certificate of Authenticity may not be enough of a confirmation at closing to complete a transaction because these can be easily forged.
3) The “Right” Experts: The right experts depends on the artwork being purchased. You will need to ask for a notarized declaration from the right experts. The catch here becomes when there are different groups of experts for artists, primarily in the Old Masters market. In one market, there may be several world-renowned experts, such as with Rembrandt. In cases where the artist is still alive, you should either get a notarized confirmation of authenticity from the artist or their agent.
4) Insurance documentation: If the artwork has been previously insured and registered to the current owner, chances are much higher you can have a successful transaction. Once insured, for the most part, the insurance company may have already conducted due diligence similar to a bank, and confirmed that the artwork has the necessary paperwork in order to it. Also, if the insurance report is listed to the current owner, it saves time later if surprises of ownership, liens, or encumbrances come up at closing.
5) Provenance: It’s all about the paper trail! Provenance tracks the ownership of artwork throughout time. This is immensely important evidence when attempting to prove authenticity. The key is to start with the most recent owner and trace back owners throughout the artwork’s existence through its creation date.
6) Forensic Analysis: There are many ways forensics can be used to determine authenticity. The analyst can perform a stylistic evaluation, they can perform objective tests to determine the aging of the material, or they can use various scientific instrumental methods. Paintings can be subjected to analysis using infrared reflectography, Wood’s light, a stereoscopic microscope, IR spectroscopy and other instrumental techniques. With Old Masters or artworks that have been “discovered” and are not currently registered in the Catalogue Raisonné, this may be the key ingredient to being able to complete the transaction.
ArtéQuesta stands out among other art advisors and managers for our deep and broad knowledge of the art world, from Old Masters, Post-War Contemporary to conducting bank level due diligence for major art acquisitions. We combine that unique knowledge with carefully-considered business practices and a commitment to discovering creative ways to generate returns for our investors. If you have artwork that needs proper due diligence for a successful transaction, please contact Rayah Levy at email@example.com.
By Rayah Levy, Art Market Expert
LinkedIn May 10, 2018: