Monday, April 16, 2018

Why Investing in Fine Art is Different Than Investing in Traditional Asset Classes





Art Market
Why Investing in Fine Art is Different Than Investing in Traditional Asset Classes
Investment banker Huang Xiaoshuai and his wife Wei Mengyuan chat in front of their newly acquired painting Fire by Chinese artist Zeng Fangzhi at Art Basel in Hong Kong. Photo by Anthony Wallace/AFP/Getty Images.
Investment banker Huang Xiaoshuai and his wife Wei Mengyuan chat in front of their newly acquired painting Fire by Chinese artist Zeng Fangzhi at Art Basel in Hong Kong. Photo by Anthony Wallace/AFP/Getty Images.
Dmitry Rybolovlev thought he’d been ripped off when he paid the Swiss art dealer Yves Bouvier $127.5 million for Leonardo da Vinci’s Salvator Mundiin 2013, once he learned Bouvier had paid between $75 and $80 million for it. But after Salvator Mundi’s sale in November at Christie’s for $450.3 million, it was hard to argue he’d overpaid. Google searches for “investing in art” hit a 12-month peak just after the sale, suggesting that a new wave of investors may be circling the art market, which is already stacked with consultants, data providers, wealth managers, and lawyers who advise clients on how to approach fine art as an asset class.
Talk of art as an asset class is not quite new. One early art investor was the British Rail Pension Fund, which decided to invest approximately $70 million (about 3 percent of its holding) into fine art and collectibles between 1974 and 1981, in an attempt to diversify its portfolio and hedge against inflation. Due to careful buying and smart timing in its purchases and sales, it generated solid returns. But today’s casual art buyers may not fully appreciate the profound differences in how the art market functions compared with the market for stocks and bonds. Here’s a look at how those differences affect the risks and returns of being an art investor.

Buying art is easy, but selling is hard

The art world is a wonderful place with many delightful things to look at and buy, from a $2,000 print by KAWS to a $30 million painting by Pablo Picasso. With more galleries, art fairs, and online portals than ever before, spending money on art is easy. While a few popular artists may have waiting lists, most artists have work available for sale at the galleries that represent them. Buying art at auction is also easy because anyone who passes a basic credit check can bid, and the object goes to the highest bidder with no questions asked. No lists, no relationships to build and foster, no feelings or egos to manage.
But the ease of buying hides the challenges of selling. Galleries are typically reluctant to resell work they have already sold once, because they stand to make more money selling new work by that artist. Top auction houses want to sell proven names, so out-of-favor artists, or those whose careers have yet to take off, will not be considered. Negotiating auction house consignment agreements is also a complicated and nuanced process that disadvantages the infrequent consigner. Lastly, selling is a moment of truth when title, authenticity, and condition issues that may have been overlooked (or worse, not disclosed) at the time of purchase come to a head. Compare that to the ease of opening up an E-Trade account, where you can trade shares of Sotheby’s (BID) with far greater facility and speed than is required to unload an actual artwork at Sotheby’s.

Trading on non-public information is an important driver of returns

Stock and bond prices adjust constantly to reflect new information. An unexpected increase in quarterly earnings may cause a company’s stock price to jump, while a lower-than-expected monthly jobs report may cause government bond yields to fall. Because information is so valuable, securities law makes it a crime to trade on material, nonpublic information. Publicly traded companies are also required to disclose relevant information to all investors at the same time, to avoid giving a select few an advantage.
These rules do not apply to the lightly regulated art market comprised of private art galleries, individual collectors, and artists. In fact, it’s rather the opposite: Knowledgeable insiders may trade their information to others in the hope of making a sale. What if a dealer knew that a major museum was planning to stage a mid-career retrospective for a little-known artist in two years? She could offer that information, alongside a few paintings, to a prospective collector. If an auction house specialist knew that hard-to-detect forgeries were starting to plague a certain well-known artist’s market, he could alert loyal clients. Those in possession of market-moving information are free to use it for personal gain in the art industry. Being an art market insider with access to important tips and whispers has always been, and will likely continue to be, an important determinant of returns. Those without this privileged access are at a significant disadvantage.

The art market is illiquid, save for top names that regularly appear at auction

Liquidity is a measure of how quickly an asset can be converted into cash without the sale affecting the price. Cash is, by definition, the most liquid, with real estate, fine art, and collectibles among the most illiquid.
Works by 52,105 living and deceased artists appeared at auction in 2017, according to Art Basel and UBS’s The Art Market | 2017 report. While this number gives a sense of the breadth of the market, what’s much more interesting is that only one percent of these names accounted for the majority of sales value (64 percent). Like many talent markets, the art market is characterized by a winner-takes-all dynamic, in which the top names capture most of the rewards, with the rest selling for far less. As a result, there is very little liquidity in the art market, other than for the handful of stars whose works appear regularly at auction. By contrast, stock investors can easily sell company shares with relative ease.    

There are no reliable art market price indexes for measuring risk and returns

Investors around the world rely on indexes like the S&P 500, Dow Jones Industrial Average, and the Barclays U.S. Aggregate Bond Index to define the securities that make up an asset class, and to understand historical risks and returns. For example, the S&P index, which tracks the stocks ​of 500 large companies, is a powerful tool because it is investible—investors can buy a mutual fund or exchange-traded fund that mimics the S&P 500 index and be confident they will get returns in line with it. Or they could buy a more expensive, actively managed mutual fund of large companies, and use the S&P 500 index to evaluate the manager’s performance.
Unfortunately, it is not possible to create an investable art index for three reasons. First, roughly half the art market’s annual sales ($63.7 billion in 2017) are automatically off limits for the purposes of creating an index, because they occur in the gallery market where public price disclosure is not required. Second, the indexes researchers have built using repeat sales of artworks at auction, such as the Mei Moses Art Indices (recently purchased by Sotheby’s and now known as Sotheby’s Mei Moses), paint an incomplete picture of the market and the movement of prices over time.
For example, suppose someone bought a Richard Diebenkorn drawing at auction in 1998 and then resold it 15 years later at auction. The annualized rate of return on this repeat sale is a data point used in the construction of the Mei Moses indexes. While a clever idea, very few objects “round trip” at auction relative to total auction turnover, probably less than two percent of annual transaction volume. Moreover, because only art that has gone up in value typically reappears at auction, these indexes suffer from what is called “survivor bias,” which can cause them to overstate returns and understate risk. Third, even if those indexes accurately captured the performance of the auction market as a whole, there is nothing in the real world you can buy to replicate that performance.
For most investors, stocks and bonds are enough. But for some, the prospect of putting something wonderful on their walls that may also produce great financial rewards is a siren call leading them to consider putting a portion of their wealth into art. Before committing serious capital, investment-oriented new collectors need to understand and embrace the sharp differences that exist between the art market and more traditional asset classes.  
Doug Woodham is Managing Partner of Art Fiduciary Advisors, former President of Christie’s for the Americas, and author of Art Collecting Today: Market Insights for Everyone Passionate About Art.

Answering the Art History Questions You Never Thought to Ask





Podcast
The Artsy Podcast, No. 75: Answering the Art History Questions You Never Thought to Ask
Artsy’s team of editors takes you behind the scenes of the best stories in art.
You can find the Artsy Podcast on Apple Podcasts, Stitcher, Pocket Casts, or the podcasting app of your choice. Don’t forget to rate the show and leave us comments; we’d love to hear from you.
On this week’s episode, we walk you through an alternative Art History 101 class—one where no question is too embarrassing or obvious to ask. Join us as we demystify some of the art world’s most hard-to-decipher movements (such as Conceptual Art) and dive into the nuances behind seemingly straightforward topics (like the proper way to hang an artwork). 
Artsy Editors
This podcast is hosted by Artsy Associate Editor Isaac Kaplan, joined for this edition by Abigail Cain, and Deputy Editor Scott Indrisek. This episode was produced by Louis Sansano with assistance from Surya Tubach.
Intro music: “Something Elated” by Broke For Free
Cover image: John Baldessari, Graduation, 2017.

examples of rare letterings, from 19th-century alphabets to preliminary drawings of Futura





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A2Z+ Alphabets & Signs: Julian Rothenstein and Mel Gooding, published by Laurence King
Work / Publication

Ten examples of rare letterings, from 19th-century alphabets to preliminary drawings of Futura

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A2Z+: Alphabet & Signs by Julian Rothenstein and Mel Gooding is a rich archive of rare lettering and printed graphics, all collected from obscure sources and private collections. Ranging from modernist to antique, avant-garde to classic, this update to what was formerly A2Z+ includes over 100 new pages.
Julian, an editor and designer, and Mel, an art critic, writer, curator and lecturer, collected the 350 included illustrations from books, advertisements, packing, posters and technical manuals from around the world. Below, Mel picks out ten personal highlights from the book – released today and published by Laurence King – ranging from 19th-century classical alphabets to the preliminary drawings for Futura.
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W.E.B Du Bois, Occupations of Negroes and Whites in Georgia, (USA, c.1990)

W.E.B Du Bois, Occupations of Negroes and Whites in Georgia, (USA, c.1990)

The first thing that strikes me about these charts is their purely formal beauty and coherence. They are like constructivist paintings executed in startlingly vivid and marvellously coordinated colour. The second thing is their extraordinary effectiveness as infographics: so much information conveyed with a visual economy and graphic clarity. I’m astonished by the sheer diversity of the charts: the dynamic way in which the diagrams reflect different kinds of information: statistical data becomes image, becomes information. Eye to mind.
Julian writes: “In my research for the book these hand-drawn charts from 1900, devised by the African-American sociologist and activist W.E.B. Du Bois were the most important discovery. Intended to show ‘the history of the American Negro, his present condition, his education and his literature’ they resemble spectacular modernist paintings. The charts are masterpieces of information graphics, but were devised long before the term was invented.”
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Snellen eye charts for non-readers (Netherlands, c.1870). Courtesy of BV Uitgeverij De Bataafsche Leeuw, Van Soeren and Co., Amsterdam

Snellen eye charts for non-readers (Netherlands, c.1870). Courtesy of BV Uitgeverij De Bataafsche Leeuw, Van Soeren and Co., Amsterdam

It was in 1862 that Herman Snellen, a Utrecht optometrist, devised charts of carefully size-adjusted letters that, viewed in a mirror, tested with scientific accuracy the patient’s visual proficiency at different distances. In 1870 he developed non-alphabetic charts like these, with calibrated lines and abstract figures for the young or illiterate. Designed with utmost simplicity of means, these eye charts have an abstract economy that anticipates modernist aesthetics: “less is more” here led to a welcome extension of a crucial diagnostic device. Sans serif letters were an early introduction to optical charts, giving them an elegance that predates much of modern typography.
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Jazz Age alphabet by Karel Teige with Vitezslav Nezval (Czechoslovakia, 1926)

Jazz Age alphabet by Karel Teige with Vitezslav Nezval (Czechoslovakia, 1926)

The Czech, Karel Teige, was one of the 20th century’s most original, versatile and creative intelligences. Poet, architectural theorist, surrealist collagist, inventor of the picture-poem, book designer and all-around modernist, he was the letter designer of this marvellous alphabet, made in collaboration with the dancer, Milca Mayerove and the poet Vitezslav Nezval. Teige saw the deep connection between letterforms, poetic utterance, dance, and the dynamics of bodily action: how the written language, as well as the spoken and sung word, have their origins in movement, pose, and gesture. This was an alphabet for the new rhythms and syncopations of the Jazz Age!
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Modeles de Lettres pour peintres en batiments (France, early 1900s). Courtesy Collinge and Clark

Modeles de Lettres pour peintres en batiments (France, early 1900s). Courtesy Collinge and Clark

In the 19th century, the city became a landscape to be read as well as navigated by foot or carriage. Civic buildings, constructed hoardings, shop fronts and factory walls became surfaces for writing, pages of the city as a book. Woodblock letters for shop-front signage had a physical weight and visual presence. They were expensive, however, so it became necessary to employ painted lettering that presented the illusion of three-dimensional letters. Hence the publication of sample alphabets for sign-writers. Simple or elaborate, these alphabets even featured painted shadows. These fantastic alphabets were adopted for use in posters and book jackets, newspaper and magazines, lettering on fairground rides, and railway and omnibuses: any signage that was intended to catch the eye amid visual competition.
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Didot Typeface (France, c.1810)

Didot Typeface (France, c.1810)

This elegantly classical alphabet stands here for all the other beautiful typefaces whose use has enhanced human written culture since the mid-15th century. That was when Gutenburg’s moveable type printing and Aldus Manutius’s impeccable book design brought a new clarity and availability to the democratic presentation of knowledge and culture. The Didot brothers – inheritors of the French Enlightenment – belong in this tradition. Their typeface, with its balance of powerful black verticals and delicate, almost invisible line is perfect: the eye and the mind are equally delighted.
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L’Oeil cover (France, 1955)

L’Oeil cover (France, 1955)

Fitting, then, that the title of this most sophisticated and intelligent French art magazine should be in Didot! It speaks of the primacy of the eye, and of the necessity of clarity and enlightened intelligence in the discourse of art. The marvellously random deployment of Raoul Dufy’s blackly calligraphic seashells, all whorls and strokes on a sand-coloured ground, perfectly suggests, in contrast, the essential irrationality of art, its kinship with the contingencies of nature, whose diverse perfections of form are, paradoxically, predetermined. Here is Paul ValĂ©ry, that modern epitome of Gallic thought and feeling, writing of shells: “[the human observer] is amazed to find objects which, though it is inconceivable that they should have been made, can be compared to those he is able to make.”
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From The Next Call by H.N Werkman (The Netherlands, 1924)

From The Next Call by H.N Werkman (The Netherlands, 1924)

H.N. Werkman was a heroic left-wing artist, typographer, printer and editor. The Next Call (1923 to 1926) was his own (brilliant but unsuccessful) avant-garde graphic magazine. His most characteristic work used diverse typefaces as abstract motifs, directly inked images from shaped blocks, and large scale woodblock lettering. He loved and freely exploited the inconsistencies of impression that hand working produced in his prints: it gave them a workmanlike and hand-made feel, unrefined and democratic: Everyman graphics. For much of his life Werkman, despite his progressive ambitions, was regarded as an idiosyncratic loner. He paid dearly for his radicalism: working underground, printing subversive pamphlets, during the German occupation of the Netherlands, in 1945 he was captured and shot by the Gestapo.
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Cartilla Escolar Antifascista (Spain, 1937)

Cartilla Escolar Antifascista (Spain, 1937)

This is a page from one of the most moving feature sections in the book. In the midst of its life or death battle with Franco’s reactionary forces, the Spanish Republican government put out this literacy primer for uses in school and in its armed forces. It was a moving acknowledgement of the power of the word, and of the necessity of literacy in making a progressive working class able to rebuild the country after the ravages of the war. The book combined phonetics and politics with vivid graphics. Alas, the Civil War ended in March 1939 with a victory to the fascists, militarily aided by Nazi Germany, and further enabled by the inaction of Western governments. It was the prelude to the World War.
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Book cover, The Baker Jan Marhoul by Vladislav Vancura, designed by O. Mrkvicka and Karel Teige (Czechosolobakia, 1924)

Book cover, The Baker Jan Marhoul by Vladislav Vancura, designed by O. Mrkvicka and Karel Teige (Czechosolobakia, 1924)

Julian and I vividly recall a trip to Prague over 15 or so years ago, combing the secondhand bookshops for examples of modernist book jackets and other graphics from the golden period of Czech graphic design. These were to be included in our follow-up, in-colour extension to Alphabets and Other Signs (1991), our first collection of letters and images, which was entirely black and white. In Prague we learned that a prominent (and percipient) teacher of graphic design at the art school there had used the earlier volume as a graphic primer for his students, valuing especially its freedom from academic constraints. Visiting Prague again last year I discovered that our various successive volumes were legendary in Czech design circles. The great American artist and designer Ben Shahn’s called it “love and joy about letters”: amazing what it can do.
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Preliminary drawings for Futura by Paul Renner (Germany, 1925)

Preliminary drawings for Futura by Paul Renner (Germany, 1925)

Beginning to prepare a typeface for a brave new future. Hope always finds expression in new graphic design. Benjamin Franklin is supposed to have said: “give me 26 soldiers of lead and I will conquer the world”. Of the making of alphabets, there is no end (though this is probably the final version of the series).

Pentagram rebrands Battersea dogs and cats home to visualise “personality over sentiment”





Pentagram rebrands Battersea dogs and cats home to visualise “personality over sentiment”

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Pentagram has rebranded London’s dogs and cats charity Battersea, introducing a “family” of watercolour illustrated characters as its icons. Led by partners Marina Willer and Naresh Ramchandani, the rebrand of the renowned charity includes it dropping the “dogs and cats home” from its name, and introducing a tagline “Here for every dog and cat”. The identity intends to visualise the charity’s commitment to unconditionally care for all the animals that come through its doors.
The rebrand retains Battersea’s signature blue colour, used across abstract illustrations to represent a variety of dogs and cats, and subtly communicate the charity’s story. The illustrations are pared back and devoid of facial features, while remaining expressive and showing individuality. “They appeal to people’s compassion and humanity, without victimising or stigmatising the animals,” Pentagram explains. The sharp wordmark aims to balance the aesthetic of these hand-drawn images, employing the typeface Franklin Gothic, which Pentagram says “injects an element of authority” to the identity.
The thinking behind removing “dogs and cats home” from the name stems from the word “home” implying a permanent dwelling for the animals, when in fact the intention of the charity is to re-home them with families. Pentagram also says it wrongly implies the charity operates in just one location, as opposed to its three sites.
Pentagram worked with Battersea to develop the brand strategy, tone of voice and visual identity to present the charity “as both a compassionate caregiver and a leading authority in animal welfare, creating a brand that strikes a balance between warmth and expertise,” the design studio states. Its approach was to “strike out against” negative connotations used by the charity sector such as “shock tactics, well-worn tropes, and euphemistic and overly-sentimental language,” preferring a honest and straightforward image. This includes a suite of portrait photography that “puts personality over sentiment”, showing the eclectic creatures that can be found in its homes.
The branding was also designed to be flexible, to adapt to various campaigns and fundraising initiatives, for example Muddy Dog. For this campaign, the identity is given a “playful spin” using a hand-drawn typeface “Battersea Paws” and tongue-in-cheek headlines.
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Pentagram: Battersea rebrand
 
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Pentagram: Battersea rebrand
 
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Pentagram: Battersea rebrand
 
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Pentagram: Battersea rebrand
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