An alternative asset class for investors

Antonio “Tony Herbosa” haggling for an art piece at Art in The Park event. Photo credit to Winston Sumalia

If you have invested in the stock market or made a lot of money during the seven-year bull run, chances are, you also have invested in art or have at least considered it as an alternative asset class. Not that these are similar. In fact, they are two entirely different animals.

Unlike stocks, art is not a liquid asset. Also, unlike stocks, art pricing is not as transparent. There’s no real-time price discovery and no real-time marketplace.

But if there’s one thing that binds these asset classes, it is their potential to be appreciated—and, therefore, bought—by a similar audience. We’re talking about the investor with a long-term view; one with enough cash to spare and has the time, passion and discipline to hunt for pieces which will likely be more valuable in the future.

In many ways, hunting for the right pieces of art is similar to sifting through the rubble of stocks to determine which ones are mispriced. Thus, some argue that the same discipline and strategies used in buying stocks can be applied to investing in art.

There is also parallelism between art and stocks when it comes to the classification of artists. If items made long-departed masters like Renaissance man Leonardo could be regarded as the “blue chips” that command the highest prices (assuming there’s any for sale), there’s a long hierarchy of artists—old masters, young masters, contemporary artists and newbies—whose works are dealt with at varying price points.

And because the value art is in the eyes of the beholder, pricing isn’t as simple as counting the passing of time. Some so-called second-liners could become more valuable than the traditional blue chips.

In 2015, Picasso’s “Women of Algiers” (Version O)—part of a 15-work series created in 1954-1955 assigned with letters A to O—fetched a record-breaking $179 million in a Christie’s auction in New York.  Pablo Picasso (1881-1973) is said to be the most important artist of the 20th century, an icon of modern and contemporary art and last year’s price of Version O was double the highest price tag for the auction for an old master painting.

“Games that children play” is one of the key themes of Atencio’s art collection. Eloisa Lopez

Art investing, however, is not for every Tom, Dick and Harry who has dabbled in stocks. It’s for the more discerning investor who is seeking investment diversification or wealth creation or both. And, maybe, that investor has a house with enough space, a living room big enough to display these art pieces. Or a nice office, maybe. That said, we know of some young collectors who just keep their fledgling collection in stacks, gathering dust until such time that they have a crib big enough for a display.

A number of institutions recognize the importance of investing in art, some of which do it for either aesthetic or posterity purposes and not really for auctioning them off in the future. These are the ones with the capacity to commission art works from contemporary artists. And they have the war chest to bid for pricey paintings, such as those by Filipino masters.

In 2002, for instance, the state-owned pension fund Government Service Insurance System raised a lot of eyebrows when it acquired Luna’s “Parisian Life” for P46 million from Christie’s Auction House in Hong Kong. It afterwards became a crowd-drawer at the GSIS Museum and, by 2010, the painting was estimated to be worth P200 million. Ten years later, the GSIS decided to transfer this high-valued piece to the National Museum to make it more accessible to the public. The GSIS also has a collection of Ocampos and Amorsolos.

BPI’s 1851 Club has a vast art collection and so does Banco de Oro’s head office. But the institution with the richest art collection in the country will probably be no less than the Bangko Sentral ng Pilipinas (BSP), which sometimes lends some of its collection to travelling exhibitions. Among the permanent exhibitions in the BSP’s Metropolitan Museum, for instance, is a gallery that features the works of Felix Resurreccion Hidalgo (1855-1913) alongside a special 150th commemorative exhibition on Juan Luna (1857-1899).  The BSP also has an extensive collection of Amorsolos and Ocampos.

We talked to a few art aficionados for their top three tips in investing in art.

• Valentine Willie

The Japanese media giant Nikkei has described Valentine Willie as a “Malaysian art legend” and one of Southeast Asia’s most-sought after art dealers. Born in Sabah, he developed an eye for art after frequenting and finding solace in London’s museums as a law student in the 1970s. After practicing law for 20 years, he established Valentine Willie Fine Art in 1996, a pioneer consultancy for modern and contemporary Southeast Asian art.

In the next two decades, he built up a reputation as a leading art dealer and gallerist. Until 2014, he ran five galleries across the region, including Manila Contemporary (formerly in Pasong Tamo Extension in Makati). He bridged different art communities and played a role in nurturing young artists. He is also a curator, working both for gallery and independent projects, and has been responsible for several major exhibitions in Malaysia and across the region.

Willie retired from art dealing in 2012 and is now running Ilham, a public art space in Kuala Lumpur.  This is a public art gallery “committed to supporting the development, understanding and enjoyment of Malaysian modern and contemporary art within a regional and global context.” Ilham aims to appeal to a diverse audience and serve as a resource for those who are engaged in the arts and those for whom art is a new experience.

1. Don’t lose sleep over your art purchase, meaning don’t borrow or spend your savings on it.

2. Ask advice from reputable dealers or do your own research to find overlooked corners or periods of our art history.

3. Buy what you want to hang in your home. You may find your investment will have enriched you beyond your bank account.

“Pricing for art is an inexact science at best and given that the opacity of the art market, it is not unknown for some to manipulate the pricing to set an artificial benchmark,” Willie says.

“Caveat emptor remains the rule of thumb as in any type of investment,” he says.

Caveat emptor is Latin for “let the buyer beware.” In Law, this is a doctrine that often places on buyers the burden to reasonably examine property before purchase and take responsibility for its condition.

As a side note, Willie says: “Don’t start investing during a boom as in the Philippines now. Now is the time to watch and study. Start buying when the art bubble bursts. Some current trends will evaporate as hot air that they are.”

“Personally, I am now looking at Indonesian art as their art market remains depressed,” he says.

• Januario Jesus Gregorio “JJ” Atencio III

Atencio has risen from a mere real estate employee to creating his own mass housing empire. Together with two business partners, he has built and leads a mass housing enterprise that offers affordable housing across the country.  When he is not selling houses, the president of 8990 Holdings is collecting art, turning the company’s head office in Mandaluyong into a virtual museum.  From his own office to the boardroom and to the hallways, 8990 Holdings is an art repository.

“Collectors in general, they collect according to artists. I collect according to themes,” says Atencio, whose four favorites themes are nationalism, social realism, games that kids play, and house. The last—HOUSE—is also the trading symbol of his company at the stock market. “Mass housing is such a liberating condition because we’re able to provide houses and therefore make renters into property owners,” he says.

“I like art as a reflection of Philippine society, history and culture. These are like snapshots of Philippine history.  It’s important to support the arts to preserve our being Filipino,” he says.

For the nationalism theme, he has bought paintings by the likes of Ivan Roxas and Jorge Pineda.

1. Buy only from established sources: galleries and auctions. Always ask for certificates of authenticity.

2. Join art clubs to know who is the current favorite, whether new artist or master. The mood of the market can change in a short time.

3. Look at prices of gallery and auctions to know the current market value of your investment.

• Antonio “Tony” Herbosa

The Wharton-educated Herbosa is an expert on capital markets, corporate finance, mergers and acquisitions, investment advisory and syndications.  He founded online stock market forum Traders Apprentice Pilipinas (TAP) to mentor newbies, including overseas Filipinos, on the basics of stock market investing using Facebook.

The forum, which has over 54,000 members, now has a spin-off forum with close to 1,700 members “ART TAP” headed by Gracy Fernandez (where JJ Atencio is also a key member and mentor), whose goal is to discuss the value of investing in art, stocks and property as key vehicles of wealth creation.

1) You must like the work. It must appeal to you emotionally, not just visually. For me I need to relate to what the painter sees or is trying to convey.

2)  If it is too pretty, it is too commercial. The art that appreciates has a little bit more “angst” or “chaos” in it, like a Jigger Cruz, Jean Michel Basquiat (a French painter whose works fetch millions of dollars today) or Roland Ventura. It takes time for people to get it. And it is important that one appreciates the unique style of the artist. So an artist must have that “trademark” style in his work, something unique or original to him/her.

3)  The artist must be followed by a leading gallery or “knowledgeable” galleries, whose job is to actually pre-screen art. So get to know the gallery owner, and get a sense of their depth of knowledge in the art world. Did they themselves collect and spot the right upcoming artists before or are they just in it to sell art quick, for example by being in the malls, and sell anything without focus? I would say, having the right relationship with the right gallery owner is the last big thing. They can really identify and introduce new artists to you. You can even be frank with them and ask who they think have the best potential and why.

Fake alert

The proliferation of knock-offs is a perennial issue in the art world. “And it’s not just confined to old masters. Even young artists are faked. Fakes are more likely during a boom and even young artists are faked, which is a symptom of an irrational bubble,” Willie says.

“There are no full proof tests of course. Seek expert advice by all means. Even certificates of authenticity are faked. That’s why provenance is important,” he said.

Provenance is refers to documentation that confirms the authenticity of an art piece.

Based on his experience, Herbosa said forgery is not an issue for him because he does not buy the “blue chip” type of paintings. He buys art in the P50,000 to P300,000 new artists category. He said these are the types that can appreciate in   a big way. “Sometimes the artist themselves are known to us. Many are in their 20s,” he said.

However, forgery is big issue in the case of the Amorsolos or whenever the master is already dead. “Even big galleries have been duped,” Herbosa said.

“In many paintings that I bought—Jorge Pineda, Teodoro Buenaventura—they issue provenance from National Museum etc.,” he says.

Hedging risks

Like any investment, art comes not without risk.  Apart from opaque pricing, lack of readily available marketplace and risks of ending up with knock-offs, assuming that you have acquired the premium authentic stuff, there’s always the risk of your priced possession being stolen by burglars or physically damaged, in case of fire, earthquake, or any act of God and fortuitous event.

Willie said collectors can insure their art pieces with reputable insurers such AXA or Pioneer. “Premium varies between 0.1 percent to 1.5 percent of value depending on many factors such security and conditions of storage and of course volume of artworks to be insured,” Willie said.

Atencio deems forgery still the biggest risk for an art collector.  At present, he is in the process of insuring his collection. Any art piece in his collection worth over P1 million, he would like to be insured.

When it’s time to cash out

As long as there’s a secondary market such as regular auctions art investment can be said to be “fairly liquid” though not as liquid as stocks, Willie says.

“Art is not very liquid, but there are prominent artists who already command a certain price. The other aspect is that the market is growing fast—how many prime condos (condominium units) are being built and how many walls per condo? So the demand will always be much greater in the future,” Herbosa says.

“If demand side is good, and if you give a discount to market, then it is easier to sell. What I mean is even with a discount, the cost of your initial acquisition would probably be a fraction anyways,” he added.

Meanwhile, art has been used around the world not just as investment instrument but as a tool for tax evasion or money laundering, which is why solons now want to include art dealership on the list of entities covered by the stringent reporting obligations to the Anti-Money Laundering Council.

This is, however, not an issue for the legitimate investors or art enthusiasts who are in it for the long haul.  Some may never sell their collection at all. Some may instead want to pass it on to the next generation or maybe donate to a museum. Unlike stocks, art isn’t always about the money, after all.