The art season is about to kick off in Dubai, but what kind of financial returns are in store for art enthusiasts who also want to diversify their investment portfolio? There is great potential for a thriving art culture in the UAE and people are viewing art more as an investment than for appreciation. But with so much risk involved through a lack of knowledge, damage and unpredictable price movements, Rupert Connor, from Acuma Independent Financial Advisers, says the best returns are seen only at the very top levels of the market. However, he adds there is always the opportunity for discerning art lovers and investors alike to dabble in art investment.
1 Look out for local artists with universal appeal
A good starting point for a novice investor is to explore local artists. It's worth bearing in mind that work with a universal appeal is more likely to stand the test of time and prove to be a good investment. At the same time, local artists have a unique take on life in the region. Given the current political strife and turmoil that has happened over the years in the Middle East, these artists' life experiences can result in creating some powerful and relevant works of art.
2 Explore tangible opportunities to invest in art
There are many opportunities in emerging markets. Art fairs and dedicated auctions offer many the chance to learn about, discover and acquire work from some of the top Arab artists in the region. Similarly, there are a couple of routes to the art market for a possible return on investment.
3 Decide why you are collecting
Will you be an emotional collector or someone purely looking for a financial return? An emotional collector may accumulate a diverse collection that is predominately more personally fulfilling rather than one that is strategically profitable. This may not bring the most financial gains, but as long as you buy works of some interest and of good quality, you may be one of the lucky ones and acquire the next "must-have" work of art.
4 Look at other options
Another option would be to invest in an art fund, which shares the same structure as a private-equity fund and would run for about five to eight years. The Middle Eastern Fine Art Fund by Addax is an example of such a fund in the UAE. It was set up primarily to respond to the substantial growth the art market in the Middle East has experienced over the past eight years, which has been predominantly driven by international demand for Islamic and Middle Eastern art. However, as with all of these types of funds, the risk here would be if the fund manger has a knowledge of the art world and selects the right pieces for you. Like any boutique funds, a high level of due diligence would be needed before you decided to invest in it.
5 Be aware
Investing in art is a definite option if you want to diversify your portfolio of bonds and equities. However, to gain a decent return, one should be aware that art is not as "liquid" as some other asset classes and, as such, you may not see a return for a good number of years. The art market is also subject to taste and so a great amount of research should be done before investing in an art fund.
6 Look internationally
As a collector in the UAE, there is great potential and the momentum is increasing for Arab and Iranian artists. But collectors still need to spend additional time widening their focus - to be more internationally minded with regard to acquiring pieces of artwork. Diversification can also mean moving beyond fine art and into decorative art.
It might seem like a no-brainer, but it is essential that you buy from a reputable gallery and ideally consult an art professional to ensure the work you are buying is authentic. This is particularly relevant if you're investing in work by a well-known contemporary artist as forgeries can be hard to spot and price tags can be astronomical.
8 Be knowledgeable
The fluctuations in the market for one artist can - and often will - affect the market for other artists of similar genres. Knowledge of art movements and art history can help you better understand these connections. Of course, it's always useful to learn more about art and to be an educated collector. This will help to increase your enjoyment of your collection, even during the process of viewing and purchasing it.
9 Buy low, sell high
It sounds obvious, but it merits saying. This is the same rule to follow as with all commodities. Of course, things are slightly different with art and a buyer will need to be educated about what is most likely to develop a high value in the future.