Fine art has long played a role in a balanced investment portfolio. However, with tremors in global financial markets, greater volatility entering the market, and a challenging wealth management environment, canny investors have looked for alternate ways to hedge their portfolio risk.
Art has been a popular and successful investment option since the 2008 Global Economic Crisis. However Brexit fears over London’s place in the international financial sector, a downturn in the luxury goods sector and a shift in influence east towards China and the Middle East is posing challenges for British investors.
Art As An Inflation Hedge
Accepted as a tangible asset and eminently convertible form of wealth, art has been adopted as a hedge against inflation. As Salma Shaheem, Joint Venture Partner and Head of Middle Eastern Markets at The Fine Art Group put it, “Art is a real asset that enjoys a negative correlation with traditional assets, and therefore acts as a hedge against inflation. A valuable collection can start with as little as five or six very rare, museum quality pieces.”
Art Genesis For Fine Art Service Sector
Fine art is also stimulating the emergence of its own niche services sector with British firms well placed to capture a major share of its future growth. As a Deloitte’s Art & Finance Report (2016) put it, “We believe that in an increasingly competitive market place, client-centric services around passion assets, on the one hand, offer significant potential in building stronger bonds between the wealth management industry and their clients and, on the other hand, have a fiduciary responsibility to incorporate art and collectibles in their service offering as more and more wealth is allocated to passion assets.”
Enter The Gulf
While China get all the public love and affection, particularly from the great auction houses of Christies and Sotheby’s, the inflow of epic wealth into the Gulf over the past decade has produced a generation of western-educated high net worth individuals who increasingly see art and collectables as an engaging cultural interest, a means to signal their social standing and as a natural hedge. Both Christies and Sotheby’s have offices in Dubai, evidence of the Gulf’s growing attractiveness as a growth destination.
Views On 2017 – 2018
As Cairo, Baghdad, Beirut, and Damascus are consumed by internal strife, a new generation of outward-looking cities have emerged in the Gulf: Dubai, Doha and Abu Dhabi are assuming the predecessor’s mantle of cultural ambassadors. To this rising generation, art is international and extends well beyond traditional Islamic art, or politics and conflict as inspiration, fuelling interest in western as well as regional artists.
Enter Art Dubai
Art Dubai is an international art fair with roots in the Middle East, Africa, and South Asia. It is the pre-eminent art festival in the Gulf. The eleventh edition of Art Dubai took place in March 2017 in Dubai, United Arab Emirates. In 2017, more than 90 galleries representing 44 countries participated in the festival, with 75 percent of them repeat exhibitors.
British investors interested in exploring art as part of their portfolio strategy have enjoyed solid returns in the run up to 2016. After some market turbulence, recent London sales indicate the international fine art market is rebounding. Growing demand for significant paintings and works of art fuelled by private collectors and the creation of major new art galleries in the Gulf offers British investors access to a market with potential for both international auctions and as an export market for art-related expertise.