Family offices and contemporary art investment
Family offices have long been associated with wealth management, looking after high-net-worth families’ financial and investment needs. However, in recent years, there has been a growing trend towards these family offices investing in contemporary art. This article will explore why this is happening and provide some insights.
Why invest in contemporary art?
Diversification
One of the main reasons family offices invest in contemporary art is diversification. Unlike traditional investments such as stocks and bonds, art is considered an alternative asset class.
According to a UBS Global Family Office report, family offices allocated about 3% of their investments to art, on par with gold[1]. This provides a hedge against market volatility and can yield significant returns over time.
Capital preservation
Art can also be a stable, long-term investment. Family offices often view art as a tool for capital preservation[2]. The value of art often appreciates over time, and it’s less susceptible to economic fluctuations that can affect other types of investments.
Cultural and emotional value
An art collection offers rewards that transcend the bounds of modern portfolio theory. It can capture your imagination, stir your soul, and allow you to connect with different cultures and historical periods[3].
Here are examples of contemporary artwork pieces and their returns over the last decade:
Untitled by Jean-Michel Basquiat (1982): This artwork was sold for a record-breaking $110.5 million at auction[4]
Rabbit by Jeff Koons (1986): This piece of art was sold for $91 million, another record-breaking sale for a work of contemporary art[4]
Warhol Flowers by Sturtevant (1964-71): While the exact price isn’t mentioned in the New York Times article, Sturtevant’s work is highly influential, and her pieces have fetched high prices at auction[5].
Family offices have been increasingly investing directly in contemporary art for various reasons
Direct Investments
Family offices often invest in art directly through reputable appraisers, galleries, or auction houses. This approach allows them to bypass the fund structure and maintain control over their investments.
Alternative Investments
Art, including contemporary art, is considered an alternative investment class. Some family offices view it as a stable, long-term investment that can provide capital preservation potential.
Art Funds
While not as common, some family offices may indirectly invest in art through art funds. These funds pool resources from multiple investors to purchase and manage a portfolio of artworks.
Leveraging Art Collections: Ultra-wealthy family offices might raise cash by leveraging their art collections. They can do this by selling their artwork or using it as collateral for loans.
Wealth Management Strategy
Art plays a significant role in some single-family offices’ overall wealth management strategy. Here, art isn’t just seen as an asset and a part of the family’s heritage that needs to be preserved and protected.
Want to find out more about this fascinating asset class?
Contemporary art offers family offices a unique combination of financial, cultural, and emotional benefits. As the art market evolves, we’ll see even more family offices exploring this fascinating asset class. To discuss how Zurani Advisory can assist you, please email us at contact@zurani.com or telephone +971 58 593 5523.
THIS ARTICLE DOES NOT CONSTITUTE FINANCIAL, TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.
Source data:
[1] The case for Art as an alternative investment strategy – GSB” https://gsbcapital.com/the-case-for-art-as-an-alternative-investment-strategy/
[2] Exploring art as investments for family offices | Simple” https://andsimple.co/insights/family-office-art-investments/
[3] Art as an Investment Class – The Harmony Family Office” https://advisor.morganstanley.com/the-harmony-family-office/articles/managing-significant-wealth/art-as-an-investment-class
[4] https://www.artsy.net/collection/contemporary
[5] https://www.nytimes.com/2019/07/15/t-magazine/most-important-contemporary-art.html
