In November 2017, Leonardo da Vinci’s Salvator Mundi sold at auction for $450.3 million in just under 20 minutes.
But what gives a piece of art such value? And just how big is the art investment sector?
The art market
In 1990, global art sales secured $14.3 billion. But in 2019, the sector boomed by over six per cent compared to 2018, exceeding $67.4 billion in sales.
Looking worldwide, the U.S., Britain and China are the leaders in the global art division. Globally, the U.S. dominates this market, with an estimated market share of 44 per cent, reaching $29.9 billion in sales for 2018 alone.
The U.K. reported 21 per cent of this estimated market share, while China was third in line, reporting 19 per cent in revenue for the overall sector.
When we take a look at Australia, cultural activity employees close to 600,000 people and contributes almost $111 billion to Australia’s GDP, or six per cent, with the art sector earning $4.2 billion in reported sales for 2018.
That kind of capital makes art a worthy — and tasteful — investment for those in the know.
The Art Index model
Capitalising on this investment class in Australia is the team behind Art Index. Founded in 2007, the team came together to provide eagle-eyed investors with exposure to fine art as an investment opportunity.
The team worked through the Global Financial Crisis and came out in 2010 and 2011 as one of BRW Magazine’s ‘Fast 100’ emerging companies.
Established as a force to be reckoned with, Art Index had a singular vision; to provide investors with independent access to in-depth art research, and to accommodate art sales and rental services.
“Our main motivation is the supply of investment quality art to investors, collectors and art lovers alike,” the company states.
When it comes to this alternative investment asset, Art Index can offer its investors low-risk, fixed returns of up to 10.25 per cent a year on their investments, sometimes for up to a minimum of 3 years.
It’s an important thing to consider when balancing the risk of art investment over time, particularly against the industry’s global growth.
How reliable is this growth?
If you’re thinking of investing in this multi-billion-dollar industry, there are a few points to reflect on. While it may be encouraging to understand that 60 per cent of auction turnaround is valued at $1.4 million, the art industry has been variable when looking at the past decade.
Both value and demand dropped in the sector following the Global Financial Crisis in 2008 as economic transactions slowed. And, when we take a look at the sector as a whole, between 2018 and 2008, the total gain for the decade was just over 8.7 per cent – underwhelming to say the least.
So, what makes art an attractive investment opportunity? It boasts strong capital gain in the long run. From 1990 to 2019, price increase has been a major contributor to the 600 per cent growth in turnover.
Judith Neilson says she’s been collecting art since she was a child. One of her first purchases came about when visiting relatives on the Kalahari, where she was presented with a bell that had fallen from a horse’s bridle.
“That was the start of my collecting and I have still got the bell. Sixty- seven years ago it was quite a privilege to be given something like that, it was fantastic,” Neilson says.
Over the years, Judith Neilson has acquired one of the largest art collections in Australia, which is set to be worth over $100 million. However, as with any investment, she knows diversifying an investment portfolio with art comes with it’s own unique risks.
What are the risks of investing?
When it comes down to it, the art investment transaction deals primarily with selling and buying art. While it sounds simple, art can be tricky to buy and sell.’
Joanna Bialynicka-Birula sums this up simply in her paper on investing in art; “the level of financial returns from works of art does not solely depend on the levels of purchase and sale prices.”