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Art 042715
Part II
The global arT markeT
continues to enjoy momentum,
with strong sales gains seen
at art fairs and galleries, and
with recent auctions produc-
ing record prices for a wide
range of Old Master, Modern
and Contemporary artists.
In the short term, we expect
this sales trend to continue,
notwithstanding economic
instability in the Eurozone
and russia and the potential
for the Federal reserve to
raise interest rates. Longer
term, factors such as broad-
ening interest in art, greater
transparency — due, in part,
to a wider embrace of technol-
ogy — and the increasing
importance of new distribu-
tion channels could each
substantially improve the
volume of sales, and liquidity,
especially in the mid-price-
range market.
the implications could be
staggering, considering that
less than 2% of the estimated
$3 trillion in art and collectibles
in the United States currently
changes hands each year,
according to art+Culture, Inc.,
an art research group. Yet, an
increase in liquidity could drive
far greater turnover. Notably,
the research group estimates,
an increase in annual sales
to 5–10% over the long term
would represent nearly $100 to
$200 billion in additional trans-
action volume.1
1
Source of sales estimates: Art+Culture,
Inc., 2015.
A r t s s p e c i A l
SeanJuStice/plainpictureandekely/GettyimaGeS
thE StatE OF thE
artThe second in a two-part examination of what is
driving art sales and where and how to find great
works for your collection.
by Christopher e. Vroom, CEO of Art+Culture, Inc.
MarkEt
29capital acumen • Issue 29 • 2015
45
40
35
30
25
20
15
10
5
While dealers have always
played an important role in
the arts ecosystem — nurtur-
ing careers, developing
relationships with curators,
placing works with collectors
known for their long view
on ownership — collectors
e u es
participate. here are a few of
the more interesting ways.
Collaboration
artistic ambition has grown
with the market and produc-
tion costs have risen, strain-
ing the bottom line of cultural
institutions, dealers and
artists alike. this dynamic
has created an opportunity
for collectors to support artis-
tic production and become
involved in the creation of
possibly groundbreaking new
works, all while generating
potentially out-sized returns.
Collaboration of this type is
typically straightforward. the
collector provides the artist
with capital to produce a work
and in return receives either
a portion of the sale or, if the
work is editioned, an example;
this is an attractive possibil-
ity, particularly with sculp-
tural works of art, and might
appeal to collectors who
champion the artists being
supported. Since production
costs generally account for
10–25% of a work’s retail
value, the upside potential
could be considerable.
Secondary market
e s e e
by using capital opportunisti-
cally in the secondary market,
either at auction or by facili-
tating private sales.
Partnership
e
partnering with an experi-
enced and trusted gallerist
e e e es
in a particular market. For
example, in 2001, Damien
hirst’s Naked, one of his
signature medicine cabinets,
was put up for auction with
an expected sale price of
$600,000 to $800,000, accord-
ing to art+Culture, Inc. But
the artist’s market was under-
going a short-lived “pause”
and the piece failed to sell. an
american collector, in partner-
ship with a gallerist, bought
Naked for less than half the
expected price. When hirst’s
market rebounded, the piece’s
value rose. In 2012, another
hirst instrument cabinet sold
at art Basel Miami Beach for
$2.5 million.
Private sales
When an important work
comes back on the market,
only a handful of dealers
— David Zwirner, Marion
Goodman and perhaps 20
others worldwide — might
possess the resources to fund
secondary-market activity.
e e e s s s
e e
provides capital to facilitate
private sales stands not only
to build goodwill, which
may translate into access
s u e s u
e e e s -
cial returns on the invest-
ment, either in the form
SupportIng
the
produCtIon
of A new
work mAy
eStAblISh
worthwhIle
ConneCtIonS
In the
Art world.inmillions
record prices for All
ArtiSt Work YeAr
PriCe
(MillionS)
Cy Twombly Untitled 1970 $69.6
Georgia o’Keeffe Jimson Weed/White Flower No. 1 1932 $44.4
Jasper Johns Flag 1963 $36.0
Ed Ruscha Smash 1963 $30.4
Peter Doig Rooms for Rent 1994 $18.1
Elaine sturtevant Lichtenstein, Frighten Girl 1966 $3.4
Tauba Auerbach Untitled (Fold) 2010 $2.3
Jeff Elrod Medium Cool (B/W Blur) 2014 $0.3
Source: Art+Culture, Inc.., 2015.
Fine Art vs. stocks
The annual turnover percentage of fine art and collectibles
compared to that of U.S. stocks, bonds and equities.
Source: Art+Culture, Inc., 2015.
180%
160%
140%
120%
100%
80%
60%
40%
20%
Fine art U.S. bonds U.S. equities
n Total market capitalization
n Annual trading value
● Turnover (%)
●
42,815
26,330
4,771
7,733
523,200
30 capitalacumen.com
A r t s s p e c i A l
s u e
successful sale of the piece
u e e e
return, typically over a period
of six months to a year.
Strategic philanthropy
Museums and arts-related
s
e e e e use
of contributed support.
art+Culture, Inc., estimates
that $20 billion in annual
donations helps generate
over $150 billion in economic
activity. Consquently, we’re
strong advocates of support-
ing culture through donation.
Generosity can also be
strategic. a collector who
supports the production of
a new work or underwrites
an exhibition catalogue
may establish worthwhile
connections, possibly includ-
ing relationships with key
curators, leading to prefer-
ential access to tough-to-
acquire works and, perhaps
as important, possibly unique
perspectives on new trends
in contemporary art. Given
e e s e e -
ential between primary and
secondary market pricing
for many artists’ works, this
type of access could make
a collector’s investment in
philanthropy appear very wise
indeed.
Art in your life
art is one of the last and
largest unregulated markets
in the world. It’s an evolving
business that has potential for
growth and multiple ways to
participate — including some
that may be new to collec-
tors. an asset that provides
intellectual and aesthetic
s us
engage with thinkers who
understand the world in a
unique way. When collectors
get involved, the rewards can
be life changing.
E
sTAblishinG An ART
collection takes time, effort
and financial resources, and
can present challenges when con-
sidering its future . Art is intensely
personal, and in estate planning “is a
much more emotional process than
when you’re dealing with stocks and
bonds,” says Ramsay slugg, a wealth
strategist for U.s. Trust who advises
clients on estate planning when art
and other collectibles are involved.
“These kinds of assets are not about
numbers,” he says. “They are about
heartstrings and about passion.”
Those visceral connections make it important to consider
the future of your collection. Also, practicalities underscore
the value of advance planning. First, unlike financial assets, art
can’t always be sold quickly. second, if planning is ignored, your
collection may be sold off at your death, which can be expen-
sive and may shortchange your heirs or deprive you the oppor-
tunity to determine the fate of your cherished holdings.
There are steps to a less passive approach. start by gaging
your heirs’ interest. “Quite often, the
next generation just flat-out doesn’t
know or doesn’t care about your art,
because it’s not their passion,” slugg
says. however, if family is interested,
the next step is to determine their
focus — your $10 million painting
or its $10 million value. Also, your
children may be divided, with one
camp keen to keep a favorite piece
and another eager to sell. Discussing
these options may be uncomfort-
able, but having an awkward conver-
sation now is usually preferable.
Key approaches to dealing with
your collection, slugg says, are to sell it, give it to a nonchari-
table beneficiary such as your heirs, donate it to a charitable
beneficiary such as a museum, or establish a private museum
to house it. Each brings its own advantages and disadvan-
tages, which must be considered.
Finally, the best solution may involve a combination of
options, and you’re likely to have more satisfaction if you work
with your U.s. Trust advisors to outline a precise strategy.
tImeleSS AlternAtIveS
You can’t take it with you, but arrangements you make now can help protect the future of your collection.
top:Henrylederer/GettyimaGeS;Bottom:SopHieelGort
Art IS one of
the lASt And
lArgeSt
unregulAted
mArketS In
the world.
Christopher E. Vroom
31CaPItaL aCUMEN • Issue 29 • 2015

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Art 042715

  • 2. Part II The global arT markeT continues to enjoy momentum, with strong sales gains seen at art fairs and galleries, and with recent auctions produc- ing record prices for a wide range of Old Master, Modern and Contemporary artists. In the short term, we expect this sales trend to continue, notwithstanding economic instability in the Eurozone and russia and the potential for the Federal reserve to raise interest rates. Longer term, factors such as broad- ening interest in art, greater transparency — due, in part, to a wider embrace of technol- ogy — and the increasing importance of new distribu- tion channels could each substantially improve the volume of sales, and liquidity, especially in the mid-price- range market. the implications could be staggering, considering that less than 2% of the estimated $3 trillion in art and collectibles in the United States currently changes hands each year, according to art+Culture, Inc., an art research group. Yet, an increase in liquidity could drive far greater turnover. Notably, the research group estimates, an increase in annual sales to 5–10% over the long term would represent nearly $100 to $200 billion in additional trans- action volume.1 1 Source of sales estimates: Art+Culture, Inc., 2015. A r t s s p e c i A l SeanJuStice/plainpictureandekely/GettyimaGeS thE StatE OF thE artThe second in a two-part examination of what is driving art sales and where and how to find great works for your collection. by Christopher e. Vroom, CEO of Art+Culture, Inc. MarkEt 29capital acumen • Issue 29 • 2015
  • 3. 45 40 35 30 25 20 15 10 5 While dealers have always played an important role in the arts ecosystem — nurtur- ing careers, developing relationships with curators, placing works with collectors known for their long view on ownership — collectors e u es participate. here are a few of the more interesting ways. Collaboration artistic ambition has grown with the market and produc- tion costs have risen, strain- ing the bottom line of cultural institutions, dealers and artists alike. this dynamic has created an opportunity for collectors to support artis- tic production and become involved in the creation of possibly groundbreaking new works, all while generating potentially out-sized returns. Collaboration of this type is typically straightforward. the collector provides the artist with capital to produce a work and in return receives either a portion of the sale or, if the work is editioned, an example; this is an attractive possibil- ity, particularly with sculp- tural works of art, and might appeal to collectors who champion the artists being supported. Since production costs generally account for 10–25% of a work’s retail value, the upside potential could be considerable. Secondary market e s e e by using capital opportunisti- cally in the secondary market, either at auction or by facili- tating private sales. Partnership e partnering with an experi- enced and trusted gallerist e e e es in a particular market. For example, in 2001, Damien hirst’s Naked, one of his signature medicine cabinets, was put up for auction with an expected sale price of $600,000 to $800,000, accord- ing to art+Culture, Inc. But the artist’s market was under- going a short-lived “pause” and the piece failed to sell. an american collector, in partner- ship with a gallerist, bought Naked for less than half the expected price. When hirst’s market rebounded, the piece’s value rose. In 2012, another hirst instrument cabinet sold at art Basel Miami Beach for $2.5 million. Private sales When an important work comes back on the market, only a handful of dealers — David Zwirner, Marion Goodman and perhaps 20 others worldwide — might possess the resources to fund secondary-market activity. e e e s s s e e provides capital to facilitate private sales stands not only to build goodwill, which may translate into access s u e s u e e e s - cial returns on the invest- ment, either in the form SupportIng the produCtIon of A new work mAy eStAblISh worthwhIle ConneCtIonS In the Art world.inmillions record prices for All ArtiSt Work YeAr PriCe (MillionS) Cy Twombly Untitled 1970 $69.6 Georgia o’Keeffe Jimson Weed/White Flower No. 1 1932 $44.4 Jasper Johns Flag 1963 $36.0 Ed Ruscha Smash 1963 $30.4 Peter Doig Rooms for Rent 1994 $18.1 Elaine sturtevant Lichtenstein, Frighten Girl 1966 $3.4 Tauba Auerbach Untitled (Fold) 2010 $2.3 Jeff Elrod Medium Cool (B/W Blur) 2014 $0.3 Source: Art+Culture, Inc.., 2015. Fine Art vs. stocks The annual turnover percentage of fine art and collectibles compared to that of U.S. stocks, bonds and equities. Source: Art+Culture, Inc., 2015. 180% 160% 140% 120% 100% 80% 60% 40% 20% Fine art U.S. bonds U.S. equities n Total market capitalization n Annual trading value ● Turnover (%) ● 42,815 26,330 4,771 7,733 523,200 30 capitalacumen.com
  • 4. A r t s s p e c i A l s u e successful sale of the piece u e e e return, typically over a period of six months to a year. Strategic philanthropy Museums and arts-related s e e e e use of contributed support. art+Culture, Inc., estimates that $20 billion in annual donations helps generate over $150 billion in economic activity. Consquently, we’re strong advocates of support- ing culture through donation. Generosity can also be strategic. a collector who supports the production of a new work or underwrites an exhibition catalogue may establish worthwhile connections, possibly includ- ing relationships with key curators, leading to prefer- ential access to tough-to- acquire works and, perhaps as important, possibly unique perspectives on new trends in contemporary art. Given e e s e e - ential between primary and secondary market pricing for many artists’ works, this type of access could make a collector’s investment in philanthropy appear very wise indeed. Art in your life art is one of the last and largest unregulated markets in the world. It’s an evolving business that has potential for growth and multiple ways to participate — including some that may be new to collec- tors. an asset that provides intellectual and aesthetic s us engage with thinkers who understand the world in a unique way. When collectors get involved, the rewards can be life changing. E sTAblishinG An ART collection takes time, effort and financial resources, and can present challenges when con- sidering its future . Art is intensely personal, and in estate planning “is a much more emotional process than when you’re dealing with stocks and bonds,” says Ramsay slugg, a wealth strategist for U.s. Trust who advises clients on estate planning when art and other collectibles are involved. “These kinds of assets are not about numbers,” he says. “They are about heartstrings and about passion.” Those visceral connections make it important to consider the future of your collection. Also, practicalities underscore the value of advance planning. First, unlike financial assets, art can’t always be sold quickly. second, if planning is ignored, your collection may be sold off at your death, which can be expen- sive and may shortchange your heirs or deprive you the oppor- tunity to determine the fate of your cherished holdings. There are steps to a less passive approach. start by gaging your heirs’ interest. “Quite often, the next generation just flat-out doesn’t know or doesn’t care about your art, because it’s not their passion,” slugg says. however, if family is interested, the next step is to determine their focus — your $10 million painting or its $10 million value. Also, your children may be divided, with one camp keen to keep a favorite piece and another eager to sell. Discussing these options may be uncomfort- able, but having an awkward conver- sation now is usually preferable. Key approaches to dealing with your collection, slugg says, are to sell it, give it to a nonchari- table beneficiary such as your heirs, donate it to a charitable beneficiary such as a museum, or establish a private museum to house it. Each brings its own advantages and disadvan- tages, which must be considered. Finally, the best solution may involve a combination of options, and you’re likely to have more satisfaction if you work with your U.s. Trust advisors to outline a precise strategy. tImeleSS AlternAtIveS You can’t take it with you, but arrangements you make now can help protect the future of your collection. top:Henrylederer/GettyimaGeS;Bottom:SopHieelGort Art IS one of the lASt And lArgeSt unregulAted mArketS In the world. Christopher E. Vroom 31CaPItaL aCUMEN • Issue 29 • 2015