Interest and investment: art market insights

Date: 08 Nov 2023

Karen Jones

Following a summer of art fairs around the world, such as Frieze and Art Basel, Citywealth takes the temperature of the art market through the lens of wealth management professionals and their UHNW clients.

Art Basel and UBS Survey of Global Collecting

Insights from the Art Basel and UBS Survey of Global Collecting in 2023, which surveyed the behaviors and optimism of HNW collectors, found that spending on art remained strong in the first half of 2023, with more engagement in research-based collecting, as collectors remain optimistic about the art market in 2024. Authored by cultural economist Dr. Clare McAndrew, the report reviews trends in collector spending, motivations of their activities in the market, and how they interact with artists, galleries, institutions, and their environment, and was conducted in collaboration with UBS. The survey sample included over 2,800 collectors who were active in 2023 across 11 art markets, including Brazil, Mainland China, France, Germany, Hong Kong, Italy, Japan, Singapore, Taiwan, the United Kingdom, and the United States.

Double-digit increases in Hong Kong

The key findings include increased cross-border trade in 2022 and early 2023; imports of art and antiques across borders reached their highest-ever level of USD 30.7bn in 2022, while exports their second highest at USD 33.4bn. While global imports across all industries were down in the first quarter of 2023, the value of inflows of art to key hubs continued to grow, including double-digit increases in Hong Kong (50%), the UK (38%), and the US (15%). The report also found that HNW collector spending remained strong in the first half of 2023, signaling a potential year-on-year increase compared to 2022. Expenditure increased in nearly all markets in 2022, with some of the largest advances in the UK and Taiwan (both up 30%) and more moderate growth in the US (5%) and Hong Kong (2%). After a decline of 6% in 2022 to USD 202,000, collectors from Mainland China reported the highest expenditure in the first half of 2023, at USD 241,000. Finally, as aforementioned, there is a higher share of research-based collecting. When asked about their collecting behaviors and motivations, 44% of collectors surveyed identified themselves as “researcher”, engaging in significant amounts of research before acquiring works (up from 37% in 2021). There was a slight drop in “impulse buyers” (down by 3%).

Surge in consumer spending on higher priced goods

Paul Donovan, former UBS Global Wealth Management Chief Economist now an author and freelance economist, said: “2022 was marked by an extraordinary surge in consumer spending on higher priced goods, as pandemic restrictions ended. For higher income consumers, this included the personal luxury goods market. The art market, sharing a consumer base with the luxury sector, also benefitted from this trend. However, a palpable shift is underway. In 2023 consumer spending growth has pivoted from goods towards services. Trends in the art market are also evolving, with collectors becoming more discerning and intentional in their choices, favoring meaningful connections and quality over quantity. They are spending not just their money, but also their time, delving deep into research to ensure their acquisitions truly resonate with their values and aspirations.”

Collectors perspective: Interest, investment, insights

This report sets the scene for the art market from the collectors perspective, but what are the professionals noticing? We asked those dealing in the art market what trends and obstacles they are currently seeing, and how this is affecting their UHNW clients.

Art market is susceptible to global tends

Fred Clark, Partner at Boodle Hatfield, said: “The art market is susceptible to global tends such as higher interest rates and conflict around the world and so collectors are taking longer to move on artworks than during the post-pandemic boom. Specifically in the UK, Brexit remains a complicating factor in international transactions.” He added: “The top pieces always have a market for UHNW clients and interest for trophy pieces has not waned. However for those looking to use art as an alternative investment and who are not interested in the very best the market has to offer, higher interest rates have slowed the pace of mid-tier transactions as there are other investment opportunities giving a steady return which were of less interest during the period of historically low interest rates, such as high interest deposit accounts, bonds and traditional lending.”

Increased client interest in fine art amongst the UHNW clients

Daniel Martineau, Executive Chairman of Summit Trust International commented: “There has definitely been increased client interest in fine art amongst the UHNW clients that has been building since the GFC. Art is seen as an asset diversifier in a world where most asset classes are positively correlated. In addition, art is seen as an asset with no ‘counterparty risk’ in a world where the credit-worthiness is uncertain for the companies in which you have shares, the government that issues bonds or the bank that holds your money. As a bonus, there is the obvious aesthetic aspects of art where people really do love their paintings, but do not feel the same emotional attachment to stocks and shares.”

Clients have 15% in art and for some, as much as 30%

“There has been an increase such that clients (and their trustees) now often include art in the overall asset allocation. The higher the value client, the more likely this is to be true. Some of our clients have 15% in art and for some, as much as 30% of their overall net worth. I was thumbing through the Christies catalogue this morning and I see there are a number of items estimated for 30 million plus, so it doesn’t take many acquisitions for a family with assets of 100 million to reach a high percentage asset exposure!”

Challenging environment

Tamara Wakeford, former Associate in the Art & Luxury department of Wedlake Bell now Disputes Counsel at Christie’s, said: “Like other financial markets, the art market is operating in a challenging environment, both in the UK and internationally. A combination of tightening liquidity, rising interest rates, Russian sanctions, economic & geopolitical uncertainties appear to be dampening buyer confidence and squeezing available funds.”

The New York sales in May were said to be down around 40% year-on-year

“The November sales coming up in New York will provide the latest snapshot on art market sentiment. The New York sales in May were said to be down around 40% year-on-year, and more recently Sotheby’s London’s October evening sale of contemporary art resulted in £30m in sales, against a pre-sale estimate of £63.3m. This was in part due to last-minute withdrawals – indications of insufficient seller confidence in the art market and possible failures to obtain auction guarantees at acceptable levels. Weaker auction sales are likely to increase the volume of works being marketed privately, in order to avoid damaging instances of works being “bought in” (i.e. failing to sell at auction) and then being ‘burnt’ for a period of time.”

In terms of interest from UHNW clients, Wakeford said it is “stable”, but “they are more price-sensitive and discriminating”. She continued: “Generally, UHNW art collectors buy primarily because they like the art in question and want to build a personal collection, rather than purely for investment purposes. However, they predominantly collect ‘blue chip’ art which is best at retaining value, and therefore incidentally UHNW’s collections tend to do well from an investment view point also.”

The art market can be fickle

“The art market can be fickle, with economic speculation driving works by ‘names of the moment’ to stratospheric prices before the bubble collapses, just as was the case with the NFT market. For this reason, investment performance should always be a secondary consideration when buying art, especially contemporary art. There was a growing market for investment art but it remains to be seen how this will be affected now more traditional investments give better returns and to what extent this was indicative of investors chasing a reasonable yield on their investments.”

Insights on digital art and NFTs

Andrew Bruce, Barrister at Serle Court, provided some insights on digital art and NFTs. He said: “[T]he hype around digital art and NFTs has moderated recently and a more realistic approach is being taken by artists, dealers and collectors to the tokenising of art. For the auction market, geo-political and economic uncertainty seems to have been counter-balanced by the continued growth of the art markets in Asia and the Middle East which have seen new collectors and new artists come to the fore. Ensuring authenticity and provenance continues to prove challenging and although the recent use of the Art Loss Register to secure the return of the painting ‘Children Wading’ by Robert Gemmell Hutchinson to Glasgow Museums is encouraging there remain ongoing difficulties with stolen and looted art.”

Launching a new art advisory service

SG Kleinwort Hambros now UBP has recently announced the launch of its new art advisory service for clients based in the UK, Channel Islands and Gibraltar. In partnership with Laurent Issaurat, former Head of Art Banking at Societe Generale Private Banking, based in Paris, they now offers introductions to professional partners in the art world who can deliver an array of services to facilitate client art requirements. On the launch, Delyth Richards, Group Head of Client Solutions at SG Kleinwort Hambros, said: “The launch of the new service has been very welcomed by staff as an extension of our offering for suitable clients. It aligns us with SG Private Banking’s offer, and, as Laurent has identified, contributes another solution to helping clients simplify their financial challenges. Whilst we recognise it may not be a service every client needs or wants to use, it has already sparked discussions with both clients and prospects. It allows us to recognise client’s passions and provide professional support.

We asked what hurdles needed to be navigated ahead of the launch. Issaurat said: “When looking at the art advisory industry, quick wins are possible. However, this remains a long-term proposition. When entering a new market, building trust and confidence with private clients is essential but doesn’t happen overnight. This is especially true when dealing with ‘passion assets’, such as art and collectibles, which many individuals consider as their personal prized possessions. Hence it is essential to devise a strategy that can be sustained in the long run. This is something we have already successfully tested in other jurisdictions before rolling out the service in the UK. The great news is that everywhere we have implemented Art Advisory, existing clients, prospects, as well as bankers, seem to love the concept!”

$1.5 and $2 trillion on aggregate worth of collectibles are currently owned by HNW & UHNW individuals

On trends they are seeing, Issaurat said: “Market surveys show that an increasing proportion of HNW and UHNW collectors across the globe expect their private wealth managers and banks to provide assistance when it comes to managing their art and collectibles. Value wise, if one considers the big picture, financial stakes are quite considerable: possibly somewhere between $1.5 and $2 trillion on aggregate worth of collectibles are currently owned by HNW & UHNW individuals. The vast majority of these assets are likely to be sold, transferred to children or donated to institutions, over the coming 10 to 20 years by baby boom generation art owners, which constitutes a major market driver. This fundamental trend explains why we expect demand for art advisory services to keep growing in the long run.”

Looking ahead

With an eye on the future, we asked the professionals what is top-of-mind for those advising on art assets.

Daniel Martineau said: “Top of mind for the wealthy is to STAY wealthy! What happens if the stock market tanks 50% or if bonds issuers default or banks collapse? They look at art similar to the way they look at gold; a timeless asset that tends to holds its value (and more) during a crisis.”

Fred Clark asked: “For me, sitting in London today, where will the UK market be in 10 years in the face of increasing global competition? Will the global brand of London and a highly sophisticated and well-established market be enough to sustain its place in the world?”

Professionals should be wary of price instability

Tamara Wakeford called for professionals to be wary of price instability when it comes to emerging artist. She said: “Even those who appear to have ‘made it’ and are booming at auction can suffer routs in their market from which it is hard to recover. In the same vein, we advise researching prior sale values and patterns before purchasing art, as value can be subjective. This is especially the case with works by artists who are very new to the market, and therefore do not have a properly established sales history. Unless the buyer is willing to put all their capital on the line, buying works by early emerging artists is especially risky. As always, pre-purchase due diligence into works, their provenance and ownership is key. If the work is high value, authentication should rest on more than the seller’s or gallerist’s word. We repeatedly encounter disputes which would have been averted but for more thorough pre-purchase enquiries. Similarly, we also advise operating via trusted art market intermediaries.”

Many thanks to the experts who contributed to this feature.

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