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Contemporary art, a viable and potentially lucrative investment
Contemporary art has emerged as a formidable asset class in recent years, attracting diverse investors, from seasoned collectors to millennial newcomers. The allure of contemporary art lies in its aesthetic appeal and impressive financial returns, which have often outpaced traditional investments like stocks and bonds.
Here are several compelling reasons why contemporary art makes for a viable and potentially lucrative investment:
1. High returns on investment
Contemporary art has consistently shown strong financial performance. Over the past decades, contemporary artworks have appreciated at impressive rates. Between 1995 and 2022, contemporary art’s compound annual growth rate (CAGR) was 12.6%, surpassing the average returns of the S&P 500[1/2]. This impressive growth highlights the potential for significant returns on investment.
2. Portfolio diversification
Art can serve as an excellent diversification tool within an investment portfolio. Unlike traditional asset classes like stocks and bonds, the value of art is often not directly correlated with the stock market. This means that art can provide stability and reduce overall portfolio risk during periods of economic downturns or market volatility.
3. Tangible asset
Unlike stocks or digital assets, art is a tangible, physical asset. This tangibility offers intrinsic value and personal enjoyment, which can particularly appeal to investors who appreciate the aesthetic and cultural significance of owning art. The emotional and intellectual engagement with art further enhances its value as an investment.
4. Limited supply
The supply of high-quality artwork from renowned artists is limited. As artists create a finite number of pieces and some pass away, their works become increasingly scarce. This scarcity drives up demand and, consequently, prices. For instance, works by iconic artists like Jean-Michel Basquiat, Yayoi Kusama, and Banksy have become highly sought after, with prices reflecting their rarity and desirability.
5. Cultural and historical significance
Contemporary art often reflects and critiques societal issues, politics, and cultural movements, making it valuable beyond just its monetary worth. Ownership of significant contemporary artworks can symbolise status, intellectual engagement, and cultural awareness. This cultural and historical significance can further enhance the artwork’s value over time.
6. Tax benefits
In certain jurisdictions, investing in art can offer tax benefits. Art donations to museums and charitable institutions can lead to significant tax deductions. Additionally, art held in trusts or foundations might enjoy favourable tax treatments, helping investors manage their wealth more effectively.
7. Global market accessibility
The globalisation of the art market has made contemporary art more accessible to investors worldwide. Online auction platforms and art marketplaces allow investors to easily buy and sell art across borders. This increased accessibility widens the pool of potential buyers and sellers, enhancing liquidity and market dynamics.
8. Investment in emerging artists
Investing in emerging artists presents an opportunity for substantial capital gains. While this approach carries more risk, identifying and supporting promising new talent can yield significant returns as these artists gain recognition and their works appreciate value. Proper research and expert consultation can help investors make informed decisions in this market segment.
Performance of contemporary art investments
Noteworthy artists and iconic artworks Several contemporary artists and their works have achieved significant acclaim and financial success, making them prime examples of profitable investments in the art world.
Here are a few notable mentions:
Banksy
Banksy, the anonymous street artist, has become a global phenomenon. His work “Girl with Balloon,” which famously shredded itself in 2021 immediately after being sold at auction, has seen its value skyrocket due to its unique and provocative nature. Onlookers watched — eyes widening, mouths dropping — as “Girl With Balloon” slid down into its blades, slicing the bottom half of the canvas into dangling strips. After nine bidders battled for 10 minutes, the semi-shredded artwork sold for $25.4 million[3].
Jean-Michel Basquiat
Jean-Michel Basquiat’s influence on contemporary art cannot be overstated. His piece “Untitled” (1982), a powerful and raw depiction of a skull, sold for $110.5 million in 2017, setting a record for an American artist[4]. Basquiat’s works continue to attract high auction prices, reflecting their enduring significance and investment potential.
Yayoi Kusama
Yayoi Kusama, known for her polka dot and net motif installations, has also seen her works appreciated significantly. Her installation “Infinity Mirrored Room—The Souls of Millions of Light Years Away” captivates audiences worldwide and commands high prices in the art market.
Gerhard Richter
Gerhard Richter, a German visual artist, is considered one of the most important and influential contemporary artists. His abstract paintings, such as “Abstraktes Bild (599),” have fetched millions at auction. In 2015, “Abstraktes Bild (1986)” sold for £30.4 million, highlighting his stature in the contemporary art market.
Damien Hirst
Damien Hirst, a prominent Young British Artists (YBA) member, is renowned for his provocative and thought-provoking works. His piece “The Physical Impossibility of Death in the Mind of Someone Living,” featuring a preserved shark in formaldehyde, gained immense attention and set the stage for his later successes. Hirst’s “Lullaby Spring,” a cabinet filled with hand-painted pills, sold for $19.2 million in 2007, solidifying his position in the art market.
Cindy Sherman
Cindy Sherman, an American photographer and filmmaker, is known for her conceptual portraits. Her work “Untitled #96” from the “Centerfolds” series sold for $3.89 million in 2011, setting a record for a photograph at that time. Sherman’s ability to challenge societal norms and conventions through her art has made her a significant figure in contemporary art.
David Hockney
David Hockney, an English painter, draughtsman, printmaker, and photographer, is one of the most influential British artists of the 20th century. His painting “Portrait of an Artist (Pool with Two Figures)” sold for $90.3 million in 2018, making it the most expensive artwork by a living artist sold at auction at the time.
Trends, critical reception, and market dynamics
While the returns of investing in contemporary art are evident, it is crucial to acknowledge the inherent risks. Investing in art by young, emerging artists can be particularly speculative, with values influenced by trends, critical reception, and market dynamics[5]. However, the overall market for contemporary art has shown stability and growth, making it an attractive option for diversifying an investment portfolio.
The contemporary art market has proven to be more than just a reservoir of cultural value; it’s a viable investment avenue with substantial financial returns. From Banksy’s provocative street art to Kusama’s mesmerising installations, contemporary artworks have captured the public’s imagination and investors’ interest. As art continues to evolve, its role as a valuable asset class will likely expand, offering aesthetic enjoyment and financial rewards.
Looking for expert advice before you make your next acquisition?
Investors should always obtain expert advice before purchasing. If you require further information, please do not hesitate to contact us. We are here to guide you through every step of your journey in the art world. To discuss your requirements and see how the expert team at Zurani Advisory can assist you, please email us at contact@zurani.com or telephone +971 58 593 5523.
Source data:
[1] https://www.cnbc.com/2019/12/07/art-has-shown- long-term-returns-that-rival-bonds.html
[2] https://fortune.com/2023/10/21/art-industry- assets-performance-stocks-shares-comparison/
[3] https://www.washingtonpost.com/ nation/2021/10/15/shredded-banksy-painting/
[4] https://www.artprice.com/artprice-reports/ the-contemporary-art-market-report-2018/general- synopsis-contemporary-arts-market-performance [5] https://www.chicagobooth.edu/review/is- contemporary-art-good-investment
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