Art as investment: or, the root of many evils

29 03 2009

 

 

 

 

It seems the economic apocalypse will play out in many and varied ways in the art market.

In America, dealer Lawrence Salander has been arrested and charted with counts relating to larceny, fraud, forgery and perjury. Along the way, he managed to fleece tennis über-brat John McEnroe and film legend, Robert De Niro. The amounts are significant: prosecutors claim that up to $US 88 million has been soaked up by illegal dealings.

And we have our very own drama unfolding here in Australia. Until very recently, no major art auction was complete without Ron Coles and his hefty cheque book in attendance. Now, he has disappeared into thin air, leaving behind a chaotic mess of bad debts, dodgy paintings and accusations of fraud on a grand scale.

Through his prosaically named Sydney-based business, ‘Ronald Coles Investment Gallery’, Coles recruited many clients who had little or no experience in the art market. They gave Coles cash on the understanding that he would acquire investment art on their behalf, and store it for them. It seems that investors believed that Coles was holding a collection of art on their collective behalf worth $A 23 million. Local auction house, Bonhams & Goodman estimate that the collection seized in the course of the police investigation is worth somewhere in the vicinity of $A 400,000. Allegations are now leaking out that there are forgeries of work by at least four major Australian artists amongst the works seized by police. Needless to say, investors are not happy. Not happy at all.

If convictions follow from legal action the question must be asked: how did these people get away with so much for so long?

Unfortunate fact of life: the feeding frenzy witnessed in the art market over the last decade was fuelled largely by people whose overriding concern was the investment potential of the art they were acquiring. That, in itself, is not altogether surprising; it’s been shown that, to varying degrees, the great majority of art buyers do consider the investment value of an artwork prior to acquiring it. But what distinguished buyer behaviour this time around is that people were handing over large sums of cash to dealers for artworks that they never intended to take into their possession. They did not spend weeks painstakingly researching and examining an artwork’s various aesthetic and historical qualities, falling in love with it by degrees. No. These artworks were acquired as places to park disposable income or retirement funds, with the expectation that said investment would increase in value over a set period of time. 

It seems that for some dealers the temptation to initiate a painting ponzi scheme was too great to resist. Why sell a painting just once? Why not sell it to five people, none of whom ever expects to take it home and hang it above the sofa? As long as the cash keeps flowing via new investors, there’ll always be money in the bank to pay off clients who decide they want to ‘realise’ their investments. 

But there’s nothing new under the sun. It all reads like a chapter out of Stan Lauryssens’ recently published autobiography, Dali & I. According to his own account, Lauryssen did much the same thing when dealing in work by Salvador Dali in the 1970s and 80s.

Vanished..Ronald Coles at his art gallery in 2004.

Images: Lawrence Salander: NY Daily News; Ron Coles: Sydney Morning Herald

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2 responses

5 04 2009
ellie

Art has always been an alternative invesment,and a great way to protect the value of currencies and hedge against inflation.
Other than the liquidity issues in dowm markets, which might be unavoidable.. it always has rebounded and caught up ..
it all depends on what you buy….
I would predict that for the next few years Chinese Contemporary Art will become the next haven for the Chinese, .Although the storm of collecting Chinese Contemporary art started with Europe, it now has rightfully gone back to the Chinese who are now starting to collect and are beginning to understand and catch up with there own art history…..

Its a matter of time that Chinese Contemporary art will have fully caught up to western prices…. with their collecting base outnumbering europe and the west.
In the short term—the next 12 to 18 months—there will be good opportunities to buy works by top-tier artists in both painting and photography. By top-tier, I mean the 40 or so who have gained art-historical recognition, have been internationally exhibited, and are being acquired by museums in the West as well as Asia. Historical works by these individuals—the first generation of Chinese contemporary artists, from 1989 through early 2000s—are relatively scarce and will continue to gain value. The global downturn has yielded some attractive pricing, particularly in comparison to top contemporary artists in the West, creating smart buying opportunities. In fact, art funds focusing on Chinese contemporary art have been formed to take advantage of this moment. Museums are also acquiring for their collections.

Chinese contemporary photography is a buying opportunity. It’s still undervalued relative to painting, which was the focus for collectors for many years. Quality works will become increasingly scarce, particularly as China develops as a consumer society with its own collector base. The Chinese audience with disposable income is growing, and a consistent percentage of those people will become art advocates and collectors.

The Chinese economy may be slowing down, but it is not in a recession. China will remain among the world’s most attractive investment destinations, and art will continue to parallel this direction. The result is that Chinese contemporary art will weather this economic downturn and will come out as an even stronger player.

6 04 2009
Meaghan

I really appreciate your considered and detailed comment, Ellie. Thank you! You are quite right about the scope of the Chinese market. The same could be said of all nascent art markets – the Indian and Aboriginal contemporary movements spring to mind. But, as you point out, the most notable growth occurs at the very top of the market and, in a new market, in the first years of the boom. In light of the current bullish financial climate, after initial gains past trends indicate that prices are most likely to plateau at best in the medium term.

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