Investing in Art
Investing in Art
Investing In Art
Many people who collect art consider themselves primarily collectors, not investors per se. This, of course, does not mean that they are not investing in art while collecting it, since most collectors want to feel that the art that they are buying will, in a worse case scenario, retain its value, and ideally it will increase considerably in price. However, many, if not most, serious collectors are buying art out of a love for it.
In recent years, however, more and more people have recognized that art is a real asset class and a great way to diversify, and they are not collectors. Leading financial analysts have determined that investors who add art to their portfolio not only get a better annual return than those who do not, but that they also decrease their amount of risk. Furthermore, as has become increasingly obvious, people are beginning to realize that people who are truly expert in art are able to easily navigate the complex and treacherous waters of the art world and make very safe and strong investments.
Among the reasons for investing in art are the following:
- Art investments have historically produced attractive returns vs. equities and fixed income.
- Investors who have art in their portfolios have historically had higher total annual returns while reducing their risk.
- Art investments are sound hedges against inflation and produce returns far in excess of increases in global consumer price indices.
- Art is a real asset class and a growing investment market.
- The art market is opaque and largely unregulated providing value arbitrage opportunities to those with superior insider knowledge and access to investment opportunities.
- Art investments have a low correlation to traditional investment markets such as equities and fixed income, thereby providing an important means to diversify an investment portfolio.
Jacobs and Morawska works with individuals, family offices, art investment collectives/clubs and art investment funds to generate investment returns in the art market. We provide a comprehensive solution to entry and success in the fine art investment market. Our experts work with our clients in crafting an investment plan that suits their overall investment objectives. Specifically, we work with the client in determining
- the aggregate budget for the art collection;
- the time horizon for acquiring and disposing of the same;
- the kinds of works to be invested in by genre, artist, media and dollar value, the level of diversification and desired liquidity for the collection;
- and the level of risk sought by the client (i.e. allocation of opportunities between established, mid-career and emerging artists).
There are three principal ways to invest art. The first is as an Individual Collector. The second is through an Art Collective, and the third is via an Art Fund.
THE INDIVIDUAL COLLECTOR
The principals of Jacobs and Morawska have extensive experience in managing private managed art investment accounts for individuals and family offices. We offer both discretionary and non-discretionary managed art investment accounts depending upon the client’s interest in maintaining input in the investment decision-making process. As a general rule, private managed investment accounts are set up to provide for direct ownership of the artworks by the client with Jacobs and Morawska acting as fiduciary managers to build, manage and selectively dispose of the managed account’s art investment portfolio. Individuals can elect the various investment strategies to be utilized by Jacobs and Morawska as well as the level of publicity that they wish to garner for their collection. We handle all logistics in managing the art investment portfolio, including, but no limited to, procuring insurance, maintaining proper record keeping, and handling all transportation and storage.
For many current and aspiring art collectors, their preference is to co-invest with other like-minded investors. In such cases, Jacobs and Morawska works with the members of the art investment collective to reach a consensus on investment objectives, horizons, risk and liquidity profiles and strategies for the group. Moreover, we have extensive expertise in helping the members of art investment clubs to craft the manner in which their art investment vehicle will be governed, including but not limited to, management and collective decision-making parameters, allocation of economic rights and obligations, and restrictions on voluntary and involuntary transfers of interests in the collective by its various members.
Since 2006, art investment funds have been utilized by investors to invest in the fine art market. As a general rule, Art Funds are privately offered investment vehicles that are structured similarly to private equity funds. They are managed by an art expert in tandem with general investment professionals with knowledge in managed investment funds. Investors make capital commitments to the fund manager who draws down on the same to acquire, manage and divest a diversified pool of artworks according to the predetermined investment plan of the fund.
The advantage of investing in art by way of an Art Fund is greater diversification than is available to an Individual Investor or an Art Collective, with the expenses of managing the art collection being shared across a larger number of people.
Art funds vary dramatically according to their investment criteria, portfolio restrictions, investment strategies and investment processes. For a detailed description of Art Funds, please go to artfundassociation.com.
Jacobs and Morawska is well versed in the management of art investment funds and works with portfolio managers and investors in structuring Art Funds to meet the particular investment profile of any group of investors. Most important for any investor are the credentials of the staff, which is headed up by Joseph Jacobs, who for some 45 years has bought and sold art at major museums and as an art consultant. The investment arm of the company is staffed by top museum professionals, many of whom also have considerable experience as art consultants or auction house experts. These specialists, all with many decades of experience, assure that only museum-quality and highly marketable art is acquired and that it is being acquired at a good price. As important, this highly experienced staff has unparalleled contacts throughout the art world, allowing access to prize purchases and facilitating the sale of these purchases.
For all investing strategies, tax planning and other legal considerations, Jacobs & Morawska has retained Enrique Liberman, one of the world’s leading art law attorneys and a recognized authority on art investment and finance. Mr. Liberman is one of the founders and President of The Art Fund Association, the trade association for the art fund industry and is recognized as one of the foremost authorities on all aspects of the formation and governance of art investment funds. Mr. Liberman is a New York State “Superlawyer,” and the magazine Lawyer Monthly announced that he was voted the top Art Law Attorney in America for 2014.