Art Investing Risks
There are risks associated with investing in contemporary art that do not necessarily exist for other art sectors and financial asset classes. Therefore, it will be astute for an art buyer/collector/investor to consider the following risks prior to purchasing a work of art.
1: potential damage and wear and tear over time
Since artwork is a material asset, there are risks related to its physicality, such as the risk of damage or wear and tear over time. It is therefore important that you carefully assess the materials that were used by the artist when creating the artwork and the necessary precautions you might need to be aware of in order to preserve it.
Certain materials will tend to lose luster over time, (e.g. acrylic paint, house paint, and certain oil paints) whereas a hoard of natural materials and pigments used by the artist might react negatively when combined with synthetic materials over time. e.g. found objects pasted on canvas without proper priming and painted over with certain oil paints tend to fade and/or flake over time.
Artwork that require close inspection include collage paintings, photomontages, assemblages, oil paintings on board, painted sculptures and installations.
Risk can be minimized by getting a condition of artwork report from the seller and physically comparing the quality of the piece with other works from the artist’s oeuvre. Every work by Nya,’ (including limited x-rays, drawings and signed limited print editions of posters) comes with a detailed art theory report and a condition of artwork remark detailing all the materials the artist used when creating the work and the processes employed to ensure permanent bonding as well as prevent the work from losing luster over time.
In the case of x-rays, drawings and limited print editions of select posters, methods used to preserve the paper, colors, and graphite marks from fading over time are also included in the art theory report.
Like any other profession, artists generally improve their technique and understanding of materials as they develop and get exposed to new materials. Additionally, as an artist matures, so does their confidence, craftsmanship and hopefully, their ability to purchase quality materials for their work. It, therefore, implies that despite the likelihood of favorable returns over time, the quality of an artist's early work might be questionable and will therefore need to be examined more rigorously than their late work to avoid potential damage or disintegration of the work over time.
Careful preservation of an artwork is imperative to ensure that your investment does not lose value over time due to deterioration of quality or damage related to ageing e.g. flaking paint, color changes, falling parts in the case of a collage, sculpture, installation or an assemblage piece.
2: ascertaining authenticity and provenance
Another risk specific to contemporary art relates to the work’s authenticity. Important questions to consider in regards to authenticity include the following;
a: Is the artwork an original, fake or a copy?
b: Is the work’s title and provenance available?
d: Is there any sold work or on the market by the artist with the same title?
c: Are there any similar pieces from the artist sold or currently on the market?
e: Are there any important questions related to the artwork’s rights of ownership?
f: Is the artist signature clearly legible and does it match with his signature on other works?
These questions are important to answer before you purchase an artwork. When you are uncertain, especially when purchasing through an agent or private dealer, it will be smart to engage the services of an independent art professional who has knowledge and experience in works from the particular genre you are interested in acquiring.
In the case of Nya’s work, each work is titled, dated and signed, and included with the art theory report is a provenance report detailing previous custodians of the work as well as any exhibition it was displayed.
ESCORT OF WISDOM
Series I: Divine Inspiration
Oil, cow dung, chalk, parchment, distressed foam board, wire, screws, earth, lockset, sackcloth on canvas
74 x 38 inches (187.96 x 96.52 cm)
2004
© Nya′ 2005. Courtesy of Seed Gallery, New York
Photo by House of Seed Photography, New York
ARTWORK & THEORY REPORT
The relief texture was created using a combination of found objects and organic materials that were carefully preserved, inventoried, and cleansed for adhesion purposes before being merged into a layer of gypsum. Upon setting, the gypsum was accordingly manipulated using a box cutter, surgeon blades and disparate sandpaper grades. Nails, screws and an industrial bonding agent resistant to humidity, heat and water was used to bond all the materials. The series of relief parchments in the bottom register of the canvas were singly adhered to the canvas ground.
The sculptured composition was left to dry for a protracted period before coating it with generous multiple layers of primer to harden it and prepare applying color. The brilliantly resplendent crimson and burgundy parts (enamel-like) on the canvas are intentional and were created using the artist signature “toothbrushing technique” that hides every brush mark. The custom stretcher upon which the canvas is resting was made of specially treated wood and has two support beams down the spine of the frame to avoid warping over time.
CONDITION OF ARTWORK
Original condition. Burnished effect on select alphabet letters is intentional and achieved gradually upon curing the work. The artist signature is rendered in gold at the bottom left corner of the canvas.
PROVENANCE
Year of completion: 2004
Artist Private Collection: 2004 – 2005
Seed Gallery Private Collection: 2005 – To date
History of Exhibitions:
PACKAGE OF SALVATION
THURSDAY, SEPTEMBER 05, 2013
SEED GALLERY, NEW YORK
3. verification of information
The uniqueness of each artwork combined with the opacity of the contemporary art market makes it arduous to verify the available information pertaining to the work you might be interested in acquiring. This is particularly true when the artist is relatively unknown or when you are purchasing the work from a high street gallery or an inexperienced art vendor. Therefore, to safeguard your investment and minimize risk, it will be wise to get in touch with the artist and if possible, personally visit their studio and get veritable information about the work while comparing it with other pieces in their oeuvre.
Risk is minimized when you are acquiring the work from a highly reputable gallery with exclusive rights to the artist’s work e.g. White Cube Gallery, (United Kingdom), Seed Gallery (USA), Gallery Momo and Goodman Gallery, (South Africa). However, it will be wise to conduct your own independent research and ask the gallery to arrange a meeting with the artist and if possible, arrange a studio visit.
4. potential human error and biased information
Closely associated with the risk of being provided with false information regarding the artwork is the risk of human error in judgment and/or being furnished with biased information.
Why would a seller furnish you with biased information?
It could be to promote a particular artist's career in line with hidden objectives oblivious to the potential buyer. They might also be desperate to trim their inventory from excess artwork strategically or simply to make a quick sale. To that end, vetting the art vendor prior to purchase is imperative.
Consider the experience, reputation, sales policy and general qualifications of each vendor and ensure adequate research, especially with regard to the artwork’s provenance and authenticity. However, the fact that a vendor has been in business for what could be considered a long time e.g. 10 – 15 years does not necessarily mean that they are reputable, even though experience and longevity are highly respectable attributes.
If the vendor is a gallery, then building a relationship with the institution, attending exhibitions, signing up and reading their newsletters - in other words, understanding the gallery’s vision and closely examining how it brands each artist represented is key when determining reputability. Art vendors primarily include private art dealers, galleries, art consultants, museums and auction houses.
5. uncertainty concerning the rate of return
The basic financial risk of investing in a contemporary artwork arises from the uncertainty concerning its rate of return. The general notion that an artwork will always appreciate in numeric value over time is erroneous.
The fundamentals which are responsible for ensuring that your investment will earn you decent returns should you decide to offer it on the secondary art market in the future are not entirely related to the actual piece, but to past, prevailing and future circumstances surrounding the work.
It is also important to underscore that treating a contemporary artwork no more than a financial instrument robs it of its potential to achieve or maintain popularity through exposure and discussion and thus inhibits what helps the artwork increase in both social and commercial value.
However, it suffices to say that a contemporary artwork purchased from a reputable vendor, preferably one with exclusive rights to the artist’s work is much more likely to appreciate in numeric value over time than one acquired from a vanity gallery, high street gallery or a “fly by night” art dealer.
Other key elements to consider in order to minimize risk is contingent on acquiring the following information:
a: History of price levels
b: Certificate of authenticity
c: Detailed provenance report
d: The artist’s biography and resume
e: Previous auction records and reports
f: Understanding and proof of the rarity of the work
g: Information on the size of the work, materials used, period of creation and how it relates to his other works
It is also important to carefully scrutinize how the artist’s career is managed by the seller, especially if the vendor is a gallery. As aforementioned, an artist whose career is adroitly managed, exclusively represented or whose work is shown by a reputable gallery is likely to see the value of his work rise over time. If a gallery firmly believes in the work and career of the artist in its stable, it will be apparent in the time, effort and resources they invest in promoting his/her work.
Therefore, to establish the quality of relationship and presentation between the artist and gallery, consider the following questions;
a: How many other galleries represent the artist?
b: Who else bought the artist’s work from the gallery?
c: How often is the artist’s work displayed in the gallery?
d: How much literature is available pertaining to the artist and their work?
e: Is the artist’s work exhibited at distinguished art fairs attended by the gallery?
f: Is every exhibition held for the artist always accompanied by a comprehensive catalogue, press release(s) and an independently publicized critical analysis of the work on display?
These are just some of the pertinent questions you will need to answer prior to investing in a contemporary artwork in order to ensure that your investment will retain its value and/or be worth more than the price you acquired it for on the secondary art market.
There are also a number of statistical methods to measure risk both for an individual artwork relative to other art investments. However, since most measures heavily rely on historical data, they cannot predict future risks and are, therefore, best for short-term decision-making. Nevertheless, these measures are important for forming a picture of how the overall art market and the artist’s work in question have interacted in the past, which can help you to contrive ways of combining the piece with artwork from other artists in order to reduce the risk while building a formidable art collection.
ETERNAL LETTERS TO MY BELOVED
Series I: Divine Inspiration
Oil, dust, ashes, parchment, foam board, parchment paper, lightweight paper and tissue paper on canvas
48 x 48 inches (121.92 x 121.92 cm)
2006
© Nya′ 2008. Courtesy of Seed Gallery, New York
Photo by House of Seed Photography, New York
PROVENANCE
Year of completion: 2006
Artist Private Collection: 2006 – 2008
Seed Gallery Private Collection: 2008 – To date
History of Exhibitions:
DESTINY OF WORDS
THURSDAY, SEPTEMBER 01, 2016
SEED GALLERY, NEW YORK
6: effects of the global economy
The contemporary art market is not immune to the effects of global economic crises. Generally, in a booming economy, when an individual or nation’s income rises, demand for luxury and positional goods, including art increases.
For example, if we take Africa as a region, it is clear that South Africa’s robust economy in comparison to other African countries has resulted in Johannesburg becoming the leading market of African contemporary art. Nigeria, Tunisia and Morocco follow behind. However, when there is contraction in global wealth, lower incomes or less discretionary income arguably leads to lower consumption of positional goods, including contemporary art.
For example, at the height of the world market boom of the 90s, Zimbabwe’s economy was rapidly growing and the country was enjoying an influx of tourists. Consequently, Harare (the capital city) had over 10 contemporary art galleries, an unprecedented fit considering the fact that over 98% of the buyers were foreigners. However, by 2004, 8 galleries had shut down largely due to the country’s economic and political woes and the global dip of 2002-2003 which severely affected several sectors of the world art market.
Nonetheless, as a whole, the contemporary art market has shown low or negative correlation with financial indices over time, suggesting that the price of the work and its return are often unrelated to other asset classes. This, therefore makes an investment in a carefully selected contemporary artwork an attractive alternative investment in order to hedge one’s risk in an economic downturn.
Conclusively, always consider each artwork and artist individually, minimize your risk by gathering the necessary information related to the work and carefully calculate the macro-economic risks involved prior to making an investment.
7. the lack of liquidity in the art market
Lack of liquidity in the contemporary art market makes it an unattractive investment for investors with a short-term horizon outlook.
This implies that if your intention is to buy artwork from a primary source and quickly sell it (flip it) on the secondary art market e.g. auction, you must carefully consider the potential risks involved. Just because the career of a young artist is on an upward trajectory, with pieces in revered collections like the Museum of Modern Art (MoMa) in New York, does not guarantee that their work will fetch high prices on the secondary art market.
As an investor, this is why it is eminent to do the following in order to make sure that the work(s) retains value and or grows in value over time;
a: Loan the work to reputable institution(s)
b: Stay abreast on artists’ activities in the art market
c: Build a relationship with the art vendor e.g. gallery
d: Constantly ask for an independent appraisal report of the work
e: Independently read and keep critical reviews of the artist’s work
f: Independently read and keep critical reviews of the artist’s work
g: Attend exhibitions and liaise with other collectors of the artist's work
h: Attend auctions where the artist's work, or where work in the same genre will be sold
As a word of caution, please avoid buying artwork from “wholesale art dealers.” These are primarily high street, curio and vanity galleries in London, New York and other thriving cities that sell contemporary art bought directly from either artists or unscrupulous art traders at meager prices and later sold at inflated prices on swanky gallery floors, art fairs and hideously ostentatious websites.
In conclusion, even collectors with the purest aesthetic motivations should carefully consider the potential financial implications of their investment in contemporary art, especially when considering what can be bequeathed to the next generation.
BLUEPRINT OF GRACE
Series I: Divine Inspiration
Oil, crushed cow dung paste, dabs of lamb’s blood, metal, river sand, foam board, tissue, corrugated paper on canvas
74 x 27 inches (187.96 x 68.58 cm)
2006
© Nya′ 2011. Courtesy of Seed Gallery, New York
Photo by House of Seed Photography, New York
PROVENANCE
Year of completion: 2006
Artist Private Collection: 2006 – 2011
Seed Gallery Private Collection: 2011 – To date
History of Exhibitions:
FATHER: THE ABIDING PARAGON OF ETERNAL MENTORSHP
SATURDAY, SEPTEMBER 01, 2018
SEED GALLERY, NEW YORK
8: buyer’s remorse
After purchasing a contemporary artwork or any other work of art in general, there is always a risk that you will not find the piece stimulating, inspiring or attractive over time. Furthermore, as your art collection grows and your taste in art evolves, the work might fall out of context with the direction of your portfolio. However, this risk can be minimized by carefully establishing the key reasons why you are interested in purchasing a particular piece.
Enduring collections with the potential of earning high returns over time are built by an art buyer/collector/investor who develops an enduring bond with every single work in their collection.
Invest quality time studying the work of the artist you are interested in acquiring. Read their biography, read the interviews the artist has conducted throughout their career and examine images of their early work and how their oeuvre has evolved and matured over time. In the case of Seed Gallery, an enduring bond between the collector and painting is developed by accompanying every work with the following:
a: A synopsis of the painting
b: Signed posters of the painting
c: Short films narrated by the artist about the painting
d: A background and inspiration report of the painting
e: Written and audio interviews with the artist discussing the painting
f: A verse (poem) written for the painting by the artist in a custom font designed over two decades
Aside from helping to create a bond between the prospective collector and the painting, these inventoried elements that accompany every work safeguard the painting - for they prove authenticity and establish a transparent record between the artist, the gallery and the collector. Furthermore, any work by Nya′ sold without these documents is not considered legitimate.
Therefore, these documents inhibit the creation and trading of counterfeits. In essence, accomplished collectors are passionate about the artists and work they collect and have an emotional attachment to the pieces in their collection.
The Djerassi collection at the San Francisco Museum of Modern Art is a fine example of the enduring benefits (both financially and intrinsically) of passionate collecting. It was on a trip to London in 1965 that Carl Djerassi first saw and purchased works by the Swiss-born modernist painter Paul Klee. What he did not realize at the time was that these first two acquisitions would form the genesis of one of the largest and most significant holdings of works by Klee in North America.
Over the course of 35 years of astute, passionate, diligent and dedicated collecting, the Djerassi Paul Klee Collection has grown to about 140 works that fully span the artist’s career, from the painting executed when the artist was a secondary school teacher to rare pieces completed in 1940 shortly before the artist’s death. The depth of the collection-from paintings on linen, to works on plaster, paper, drawings, prints and watercolors reveal the zeal and unyielding commitment of Carl Djerassi to the work of an artist whose passion, vision, clarity of intention and sheer commitment to excellence inspired him mentally, emotionally, aesthetically and professionally.
The Djerassi collection has greatly benefitted not only the San Francisco Museum of Modern Art, but the world at large and over the years, the value of the collection has grown by over 350 percent.
9: cost of transporting artwork
Whether you are investing in a work from a local vendor or an overseas gallery, they are always costs involved. There are also risks in relation to moving or selling works overseas, e.g. export licensing requirements, customs duty, etc.
With transportation risks also comes the risk of damage to the work, loss and theft. Transporting a crate of stone sculptures from Chapungu Sculpture Village in Zimbabwe (Africa) to New York (USA) requires a deft amalgamation of logistics which includes securing the packaging, good negotiation skills with customs and careful consideration of the route and mode of transportation.
Furthermore, processing the documents related to such a huge consignment can take time and might require the services of external experts with a proven record in transporting sculptures. It will be advisable to ask for contact details of clients the shipping company might have served before and personally contact at least three of them to hear how they rate the company’s professionalism before you engage their services.
Transporting assemblages and installation work poses an entirely different set of challenges that should be discussed with the vendor prior to purchasing the artwork. Wherever possible, it is wise to have the artist present when the work is packaged, especially in the case of assemblages or mixed media work. However, risks can be minimized by purchasing artwork from a reputable vendor with considerable experience in shipping artwork overseas.
For example, Seed Gallery has designed special air-cushioned crates to secure and carefully preserve Nya’s heavily textured work when shipping either by sea or air.
10. establishing the rightful owner of the artwork
When buying a contemporary artwork from a private art dealer, art consultant or any other vendor aside from a gallery, museum or auction, it is possible that the seller might not be the rightful or legitimate owner of the work in his possession and in some distinct cases, may be unaware that their right of ownership is questionable. Therefore, as an investor, you can protect your investment by purchasing title insurance to cover the risk and the cost of insurance can be subtracted from the market price of the work.
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