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“Art Market and Economic Conditions” - Event Summary

OGP Reporters / Members Contribute File Photos

Nov 14, 2016

Since the late 1980s, the rapid growth of the western economy stimulated the prosperity of the arts market. People started purchasing artworks as part of their asset investment, and capitalizations has become a common phenomenon.

Since the late 1980s, the rapid growth of the western economy stimulated the prosperity of the arts market. People started purchasing artworks as part of their asset investment, and capitalizations has become a common phenomenon.

As a result of the integration of art and financial capital in the past few decades, there has been an increase in the number of art capitalization, including art funds, art loans and art leases. The European and the American art markets are relatively more well-rounded, forming a complete set of mechanisms which enable a healthy cycle for the growth of the market. This is what inspired China’s art finance market. Many private companies and collectors have appointed special managers to carry out the operation of goods, through a combination of art collection investments, to ultimately achieve the purpose of profiting - art funds. And more and more people choose to invest in artworks as a strategy to disperse asset risks. As early as 1974, the British Railway Pension Fund spent 70 million USD for art investments with the help of Sotheby’s; they have purchased more than 2,400 pieces of artworks, including ancient European print, impressionist paintings, paintings by famous European artists, Chinese porcelain and others. By 1989, the British Railway Pension Fund commissioned Sotheby's to auction their previously acquired artworks, and successfully presented 25 collectibles to the market. By the end of their last auction in 1999, British Rail had already received an annual rate of return of approximately 13.1%. This was not during the 2003 to 2013, where the auction prices peaked. If the auction had been hosted five years later, the rate of return would have reached 60%.

The range and cycle of art investment funds vary. According to financial reports of British Art Management Services, the average ROI for classical art, modern art, contemporary art, and impressionist art, is as high as 58% in the 5 to 10 year cycle. Needless to say, the market provides a variety of channels, such as artists’ trust fund investments. APT Art has established seven trust centers around the world, which follows the operational model of social insurance, in combining art and finances. In addition, there are art hedge funds by the British Art Investment Consulting Company, who launched the art trading funds. The emergence of art investment hedge funds help provide investors with a new channel for art investment and risk aversion. Another form worth mentioning is art loans, which accords with interest rate from the commercial banks or other institutions to obtain monetary funds in the form of credits. Through art loans, collectors may receive financial intermediation under the premise of the preservation of artworks. Operations of this kind are mainly auction companies and banks; Sotheby's is one of them. In 2010, Sotheby's art loan amount exceeded 100 million USD; in 2012 it has reached 198.7 million USD; and in 2013 it has surpassed 268.9 million USD. Its profis has increased from 9.07 million USD in 2009 to 21.27 million USD in 2013. But these are gained upon the prerequisite of a strict and perfected process, keeping the loan risk under control.

The Canada Council Art Bank, established in the 1970s by the National Arts Council of Canada, is engaged in the purchase, leasing of artworks and other relevant services. Its operation model is to support and promote Canadian contemporary artists through purchasing their artworks and leasing them to customers from around the world, increasing the exposure to Canadian artworks by large. In addition to Canada, Australia, Norway and many other countries have also established Art Banks.

The cooperation of art institutions and the financial industry has helped achieve the best possible investment strategies. The development of the arts market depends on the economic development and the accumulation of wealth. With the economic restructuring and an increase in consumption in China, the art industry has become an important focus area for capitalization.

We would like to thank the participation and cooperation of our members who have attended this event.

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