British Swiss Chamber of Commerce Moving Art Series report: The Fine Art Fund Group

31 Mar 2016

The British Swiss Chamber of Commerce launched its Moving Art series of talks at Collyer Bristow in January 2016. The talk focused on the concept of investing in art, and more specifically the impact that this has had on the art market.

William Hancock, of Collyer Bristow, began with an insightful account on the history of art funds, explaining that the British Rail Pension Fund was perhaps the first formal art fund, having initially invested in art in 1974. However, the notion of collective investment in art has certainly developed since the millennium. By June 2014, Deloitte and ArtTactic “conservatively estimated” 17 non-Chinese art funds, one of which was The Fine Art Fund Group. Mr Hancock went on to introduce the key speaker, Philip Hoffman, Founder and CEO of The Fine Art Fund Group. Mr Hoffman launched the Fine Art Fund in 2000 and it is now the largest global investment house of its kind and the most well-known, advising approximately 120 clients in 23 countries.

Mr Hoffman explained that initially very few people thought about the concept of money in art; however, there are now an increasing number of art investors. He made reference to the Rothschild and Rockefeller families who allocate 5-10% of their wealth every year towards major oil paintings. Mr Hoffman then went on to discuss the art market in more detail, as summarised below.

How has the art market changed?

The financial crisis of 2008 provoked significant changes to the art market. Illiquid and inaccessible investment portfolios during the economic downturn led to a shift in perception of profitable asset classes. Those who had previously invested purely in stocks, bonds and real estate began to view art as a suitable investment option. Despite increasing interest in art, Mr Hoffman noted that the art market hasn’t necessarily outperformed the stock market, perhaps due to the expertise and wealth required in order to begin investing in art.

Why do people buy art?

Mr Hoffman made reference to the Bloomberg 2012-14 review which focused on three particular reasons for purchasing art:

  1. pure investment;
  2. pure collecting; and
  3. collecting purpose but with an investment view.

The review revealed that there are a growing number of people who fall within the third category. Mr Hoffman also stated that most collectors, however passionate they may appear to be about their art will nevertheless have an idea of its financial worth - those collectors are in fact carefully enhancing their collection with a view to both quality and value.

Where is the art market going?

Traditionally, the UK’s significant role in the art market was a result of old aristocratic families’ art collections. However, the art market has changed and continues to do so; some contemporary British art is now worth more than the Old Masters. The dominant US market, and indeed the Chinese and Swiss have become more interested in contemporary art, resulting in the growth in this sector of the market.

Art as an investment

Mr Hoffman mentioned that the majority of the Fine Art Fund’s clients have at least 5-10 million pounds to invest, and cautioned against investing in art for those with less to spare. In addition to huge disposable wealth, expertise is essential when investing in art. It is vital that potential investors are either art experts themselves or hire experts to assist them. Mr Hoffman regards the role of an expert as particularly crucial due to the effect of an artwork’s condition on its value. 

The complexities of art

There are a number of criticisms associated with investing in art. Mr Hoffman focused on two in particular:

  1. the associated costs of storage, transportation and repair; and
  2. the physically fragile nature of art.

It is vital that art is properly looked after to ensure that any potential profit is not diminished. There is also an inherent risk involved in relying on others to transport art. Further criticisms include the fact that art investment is difficult to analyse using traditional methods; art has no inherent value (it is purely dependent on supply and demand) and forgeries are not unheard of.

Despite this, however, there are also a number of advantages in investing in art. Investors are also able to enjoy and appreciate the asset that they have purchased. Art also balances and diversifies investment portfolios and those who do invest in art can achieve significant returns.

Switzerland’s role in the art market

Switzerland has an increasingly important role in the art market. Of the major art warehouse locations in Geneva, Luxembourg, Singapore and Hong Kong, Geneva is by far the most important for the majority of major auction houses and art dealers. The Swiss exercise superb control over the security, tracking and packaging of art – Mr Hoffman described Geneva’s shipping services and art handling as the best he has seen. Additionally, the two power houses of the art world, (Christie’s and Sotheby’s,) have major jewellery and watch operations principally operating in Switzerland.

Additional information