Investing in art

Your client’s finally bought his dream home. Next stop: the art market. “Entrepreneurial people do well, [buy] beautiful homes and then want something meaningful to hang on their walls,” says Suzanne Gyorgy, head of Art Advisory & Finance, Citi Private Bank in New York.

Art as asset class

Art markets are difficult to analyze—and regulate—because artworks are diverse and resales infrequent. But in 2010, the Mei Moses All Art Index returned 16.6%, compared to the S&P 500’s 15% percent.

Art appraisal factors

• When the art was created (i.e. the particular period in the artist’s career)
• The type of work—painting, sculpture, mixed media
• Condition
• Ownership and exhibition history (known as provenance)
• Prices for comparable works

And in the first half of this year, it’s returned 6.2%, versus the S&P 500’s 6%. Art has low correlation with other assets, and tends to be less volatile, so it can help diversify a portfolio.

Wealthy clients often use their collections as loan collateral because “the art market isn’t subject to extreme fluctuations. As a result, your art collection can be a stable source of liquidity,” says Gyorgy. Also, if a client’s collection appreciates, he can borrow against the art to buy equities to diversify his portfolio.

When to buy

In New York, the major auctions take place in November and May. In London, England, the corresponding auction sales occur in January and February, and again in June. In Canada, the major auctions happen in May.

Facts and Figures

• $60 BILLION: value of art that changed hands in 2010 worldwide
• 11: number of Group of Seven paintings stolen from a Toronto dealer in July 2011
• 2008: year the RCMP created Canada’s first art theft unit

Hassle Factor

Care costs

• According to West Lake Conservators in Skaneateles, NY, a painting only needs to be cleaned once every 25 years if maintained properly. A professional cleaning involves unframing, removing surface dirt, revarnishing, reframing, repair and sealant. For a small painting, this will cost $300 to $500. For a standard portrait size (30-by-25 inches) the cost can go up to $4,000.
• For a local conservator, contact the Canadian Conservation Institute (www.cci-icc.gc.ca).
• Transporting art requires professional assistance. artverb, an art transport company in Toronto, charges $50/hour for basic pickup and delivery within the city and $60/hour for anywhere in southern Ontario. Installation costs are $40/hour with basic hardware.

Insurance*

Stand-alone coverage

• $500: minimum annual premium for a collection worth up to $200,000
• $1,000: minimum premium for commercial accounts (art dealers, museums, artist conservators, corporate collections)
• $1,000 to $1,500: premium for a private collection worth up to $1 million

Types of coverage

Agreed value: only book value is covered.

Current market value up to 150%: pays up to 150% of book value

Current market value no cap: pays current market value of the insured