The art of branding

PUBLISHED : Monday, 11 December, 2006, 12:00am
UPDATED : Monday, 11 December, 2006, 12:00am

SIR MICHAEL KADOORIE, chairman of Hongkong and Shanghai Hotels, and his wife, Lady Kadoorie, have permanently loaned a sculpture called Single Whip to one of the group's hotels in Chicago.

The 1.5-metre-high bronze by Ju Ming can be seen on The Terrace of The Peninsula Chicago, where it has been since 2001.

The piece is one of a series from the Taiwanese artist's tai-chi period and a measure of its value was provided in October when international auction house Sotheby's announced it had sold a companion Single Whip for a record HK$8.29 million.

Earlier this year, collectors of Chinese art were buoyed by news from rival auction house Christie's that it had sold a rare under-glazed, copper-red Ming dynasty vase for a record HK$78.53million.

The vase was bought by Las Vegas casino tycoon Steve Wynn and is now on permanent display in his Macau gaming resort.

The times, along with the buyers, are changing. In the 1980s, it was Japanese banks and insurance companies shaking the art world with their million-dollar record-breaking purchases of Renoirs, Picassos and Van Goghs to hang on their boardroom walls and reception areas.

At the tail end of the 1990s, it was the Russian oligarchs creating a frenzy for paintings and sculptures from their artists to hang in their offices.

There is no shortage of businessmen in Hong Kong ready to sign large cheques to invest in artwork for their resorts and hotel properties.

Well-known collectors such as Sir Michael and Mr Wynn are the high-profile faces of this growing art-appreciating fraternity.

But a peek along paths and public walkways will reveal many examples of valuable pieces by leading artists that are quietly being assembled into collections.

Across Hong Kong there are sculptures, paintings, friezes and lithographs hanging outside private collections that would fetch billions of dollars if they were to fall under the auctioneer's hammer. Hongkong Land's Water Buffalo in Exchange Square close to the Hong Kong stock exchange was commissioned from Dame Elisabeth Frink who died in 1993.

The property company, the biggest landlord in Central, is also a strong supporter of Henry Moore and Ju Ming, having commissioned at least six pieces from the internationally renowned sculptors.

Swire Properties owns prime offices in Quarry Bay, Island East, and is becoming a major art collector. Several commissioned pieces adorn the area's walkways. Pop artist Allen Jones' Two to Tango was conceived as a giant spiralling 3D sculpture.

The location of the three tonnes of polychrome steel plate in the middle of a pedestrianised walkway acts as a counterpoint to the hundreds of office workers and visitors who pass around and under it every day. On the corner of the street outside is Jones' City Shadows.

Swire's collection also includes David Williams-Ellis' The Watcher, Makato Fujimura's Golden Pine, Lincoln Seligman's Suspense and Subjectivity, Danny Lane's Shan Shui, Luciana Abait's Hong Kong Windows and Cheong Kwang-ho's Transient - two huge jars woven from copper wire.

The MTR Corporation, as part of its 'Art in MTR' initiative, has installed many contemporary pieces in its stations, with more than 20 unveiled as part of the station architecture.

Artists range from Kong Kong's Hon Chi-fun to Neil Dawson of New Zealand.

So why are these companies investing so much effort and money in art collections and what lessons can private collectors learn from them? Is it so they can write off their investments against tax, or simply in the expectation that their investments may yield a healthy return in the next few years?

After all, Chinese contemporary art such as Sir Michael's and Hongkong Land's Ju Ming pieces, as well as the rarer pieces such as Mr Wynn's vase, are now being snapped up for record prices.

The answer is neither. John Miller, general manager, design and planning, Hongkong and Shanghai Hotels, says: 'In our experience, to remain at a quality level consistent with the Peninsula environment you have to make a significant investment [in art] and budget for that. 'Investing for value is a factor we are conscious of, but we don't go out looking for established artists.'

For organisations such as Hongkong and Shanghai Hotels, the investment they make in art, and the pieces they choose, is a reflection of the company's brand and its target market, Mr Miller says.

In this case, it is an established luxury hotel where impeccable taste and services are paramount.

Rather than an investment in a capital asset for a short- to medium-term tangible return, it is a long-term investment for an intangible return - customer satisfaction that should equate to repeat business.

Those punting on big returns from artworks may have been disappointed by a report published in July by investment bank Merrill Lynch which concluded that art investment provides a poorer return than other prosaic and common asset classes, most notably commodities, property and bonds.

However, the research team did suggest using art as a regular part of a prudent long-term financial plan.

Referring to the report, Swire's director and general manager Stephan Spurr says his company takes the long-term view, especially when selecting its pieces. He believes there is too much emphasis on short-term gains.

'If nothing else, a collection should be an important social and aesthetic record of the period in which it was put together. One that is worthy of exploration,' he says, conceding that this may sound slightly odd coming from a business which is devoted to making profits.

'People in my organisation see the collection as an excellent investment for us and there is no doubt that conviction has been supported by the significant growth in the value of the artworks thus far. But I would offer a cautionary note - collecting is not for the faint-hearted,' Mr Spurr says.

The report reveals that art investment provides an inferior return, higher chances of declining values and substantially more risk than stocks or bonds.

Indeed it does, but what would life be without risk - or art?

Fuelling the frenzy for European masters by Japanese companies during the 1980s were Tokyo's tax rules which encouraged art as an investment. But Charles Kinsley, principal, tax, at global accounting firm KPMG, says the Hong Kong tax system does not provide any incentive for corporations to invest in artworks.

By way of illustration he refers to a case in 2004 where a local barrister claimed the paintings hanging on the walls of his chambers provided ambience and atmosphere, which in turn would help promote his business and generate profit. Therefore, the barrister argued, he should be allowed to deduct the value of his paintings from profits to reduce his tax payments.

The Inland Revenue Board, not noted as a collector of art, demurred.

Mr Kinsley says the clear lesson is that unless you are in the business of buying and selling art, your investments are not tax deductible.

Rather, for most companies an investment in art is an investment in their brand name and their long-term relationship with their customers - which is why, according to Alison Pickett, who runs her own consultancy, Corporate Art, some firms do not baulk at spending millions of dollars on the right pieces.

She says companies have reasons for buying art and while some invest in pieces they think might increase in value, most are buying to enhance a space, send a message or help promote the local art scene. 'I say to my clients: 'Don't buy because you want to invest; buy it because you like it and it is going to look good wherever you to put it',' she says. 'If you work with good consultants then your collection will probably appreciate over time, but don't use it as your only criteria.'

For those with big money - private individuals or mega-rich corporations - a one-off Monet or Klimt can bring huge dividends over a few years.

But take into account the message that a one-off multimillion-dollar purchase may send out about your company. Mr Wynn bought his vase to demonstrate his commitment to Macau and China, but choosing the right pieces for a more realistic budget can send just as powerful a message.

Mr Spurr says: 'Architecture can be bland: a peculiarly functional, sometimes ingenious, assemblage of building materials, quite devoid of aesthetic purpose, unless there is art to enhance it.

Others might call it brand identification - this being the concept that a high-quality exhibit or cultural event can portray the qualities of your business. Or in many cases reflect the qualities that you want to project.

'For a value-creating business like ourselves, it is important to ensure that our goods and services are clearly differentiated and that they do not compete as commodities traded solely on price. Therefore, we were developing a discriminating audience which, through exposure to the arts, will recognise excellence and quality, and appreciate the values which we see and use in our businesses.'