Wisely, Laura Gascoigne is unconvinced by art as investment.
Equestrian statues of one sort or another are becoming a regular fixture on the Fourth Plinth. In 2012 we had Elmgreen & Dragset’s paedophile’s delight of the boy on the gilded rocking horse; next up in 2015 will be Hans Haacke’s equine skeleton, inspired by Stubbs, with a live ticker of the London Stock Exchange clipped to its foreleg like a hospital bracelet. Too late for the horse hospital for this old nag, however, reduced to bones by the necrotising fasciitis of the financial market. Titled Gift Horse, Haacke’s monument seems surprisingly near the knuckle for a contemporary art world currently jockeying for position on the FTSE Alternative Investment Market index.
On the same day in January, two invitations dropped into my mailbox. One invited me to spend $2,500 on a two-day Master Class in Art Finance run by TiasNimbas Business School at a château outside Maastricht, where I would “learn about the art market industry, gain knowledge on the history, development and ranges of alternative types of exotic and emotional assets” and acquire essential information to help me “understand the mirage [sic] of products currently on offer”. Now I may not be Lawrence of Arabia, but I know enough about deserts to understand that a ‘mirage currently on offer’ is by definition guaranteed to disappear before I reach it, along with my $2,500. So I plumped for invitation no. 2, to a free debate at the London Art Fair led by Melanie Gerlis, Art Market editor of The Art Newspaper and a former financial analyst, on the question: ‘Is Art Really a Good Investment?’
The event, which coincided with the launch of Gerlis’s new book Art as an Investment? A Survey of Comparative Assets (Lund Humphries, £30), was ostensibly aimed at helping cub collectors make informed investment choices, except that it very quickly became apparent that Gerlis’s informed answer to the question under debate was ‘no’. She gave five pretty persuasive reasons why. 1. There is no real market. 2. Art has low liquidity – you can’t sell everything tomorrow. 3. It has no use, unlike property. 4. It generates no income. 5. There are secret rules – rules, she let slip, “which by any other name you would say are manipulation, but I’m not going to say that here.” She as good as said it, and she does it again even more convincingly in print.
Gerlis’s book assesses art’s performance in the market by coolly comparing its risks and returns with those of other investments: public equities, real estate, private equity and the alternatives assets silver, wine and gold now bracketed with art under the collective acronym SWAG. In every statistical comparison, art comes off badly. It has the lowest returns (7-8%) and the highest volatility (20%) of any sort of SWAG. Twenty-five percent of the stuff consigned for auction doesn’t sell, although the public only gets to hear about the $105m Warhol Silver Car Crash or the $58m Koons Balloon Dog (Orange). Such is the polarization of the market that over the past 25 years 20% of works have generated 80% of sales values. And even the auction houses can’t always be sure which works will be in the winning 20% until the hammer falls, despite presiding over an asymmetrical market in which they have all the information and hold all the aces. “Most investment decisions are based on an asset’s worth in relation to its price,” is how Gerlis sums up the situation, “and neither can be pinned down in the elusive art market”.
There are of course compensatory benefits to owning art, called ‘psychic returns’. Gerlis quotes the American journalist Malcolm Gladwell’s calculation that these are worth 28% of the value of a work: “If you pay $100m for a Van Gogh, $28m of that is for the joy of looking at it every morning”. Equally, every morning you leave the house without looking at it you’ve pissed away several thousand bucks. But for the ultra-high-net-worth individuals (with investible assets of over $30m) who can afford to piss it away, art also has a social ‘positional’ value, like luxury goods. In her final chapter Gerlis compares these two markets, which both rely on the same 1% of super-wealthy and appeal to the same herd mentality. “One of the most curious features of the contemporary art market boom that peaked in 2007,” she observes, “was that works which were the most commoditised (that is, they looked the same as each other)… were those that were commanding the highest prices and attention. In the age of conspicuous consumption, it became paramount that one’s art was recognisable – and recognisably expensive.” So if not rarity, what determines value in the contemporary art market? Basically, money. The super-rich buy art because it’s expensive, and the more it costs the more they want to buy it. Or as Gerlis puts it: “An artist is good because he sells for a lot.”
I had a friend in the 1970s, a wit and bon viveur, who announced one day that if potatoes got any more expensive he’d start buying them. I didn’t know, until reading this book, that my friend’s remark illustrated the ‘Veblen effect’. It was the American economist Thorstein Veblen in his 1899 book The Theory of the Leisure Class who first identified the phenomenon of demand for certain goods rising with their cost. Given a choice of two spoons, one silver and flashy, the other aluminium and functional, the modern consumer preferred the silver one because it cost more: “The superior gratification derived from the use and contemplation of costly and supposedly beautiful products is, commonly, in great measure a gratification of our sense of costliness, masquerading under the name of beauty.”
Laziness is another reason why the bottom line now dominates art news headlines. As New York alpha gallerist David Zwirner recently remarked: “One of the reasons there’s so much talk about money is that it’s so much easier to talk about than the art.” But using price as an index of quality has other consequences beyond the personal risk to UHNWIs when the market in an artist ‘softens’. The damaging perception that art which does not sell for eye-watering sums is intrinsically worth less – even worthless – causes depression, financial and psychological, lower down the market. Here’s another of Gerlis’s statistics: last year the average turnover of art dealers with sales under €500,000 fell by 17%, while those with turnovers of over €10m saw a rise of 55%.
Gerlis doesn’t address the morality of the market – that’s not what her book’s about – but she does conclude on a wistful note with the observation that “in reality most of what is produced is in the middle to lower end of the market and where so-called real collectors (rather than the trophy-hunting elite) and people who simply consider themselves art buyers are operating… If the system that supports this is struggling… artists are going to find it even more difficult to make a living out of what they do and will increasingly… make work that is primarily market-pleasing. Supporting the development of a healthy, low-to-mid-market for art may be in the best interests of all who love it.”
At the top end, art investment is a millionaire’s flutter; at the bottom end it’s a struggle for survival. My bon viveur friend made the mistake of opening a gallery, and during the 1980s recession he committed suicide. He was small potatoes.
Laura Gascoigne
The Jackdaw, 2014