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Fine art of making money
Published on Friday, 08 Jul 2011
Banks provide advisory services to clients who want to invest in art, wine and luxury goods.
Photo: Felix Wong
Kwang Kam-shing
Burkhard Varnholt
Olivier Gougeon

Every year, hundreds of millions of dollars are spent by wealthy individuals on works of art. However, experts say that when it comes to the art market, it is essential to be well-advised at all times.

Banks, especially private banks, consider offering art investment advisory services an important part of their relationship with clients. For example, Societe Generale Private Banking (SGPB) partners with 1858 Limited in providing independent and impartial art advisory services to the bank's clients.

Olivier Gougeon, regional CEO of SGPB (Asia Pacific), says: "From the novice to the seasoned collector, our clients benefit from access to rare works not readily available on the market, as well as expertise in all sectors from Antiquities, Old Masters, Impressionists, Modern and Contemporary to works by living artists."

Clients whose collections include precious stones, designs, and rare books get expert advice.

"In essence, we provide clients with tailored solutions for all of their buying, selling, valuation and collection management requirements," says Gougeon.

With the rising affluence of Asia in general and the growing class of wealthy in countries such as India and China, the interest among high-net worth individuals in alternative lifestyle investments such as art, wine and luxury goods is growing at a rapid pace.

Kwang Kam-shing, market manager for Hong Kong at JP Morgan Private Bank, says that in some cases, art works account for 10 per cent to 20 per cent of a client's total wealth.

"The majority of our clients collect classic works of art because they appreciate the intrinsic qualities of their collections. Even when prices rise, we don't see many of our clients selling their art works, although there is an emerging set of younger clients who tend to collect contemporary art works which are sometimes sold if prices rise," says Kwang.

Art work collected for pleasure can present a problem with succession planning, she says. "Usually works of art are passed on [only] to people who appreciate them whereas liquid and physical assets are far more practical to deal with," says Kwang.

She has noticed that, in addition to investing in fine wine collections, clients are also investing in vineyards and chateaus.

She says JP Morgan is able to assist clients interested in wine properties by bringing together existing client owners and potential investors.

"As wine prices have escalated in recent years, some of our clients who are usually wine lovers view the industry as a growth area worthy of serious investment," says Kwang.

SG Trust (Asia), the wealth planning arm of SGPB (Asia Pacific), also offers its clients an Ultimate Wine Fund, dedicated to investing in wines.

A minimum investment of US$300,000 per investor is recommended and this is held for a period of three to five years to allow for maximum yield and appreciation in value.

SGPB says based on a mid-term investment horizon, wine investment can yield between 8 per cent and 10 per cent in annual returns.

However, like any investment, there is an element of risk which investors must acknowledge.

According to art market information enterprise, Artprice, China is now the number one market in the world in terms of fine art auction revenue.

Artprice says that last year, China accounted for 33 per cent of global fine art sales - paintings, installations, sculptures, drawings, photography, prints - versus 30 per cent in the US, 19 per cent in the UK and 5 per cent in France.

Burkhard Varnholt, chief investment officer and head of asset management at Bank Sarasin, says art collection is a fascinating pastime, but collectors should not fool themselves that it is an easy way to make money.

"The high prices being paid for works of art is a good illustration of how overly liquid the world is at the moment," says Varnholt, who is a keen art collector.

"Because investors are wary of the stock markets, they are looking elsewhere for opportunities. However, my view of the art

market is it is one of the worst markets to consider for investing. How many markets are as opaque as the art market? Transactions

can cost 20 per cent to 40 per cent from buying to selling an investment, and the risk of a complete write-off is very real unless you happen to have one of Damien Hirst's dead animals or a Monet," says Varnholt.