One Quadrillion
Most people underestimate the reality of a disaster, thinking life will go on as normal, and thus suffer accordingly. To overcome the normalcy bias, we need to be well informed, after all: “Knowledge is power” (Sir Francis Bacon, 1597).
With global (consumer, corporate and government) debt at over $244 trillion, more than three times the size of the global economy (Institute of International Finance, 2019), with total government obligations, we have total indebtedness of one quadrillion and a real danger of a wave of sovereign defaults.
The prudent, especially since we are moving from a period of quantitative easing to quantitative failure, see the danger and general malaise and will prepare by seeking an effective, safe haven against any financial maelstrom: assets with deep intrinsic value (substance). The extraordinary realise that historic problems lead to historic opportunities.
We are experiencing a paradigm positive shift in the demand curve for art: growth of the plutocracy; globalisation of museums and galleries; corporate collecting is booming; the proliferation of art foundations; the profusion of art market indices; the rise of private museums (South Korea leads the way); countries’ immense purchasing power (UAE’s Louvre and Qatar’s spending); top universities heavily investing in art museums (Harvard-Stanford-Yale-Tsinghua); and the surge in private collecting resulting in a market with more depth, liquidity and transparency. In the current wealth boom, HNWIs turn to museum-quality art (deep intrinsic artistic value and abiding substance) as a safer, less volatile store of wealth.
As Noah Horowitz writes in ‘The Art of the Deal’: “The net effect is that more money, from more places, has poured into the art market than ever before, inspiring ever more creative ways to put this capital to work”.
The Deloitte Art & Finance Report estimates that $1.62 trillion of HNWI wealth is allocated to art and collectables. Barclays Wealth Management (2013) reports that HNWIs hold these assets in the following order: 36% fine art, 25% classic cars, 17% rare coins, 10% wine and 6% stamps. It is estimated that $3.6 trillion will be spent on art by 2025 (The Economist, 2017).
Museum-quality art is attractive because it operates outside of the financial markets as research by J.P. Morgan (2013) outlines: “The volatility of art was lower than equities as well as commodities during the last 25 years…art had almost no correlation with US equities and was negatively correlated with fixed income and real estate investment trusts”. This non-correlation contributes to the potential for superior returns over a period of time; an insurance policy and hedge in times of stressto diversify exposure.
“Art has been my best performing asset by far; better than private equity, stocks, bonds or property”- Lito Camacho, Vice Chairman of Credit Suisse Asia and art collector (Bloomberg, 2018)
The global art market reached a total of over $63.7 billion in 2017 (Art Basel and UBS Global Art Market Report). Art topped Knight Frank’s Luxury Investment Index and has overtaken wine as the best-performing asset class. In the first half of 2018, the global growth rate of the fine art market was 19% (Artnet Intelligence Report).
Leonardo da Vinci’s ‘Salvator Mundi’ sold for a record $450,312,500 and David Hockney’s ‘Portrait of an Artist (Pool with Two Figures)’ sold for $90.3 million, the record for a living artist at auction. With the proceeds from ‘Charlie and the Chocolate Factory’, Roald Dahl bought a painting by Francis Bacon for £2,850. Dahl’s loved ones sold it for £11.5 million at Christie’s in 2014.
“The allure of art is its marrying the qualities of luxury goods with promises of high investment returns and unrivalled social prestige” (Noah Horowitz)
Elizabeth Xi Bauer is a globally recognised art platform. Primarily, we encourage cultural ambition; Dr Richard Rush (former investment banker and art collector)explains that art collecting is: “One of the most thrilling and rewarding activities of all time”, but he also notes: “It is doubtful whether collectors have ever been unmindful of the investment value of art”. Furthermore, certain non-financial force multipliers have been quantified by economists at an annual return rate of up to 28% (Economics Bulletin, 2007).
Fortunately, for the collector, because art is highly selective, artistic achievement is also extremely predictable: there is a clear and consistent progression towards artistic success. Our passionate award-winning international team of art world experts, who work within the cultural network, validate through rigorous, tried and tested methods to help clients build collections of the highest artistic value, abiding substance and museum-quality only for equitable pricing.
Pinto Rai Dhir
Managing Director, Elizabeth Xi Bauer
This article was published by Family Office Magazine (‘Art & Museum’ Spring Issue 2019 Pages 44-45)
