The Art of Fine Art Investing

The Art of Fine Art Investing

While not always thought of as such, fine art is an asset class in its own right. As with the rest of your portfolio, growing and protecting your art collection starts with careful discernment and sound advice from independent experts. Yet, in many other ways, fine art is in a league entirely of its own.  Why? Because unlike the more established assets and liabilities that underlie traditional investments, fine art’s value is largely subjective—and as the old saying goes—beauty is in the eye of the beholder.

The three fine arts, historically, are painting, sculpture, and architecture. Fine art distinguishes itself from other art forms or crafts by a visual and aesthetic uniqueness that progresses or even defines its own genre, history, meaningfulness, conceptuality, or placement in the artistic canon.

Because fine art tends to hold its value over time and is not directly affected by equity market volatility, it operates very differently than most other investments. For example, unlike stocks, fine art is not a liquid investment asset. To liquidate your art asset means having an appraisal, working with an auction house or art consultant to find an appropriate buyer, all of which can take time. Many art investors therefore keep art collections as part of a diversified portfolio, and as part of their estate to be passed down to future generations.

Here are some considerations for art collectors as you look to start or expand your collection:

• Clarifying Your Goals. It’s best to determine in advance the type of art you are interested in collecting before approaching galleries and auction houses. You want a narrative to your collection that reflects your taste as well as your financial interest.
• Beyond Worth: Invest with Passion as Well as Prestige. Of all the asset classes, this is the rare opportunity to really love your investment for more than its market value. Fine art can literally color its owner with a more cultured, humanitarian, visceral impression from others that no hedge fund ever could. Similarly, there’s an element of prestige to being able to speak with literacy about such investments.
• The Role of Research in Early Collecting. Whether you’re starting from empty walls or wishing to diversify a vast collection with different kinds of work, investing in fine art should start with an interest or aesthetic preference. Whether it’s renaissance art or pop art or expressionistic works, investigating your future investment is the first step in meeting your goals. Ask yourself what you want your collection to look like, to represent, to say about your taste or style – or how it will fit into your broader investment portfolio.
• The Importance of Expert Advice. Considering where to begin collecting and how to identify emerging artists that will matter in a crowded, noisy, and often hype-driven art world? Want to better understand what kinds of classical works still accrue value over time? Want to know what is the right time to invest in an emerging artist? How does one distinguish between trendy and iconic? These are questions only experts in the rarefied domain of fine art can explore with investors new and old, as the art world tends to operate on a more nebulous value scale than other kinds of asset classes. The discovery of a downtown graffiti artist in the 1980s by the right gallerist can create an iconic storm around that artist’s name, even if they never live to see it. Only an expert can see that coming, or when it’s a mirage.
• Diversification. Loving pop art is one thing, but the individual with only Warhols and Lichtenstein’s in their portfolio isn’t the best example of a savvy collector, even if the appraised value is higher than most. Just like every other asset class in an investor’s portfolio, diversification is still the number one rule. Invest in both your favorites and in what experts in the field encourage, as well as your own inner signals, which comes with collecting experience.
• Protecting Your Collection. As with any other high-value property, insurance should be part of the conversation when it comes to your art collection. Specialized art insurance coverage plays a crucial role in protecting valuable collections. Standard homeowner’s or renter’s insurance policies often provide limited coverage for artwork, leaving collectors exposed to significant financial loss in the event of theft, damage, or loss. Specialized art insurance offers tailored coverage that addresses the unique risks associated with owning and displaying art, including accidental damage, theft, and restoration costs. This type of insurance not only provides financial reimbursement for the market value or agreed-upon value of the artwork but also offers access to a network of experts, including appraisers, conservators, and restoration professionals.
• Budgeting and Financing. Art is expensive. When considering a new work or starting a collection, we recommend deciding on a budget and financing plan with your Private Advisor before speaking to your trusted art advisor. It’s much wiser to start or add to a collection with a budget in mind before being awed by or persuaded to acquire a work of art without a budget or finance plan in mind first.
• Leveraging your art. Using fine art as collateral for loans can be an effective strategy to enhance liquidity for art owners and collectors. This practice, often referred to as art-secured lending, allows individuals to unlock the value of their art holdings without selling them outright. By leveraging their art assets, borrowers can access capital quickly and conveniently, using the artwork as collateral. This approach is particularly advantageous for those who wish to maintain ownership of their valuable pieces while still gaining access to funds for various purposes, such as investment opportunities, business expansion, or personal financial needs. Art-secured loans are typically structured based on the appraised value of the artwork, and borrowers can enjoy competitive interest rates and flexible repayment terms. Your Rockefeller Private Advisor can help you explore options that may be available to you.
• Selling, Donating and Bequeathing Art. This can be one of the most complex aspects of owning a fine art collection and requires input from both your Private Advisor and expert independent art advisors to ensure you’re making the most fully informed and tax-advantaged decisions. Trends in the art market, timing, and other nuances can impact the value of your art at auction, so enlisting outside help, such as appraisers, dealers, and auction houses, is crucial to maximizing value once you’ve decided to sell. Similarly, donating or bequeathing works of art has a number of tax implications and seeking professional advice can assist with navigating the myriad of tax laws that come into play when transferring ownership of fine art.

Compared with traditional asset classes with well-established and understood risk and return characteristics, investing in art can feel opaque and mysterious. It can also feel rewarding in certain aesthetic and sentimental ways that more traditional investments cannot. Through our Rockefeller Lifestyle Advisory partners, your Rockefeller Private Advisor can connect you with fine art advisory and premier auction house access to suit your art investing needs.