Who chooses to buy art as an investment?

Art as an investment has evolved over the past two decades. In fact, global sales in the art market have quadrupled from around $14 billion in 1996 to $56.6 billion in 2016.

Along with the amount being invested in art, the investors themselves are also changing. So why have these changes occurred, and what can we learn from them? Artsy analysed some of the world’s top collectors, and examined how different industry sectors were contributing to the art investment market.

Finance dominates

The finance sector already accounted for 21% of the art investment market back in 1996, but this increased to nearly one-third by 2016, despite only modest sector growth.

Doug Woodham, former president of the Americas for Christie’s, attributes the financial sector’s dominance in the art investment market to its “winner-takes-all” economy, in which a small number of individuals operate globally and reap the majority of profits.

He suggests simply that some of these incredibly wealthy individuals appear to enjoy art. “The art world has benefited enormously from the tremendous wealth that’s been created,” Woodham claims.

However, financial professionals may also bring with them a pragmatic view of art as an investment. I’ve discussed in previous blogs how art can be both potentially rewarding in terms of value growth, as well as an important addition to any diversified asset strategy. Those working in the financial industry are likely to hold a good understanding of the many strengths of art as an investment asset, and may therefore be more likely to invest.

Their pragmatic view of the art market also makes it more likely for financial professionals to consider art as an investment in much the same way as any other fixed asset, rather than only appreciating its aesthetic merits.

Technology is catching up

What about the fastest growing industry of this era, technology? This industry’s share of top art collectors grew from 2% in 1996 to 5% in 2016, but this trend is anticipated to accelerate further in the future, as the market matures and various industry players reach the age when people tend to start collecting.

Entrepreneurs are also “clever, resourceful individuals who… are open to new ideas,” Woodham claims, and “artists are a source of creativity.” These qualities may align perfectly when it comes to tech entrepreneurs embracing art as an investment.

Why choose emerging art as an investment

Today’s art collectors, particularly those whose wealth is new, often rely on the reputation of an artist, their recent auction performance and current industry standing. As a result, they are more likely to invest in established artists who already command high price tags, rather than supporting emerging names who are on their way to success.

“It’s easy to follow the herd,” explains economist Clare McAndrew, “if you know that this particular artist has done well or been bought by other famous collectors.”

This trend means the art investment market is concentrating a lot of value around just a few artists. Warhol, Basquiat and Lichtenstein big ticket sales always make a splash in the media, but few aspiring art investors can afford to actually place a bid.

In contrast, it’s entirely possible for many individuals to embrace art as an investment if they look to emerging artists who are incredibly talented and tipped for future success.

Artsy cites the case of librarian Dorothy Vogel and postal clerk Herbert Vogel, who created one of the world’s most significant collections of modern art on modest salaries. In 1991, the National Gallery of Art in Washington acquired much of the collection, with estimates of its current value ranging well into the millions.

Notably, the Vogels purchased works directly from artists, many in the early stages of their career, and not necessarily in high demand at the time. Thanks to their passion for art, the Vogels built up a formidable collection which swelled in value over the years.

Lessons we can learn

The financial sector’s pragmatic view of art as an investment, the tech sector’s attitude towards art as an exciting and unique asset, and the Vogels’ enthusiasm for emerging artists are all qualities we can benefit from when looking at art investment. If you have any more questions, pay us a visit at any of our galleries and talk to our expert Sotheby’s trained art consultants.

Written by James Nicholls, Managing Director and Curator, Maddox Gallery.