Getting straight to the art of the matter

PUBLISHED : Friday, 15 June, 2007, 12:00am
UPDATED : Friday, 15 June, 2007, 12:00am

Last month, several artists set new world records for themselves at Christie's Asian art auctions in Hong Kong. Li Keran's modern masterpiece, All the Mountains Blanketed in Red, sold for a staggering HK$35.04 million after spirited bidding.

Wu Guanzhong's Scenery of Northern China commanded HK$31.68 million. Xu Beihong's oil on canvas, Portrait of a Lady, fetched HK$24.96 million, while contemporary artist Yue Minjun's Portrait of the Artist and His Friends secured HK$20.48 million, five times more than the pre-sale estimate.

'The whole art market has been going crazy these few years,' said Oscar Ho, programme director in cultural management at the Department of Cultural and Religious Studies, Chinese University of Hong Kong.

'We will keep seeing record-breaking auction prices. Chinese contemporary art has gone quite crazy. A lot of galleries can't even find enough art pieces. It is a phenomenon.

'Everyone is suddenly looking into China,' added Mr Ho. 'Also there are increased amounts of [people with] money in China looking for investments. This will encourage investments of all kinds, including art. I foresee that this investment fever will still go on for a while.'

'Chinese buyers are mainly orientated towards their own culture and are focusing on Chinese art,' said Jonathan Stone, international business director for Christie's Asian art department.

Activity here has been vigorous. The third-largest art auction house in the world, Bonhams, set up a Hong Kong office in January.

'Hong Kong is the centre of the world for selling Chinese art,' said Colin Sheaf, chairman of Bonhams Asia.

But when it comes to treating art as an asset class, auction house Christie's advises caution. 'We do not recommend people buy art purely for investment purposes,' said Mr Stone.

'Good quality pieces normally appreciate in value, but this value-adding should better be viewed as a 'bonus' and extra pleasure in your art collecting process.'

Many people see art as an emotional investment rather than a purely financial one.

'There are different reasons why people purchase art. For a long time, it was simply out of interest,' said Mr Ho.

'My understanding is they buy it because they love it. Art investment in Hong Kong is not that clearly defined. Normally people start off as collectors.'

Out to prove the detractors wrong is The Fine Art Fund, a London-based investment fund that buys and sells paintings rather than equities and bonds.

Launched in 2004, the fund has a 'handful' of investors from Hong Kong, Shanghai, South Korea and Taiwan, albeit quite significant ones, according to chief executive Philip Hoffman.

Despite what critics may say, Mr Hoffman is confident that there is money to be made in art investing, qualifying it as a serious asset class. Over the past 26 years, the top 10 per cent of artwork generated 10 to 12 per cent growth per annum, he said.

Mr Hoffman added that his own funds had returned a 50 per cent annualised gain on cash when taking into account pieces of artwork bought and already sold. When also considering the unrealised pieces, he said their average annual yield was growing at about 20 per cent.

Mr Hoffman has been buying impressionists, old masters, modern, contemporary and Chinese art. He recently doubled his investment when he bought a Degas for US$350,000 and sold it for US$700,000 eight months later. He claimed to have made even more with a piece by the contemporary artist Peter Doig, which he bought for US$450,000 and sold 12 months later for US$1.2 million.

One person who is not convinced about art as an investment class is Mr Sheaf. 'I don't believe in investing in art because the statistics are not there. It is an unrealistic way to regard investment,' he said.

'You are talking about investment, not about whether you like it or not.

'In real estate or derivatives, there is active day-to-day pricing. The variables of the art market should be similar to buying real estate or a block of ICI shares. You want a proven track record with the art regarded as a blue chip in its category and you want potential for growth.

'In the art market there is nothing that works like that. It is completely subjective. Where do you start?' Mr Sheaf said.

Art indices such as the Mei/Moses index, created by Michael Moses and Jianping Mei, two professors at New York University's Stern School, and the 500 indexes produced by Art Market Research, an art consultancy group headed by art expert Robin Duthy, may be helpful. But while buyers like Mr Hoffman use them for guidance, they hesitate to base their decisions on them. What Mr Hoffman does is scan thousands of artists. 'We try to find the young ones who are on their way up. We buy early and sell when we think they've hit their peak,' he revealed.

'We look for a 40 per cent return a year, or two to three times our investment within three to five years,' he added.

Christie's has three pointers for people who would like to start collecting art. 'Buy what appeals to you personally, i.e. buy what you like; buy the best you can afford; and buy from auction houses, galleries or people you trust,' advised Mr Stone.

When valuing art, investors should consider the following: the condition of the piece, the rarity, its provenance, its significance, the reputation of the artist and its recognition level in the local and international art scene and the exhibition history of the piece.

But even with the best valuations, prices are still unpredictable. 'It could be the outbreak of avian flu or a major collector misses a flight to a sale,' pointed out Mr Sheaf. 'Any of these can have an effect on prices.'

Art as an investment class has a mixed report card. It has not been easy getting consistently good returns on art pieces, although the British Rail Pension Fund, the only major case study of a fund investing in art, managed to show an overall return of 11.3 per cent compound from 1974 to 1999.

In 2005, ABN Amro pulled the plug on its art advisory investment service set up as a major private banking initiative to promote art as an alternative asset class, a move that left the art world infuriated.

Perhaps the best way to approach art investment is with an appreciation for art. This way, if the market underperforms, the investor still has the pleasure of enjoying the work of art on an aesthetical and intellectual level.

Locally, buying fine art has become something of a trend for many business tycoons.

Earlier this year, Hong Kong collector and real estate tycoon Joseph Lau Luen-hung shocked the art world when he paid a staggering US$17.4 million for pop artist Andy Warhol's iconic portrait of Mao Zedong.

Stanley Ho, father of Macau's casino industry, bought emperor Kangxi's throne last month for HK$13.7 million.

Rival gaming tycoon Steve Wynn, now a fixture on the Macau business scene, is also known to be fond of Picassos.

Other noted art collectors in Hong Kong include Simon Kwan Sin-ming, who delivers lectures on Chinese art in local universities and abroad, as well as authoring five books on Chinese ceramics, ivory and jade, textbook publisher Au Bak-ling, one of the top five collectors of Chinese ceramics in the world and Charles Ho Tsu-kwok, the chairman of the Sing Tao group, who collects Jade.

There is also legislative councillor Victor Lo Chung-wing, an avid collector of Chinese paintings, architect Andrew Lee who collects glass, and lawyer Lin Chung-pak, a big collector of contemporary Chinese paintings.

Meanwhile, the prestigious Min Chiu Society was founded 47 years ago in Hong Kong as a society of serious art collectors. It now has more than 70 members, mostly professionals.

How to value art

Condition of the piece

Rarity of the piece

Provenance of the piece

Significance of the piece

Reputation of the artist

Recognition level in the local and international art scene

Exhibition history of the piece