Investing in New and Emerging Artists - Part I

For many people, part of the appeal of acquiring original contemporary art is the prospect of financial appreciation, and therefore a return on investment. Indeed, in these uncertain financial times more and more people are turning to contemporary art as an alternative form of investment, not only due to the market’s good health and promising capital growth potential, but unlike other forms of investment, owning a piece of art is something that you can enjoy and appreciate on a daily basis; the return is more than financial.

If considering an art purchase partly on the basis of yielding a financial return, there are a few more important factors to consider in comparison to simply buying what you love. Additionally, it goes without saying that any investment, no matter how well considered, carries an element of risk and there are no guarantees (scroll down to read our full disclaimer). However, with the right approach you can at least make a more informed decision.

In this series of articles we provide a light overview of why and how to invest in new and emerging contemporary artists, starting with this gentle introduction of key questions.

Why invest in contemporary art?

Let’s start by looking at the art market in general. In 2018 sales of artwork reached $67.4 Billion worldwide, the second highest sales figures of all time (second only to 2014), and the industry as a whole grew 6% last year, which was the second consecutive year of growth. Turning to contemporary art specifically (broadly to mean art produced from the 1950s onward, although definitions do vary from source to source), the contemporary market has grown significantly in the last 20 years and delivered an average annual return of 10.85% per annum between 1966 and 2016. Looking at a specific representative holding period, contemporary works which were sold in 2016/2017 yielded an average annual return of 7.6% over an 8 year holding period, significantly more than what you get from the banks!

Of course, industry averages only provide a general picture of a broad market which sees transactions ranging from the thousands of pounds to the hundreds of millions, in which some works will depreciate, some will hold their value and others will appreciate, some significantly so, such as Jean-Michel Basquiat’s Untitled (1982) which sold for $110.5 Million in 2017 having originally been acquired for $20,900 in 1984 (yielding an average annual return of 29.6%).

Jean-Michel Basquiat’s  Untitled  (1982) yielded a 5,287 times return on investment over a 33 year period.

Jean-Michel Basquiat’s Untitled (1982) yielded a 5,287 times return on investment over a 33 year period.

Further to the financial gains that contemporary art can provide, a work of art is something that you can enjoy on a daily basis, and various studies indicate that living with art can also improve your general health, happiness and wellbeing. It has also been shown that art has the power to increase empathy, tolerance and feelings of love as well as being able to change a person’s outlook and the way they experience the world. Not something that stocks, shares and pension schemes can claim to do!

Why invest in emerging artists?

Broadly speaking, there are three types of artists you can invest in…

  1. New and Emerging artists: Talented up-and-comers who have yet to make a name for themselves.

  2. Established artists: Well-known names within the industry.

  3. Blue-Chip artists: Household names (mostly dead) such as Picasso, Van Gogh and Worhol.

Our passion at Statement Art is for new and emerging artists, as we love the excitement of working with talents at an early stage of their career who have the potential to become the next big name.

From an investment point of view, investing in a gifted new and emerging artist is similar to investing in a promising startup company in that the risks can be high (as it’s not easy for an artist to develop into an established name), but the potential return on investment is also high. Early investors in the likes of Banksy, Warhol and Hockney certainly did very well for themselves.

Further to the financial returns that can be made from investing in new and emerging artists, the added benefit of investing in these type of artists is that every purchase provides the artist with a meaningful step forward in their career, giving you the satisfaction of knowing that you’re helping to take that artist to the next level. As is the case in most industries, building a career as an artist is very much a momentum game in that once you’re rolling life becomes more straight forward, but generating that initial momentum is no easy task, and so by investing in these early-stage talents you are doing a great service in moving things forward for artists who deserve their big break.

How do I invest and what are the exit strategies?

The most common way of investing in a new and emerging artist is to purchase an original piece of their work. Then, over a period of time the work will either appreciate, depreciate or hold its value depending on a number of factors relating to the artist’s profile, the sales momentum and availability of the artist’s repertoire of work and the evolution of the market. The exit strategy is to then sell the work on to another party, either via an auction (which could take place in a physical setting or online), an art dealer or directly to another collector. Art advisers like us can guide you through this process.

Another, less common, way of investing in a new and emerging artist is to offer an amount of capital to the artist from which they can further develop their career, much in the same way as you would invest in a startup company. In exchange for your capital, the artist may offer you a percentage of their business, a percentage of their revenue or a percentage of a particular collection of work. For example, in 2008 sculptor Guy Porelli entered the Dragons Den offering a 25% share in a collection of 100 sculptures in exchange for a £70,000 cash injection. He left the Den with the support of three Dragons and £80,000…

How much do I need to spend?

If purchasing an original piece of artwork, then in general terms the higher your budget the lower the risks will be. This is because an artist, gallery or dealer can only command a high price for a piece of work if the artist has some meaningful momentum behind them, and if they have some meaningful momentum behind them they are more likely to make a name for themselves and therefore the work is more likely to appreciate in value.

When investing in new and emerging artists, setting your sights on works priced £4,000-£5,000 and upward is a good starting point, as typically an artist needs to have some worthwhile early momentum behind them in order to charge these level of prices. This is not to say that it’s not possible to find investment-worthy pieces for less than £4,000, it’s just that the risk of not generating a return will, on the whole, be higher in these cases. Investing in Established or Blue Chip artists generally requires a significantly larger budget.

How long will it take to generate a return?

This depends on a great number of factors, but broadly speaking a holding period of 5-10 years and upward is required for generating a good return on investment from an original work created by a new and emerging artist who is successful in developing their career and raising their profile. In certain instances however the opportunity for financial return can be shorter.

Where can I find investment-worthy artists?

One of the enjoyable aspects of the art world is that there are many different sources for discovering investment-worthy artworks, including…

  • Art advisers (like us!)

  • Galleries

  • Art dealers

  • Auctions

  • Other collectors

  • Reputable magazines, blogs and websites

You may also be able to find stunning options through Instagram and online galleries, although the quality is a little harder to gauge with these options in comparison to the sources listed above.

This is not to say that every piece of work recommended by a gallery, art dealer or otherwise will appreciate in value, but the above list is a good place to start for sourcing curated options for you to consider.

How do I assess the likelihood of an artwork appreciating in value?

Like a classic episode of Home and Away we will leave you on this cliffhanger of a question, which will be addressed in a future article, so make sure to subscribe to our monthly newsletter below to never miss a beat!

In the mean time, if you’re curious to learn more about art investments or are interested in starting your own collection, contact us using the details below to explore how we can help.

Oliver

Disclaimer: Statement Art Limited has made every attempt to ensure the accuracy and reliability of the information provided. However, the information is provided "as is" without warranty of any kind. Statement Art does not accept any responsibility or liability for the accuracy, content, completeness, legality, or reliability of the information provided.

While investing in art can be financially rewarding, there are no guarantees, it is very much taken at YOUR OWN RISKS. Markets can change and the value of the work of an artist can increase, or indeed decrease, due to a number of factors that are outside of our control. 

No warranties, promises and/or representations of any kind, expressed or implied, are given as to the nature, standard, accuracy or otherwise of the information provided nor to the suitability or otherwise of the information to your particular circumstances.

We shall not be liable for any loss or damage of whatever nature (direct, indirect, consequential, or other) whether arising in contract, tort or otherwise, which may arise as a result of your use of (or inability to use) the information provided by us.

Statement Art Limited is a limited company registered in England and Wales under Company Register Number 11854838 and with its registered office at Ask House, 2 Northgate Avenue, Bury St Edmunds, Suffolk, United Kingdom, IP32 6BB.

Oliver Squirrell