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The Warsaw Voice » Business » May 28, 2013
Business & Economy
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The Art of Investing in Art
May 28, 2013   
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Investors are increasingly eyeing works of art as they scramble to diversify their asset portfolios amid economic uncertainty and turmoil on international capital markets.

The art market is becoming more popular with investors every year. It is now worth an estimated 43 billion euros internationally. Sales on the auction market totaled $12.3 billion last year. In Poland, the art market is worth around zl.300-350 million and is still at an early stage of development.

According to Adriano Picinati di Torcello, a senior executive at consulting firm Deloitte dealing with investment in art, emotional value is still the most important reason that investors decide to buy works of art; however, an increasingly important role is being played by the need to diversify asset portfolios. In times of crisis, paintings and sculptures by both well-known and emerging artists are one of the safest forms of investment, says Picinati di Torcello, who is the co-author of the 2013 Art and Finance Report published by Deloitte together with London-based art market analysis firm ArtTactic.

The report found that a growing number of financial institutions offer services related to investment in art and are doing so increasingly professionally. According to Deloitte and ArtTactic, 43 percent of European banks offering asset management services have a thorough understanding of art as an asset class. Among Polish bankers, the figure is only 25 percent. At the same time, close to two-thirds of Polish banks engaged in private banking offer their clients services related to the art market.

Better than shares?
According to Deloitte’s 2011 Art and Finance Report, works of art gained more value than shares on major international stock markets between 2000 and 2011.

The 2010 Mei Moses All Art World Index, which is calculated annually and based on the resale values of paintings sold multiple times at auction, also shows that the average annual rate of return on investment in art in the last 10 years was higher that the return on shares. And although the 2012 index declined by 3.28 percent (faring worse than the S&P 500 stock market index), art still offers investors solid benefits from diversifying their portfolios.

The Polish art market is worth an estimated zl.300-350 million, which accounts for a paltry 0.2 percent of the total value of the global market—though some say this figure may be greatly underestimated. In 2012, nearly zl.61 million worth of artworks were sold in Poland.

“Investing in art is a business for those with patience,” says Adam Mariuk, a partner at Deloitte. “The annual rate of return on investment in this market over a period of more than 15 years is 46.6 percent, while investments lasting from one to five years yield only 0.2 percent a year.”

When a painting by Polish painter Jerzy Nowosielski entitled Dziewczyny na statku was sold for zl.414,000 in March this year, market analysts calculated that the transaction yielded the seller a mind-boggling 820-percent return on an investment over 17 years.

The practice of collecting art in Poland was interrupted by World War II and decades of communism. As a result, paintings and sculptures are now being bought mainly by those who have amassed their wealth over the last 20 years. Another factor adding to the increased interest in art is that the number of affluent Poles earning more than zl.7,100 per month gross has almost doubled over the past 10 years, while average incomes have increased by almost a third.

Global studies show that growing wealth in society leads to increased interest in art and collectibles. “This is one reason why art in Poland is already seen as an investment and an asset class in itself,” says Mariuk. “Eighty-nine percent of the art market experts we surveyed said their clients view art as a class of assets.”

According to Deloitte experts, almost two-thirds of banks offering private banking services offer their clients asset management services related to art and collectibles—known as “art banking” in Poland. This is most often art consultancy and valuation. These services meet the needs of potential clients who expect their bank advisers to provide an education and advisory services in the area of investment in works of art (86 percent) as well as valuation services (77 percent).

Private banking services related to art can include counseling, loans secured by works of art (in Poland, 79 percent of collectors are interested in such an option), and investment services such as research, portfolio management and art fund monitoring and selection. However, for this segment of private banking to develop further, cooperation is needed between all art market players.

Józef Wancer, an advisor to the management board at Deloitte, said, “There is an increasingly clear coincidence of interests and motives between art collectors, bank investment advisors and art experts when it comes to the financial aspects of artwork ownership and transactions on the art market. Also, customers increasingly expect bank advisors to help them protect, maintain and increase the value of their assets in this area, which poses major challenges for financial institutions.”
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