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5 Considerations for the Art Investor

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Whether clients desire art for its esthetic value, because peers collect as well, or as an asset class, investing in art is a part of managing wealth that takes special expertise. Universities do it. Pension funds sometimes do it. And your wealthy clients may do it often. Invest in art, that is.

Because of the unique nature of every piece of art, and the volatile and emotional connection that many collectors have with their pieces, art is really not a typical investment. Nobody would normally bid up a stock or bond because of an emotional attachment or longing to possess a particular share or bond. Yet, one hears about it often in the art world. Because of this, art can be extremely difficult to put a value on. And placing a value on the art clients possess is essential to protecting it, to understanding where it fits into a client’s asset mix and what needs to be done to maintain its value.

At Schwab Impact, Dreweatts Deputy Chairman Clive Stewart-Lockhart (left) enriched a rapt audience with his views on how to buy, sell, value and protect the art that means so much to clients. Dreweatts is a U.K-based Fine Arts Auction house.


Two Picassos, Miles Apart

Stewart-Lockhart opened with two of Picassos paintings. One was a 1965 portrait of his wife, Jacqueline Roque, “Woman With The Large Hat, Bust.” The other was a painting of his mistress, Marie-Thérèse Walter, called “Nude, Green Leaves, And Bust.” When they were sold, one day apart, “which one was worth more?” Stewart-Lockhart asked the crowd.

While the painting of Picasso’s wife sold for “$9 million,” he says, the painting of Marie-Thérèse Walter was auctioned for “$106 million.” Why the $97 million difference? Picasso’s mistress was a “great sitter,” the painting had “provenance,” it had belonged for years to Picasso’s agent, so it had been “absent” from the art market for a long time, says Stewart-Lockhart. In addition, he said, it had been the beneficiary of “great marketing by auctioneers.’

‘What Is It Worth?’

There are really three kinds of valuations placed on art, according to Stewart-Lockhart:

  • “Retail replacement value—what you would insure it for (three times auction value)”
  • “Fair market value—willing buyer and seller”
  • “Marketable cash value”

It’s important to appraise the art for insurance, taxes, collateral and division of assets in an estate or divorce, Stewart-Lockhart explains.

‘Sir George’ Is Divorcing, Again

As an auctioneer, Stewart-Lockhart is used to being in front of a crowd and is very entertaining. He tells the story of “an habitual divorcee, Sir George.” One day, Sir George called Stewart-Lockhart, at 10 am, in need of “a particular sum, and help to identify an asset to dispose of.” Sir George had, says Stewart-Lockhart, “a need for speed.”

Stewart-Lockhart called a friend in the business, who arrived at Sir George’s house by noon. They agreed on an “asset,” and a price, and the money was in Sir George’s account “by 1 pm. That’s incredibly swift,” notes Stewart-Lockhart. Indeed.

Art as an Asset Class

There are pension funds and other institutions that have allocated a percentage of assets to art. Here Stewart-Lockhart uses the British Rail Pension Fund (BRPF), as an example. In 1974, looking to diversify the pension’s portfolio, BRPF set out to add art as an asset class. In the depths of that horrible recession, inflation was “just under 30%,” he says, and BRPF desired “long-term growth, equal to or greater than inflation.

With a £40 million war chest, and Sotheby’s as an advisor, Stewart-Lockhart says, the fund acquired art from 1974 to 1983, and then slowly sold it from 1983 to 2000. The fund realized a profit of £168 million—an annual return of about 4% after inflation, he added. Some of the best-performing art classes were “Japanese prints, impressionists—12.9%” annually after inflation, and “early Chinese porcelain and ceramics—8.2% annually after inflation, says Stewart-Lockhart, citing Eckstein and Associates’ data.   

While BRPF is “still the only available model of institutional investment fund performance,” Stewart-Lockhart notes, other institutions and funds do invest. But BRPF remains a “model of good practice,” he says.

He notes that the CEO of The Fine Art Fund, Philip Hoffman, cautions: “I don’t advise anyone with modest wealth to invest in Art. Unless he is putting in less than 5% of his money into Art, he shouldn’t do it.”


Commissions are charged to buyer and seller. At auction, that can be “20% to 25% of the hammer price. Do not,” Stewart-Lockhart advises, “accept the commission rate that the auction house gives you; you can do a deal.” The commission, he argues, is negotiable.

Investors in art also need to consider the costs of: “insurance, restoration, storage, transport, and, if collection on a grand scale, curatorial services,” Stewart-Lockhart explains.

Why Art?

In addition to art as a diversifier of assets, there are other reasons to invest in art; among them: economic slowdown, capital appreciation, speculation, tax benefit, philanthropy, emotional dividends and social status.”


Stewart-Lockhart ran down the list of risks in collecting art. These include: “liquidity, damage, change in taste, economic downturn, political upheaval,” as well as, “government legislation and contested ownership.” Two others, droit de suite and Calif. resale royalties,” require that living artists be paid a royalty when art changes hands. Finally, “contested ownership” can be an issue.

Investing in art can be an esthetically and emotionally pleasing way of spending money. If clients want to diversify in this way, Stewart-Lockhart suggests, get good advice, and make sure clients buy what they like, because they may own it for a long time.


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