Monday, February 10, 2014

Report on Art Investing (with disclaimer)

A recent report on investing in art. The report doesn't necessarily reflect my views on art investing. For the record: I do not believe that art is an investment but hopefully this report fills a small gap in the literature.

Introduction
Norman Braman
Billionaire Car Salesman, Art Collector
I don’t recommend people buying art as investment. I think it’s a huge mistake. I don’t know one individual who bought art for investment who has come out well. It’s just the wrong approach. Art is special. We love our art.

David Nahmad, Billionaire investor
Billionaire investor
If you know what you are doing, art is the best investment. You have to buy an A-plus painting or something that is not hyped. The super-rich people pay stupid prices for the best paintings, and they fight for the same paintings.

As the two above quotes from a Forbes India article[1] show, investing in art divides opinions quite strongly. With time and increasing interest in art investing, these opinions are set to become less polarized. This report seeks to fill the gap in the middle between these opinions by informing both sides of the debate.
You may have heard the maxim, “invest wisely in art and its value will grow.” There is a large amount of literature available online and otherwise, which follows this line. However, it is not our purpose to give you such advice: we believe that if you invest wisely in anything, it’s value will grow (isn’t that the point of investing?).

Perhaps the most interesting trend in art in the last ten years has not been Chinese art, Post-War art or Impressionist art (although all have shown interesting results in themselves); most interesting of all has been the trend among all kinds of individuals and institutions to increasingly look to art as an investment.

This trend is part of the motivation behind this report. We will suggest how investments can be made in art, which pitfalls to avoid, how to look outside traditional views of buying art and as best we can, suggest emerging trends and how to capitalize from them.

We must stress from the outset that investing in art is not a “sure thing.” If an investor is looking for that, there are inflation-adjusted treasury bonds. Art is a risky investment and its returns often – but not always – reflect that. The art market is currently undergoing a boom, but booms are often followed by bust.

The other main critique levelled at art as an investment is that it is not liquid. This is indeed true, but at this report will show, this will become less of an issue over time (we believe). Because of its nature, art is unlikely to ever be as liquid as shares, but there is much liquidity flowing into the market and this will only continue.

Strategies for Art Investing
With far less market information available than shares, looking at art as an investment requires knowledge of how and where to invest. One point frequently overlooked in art investment literature is how fragmented the market is, especially at the lower end of the market (which doesn’t attract world attention for single auctions). To a savvy investor – or even someone willing to put in the groundwork – this can lead to many market inefficiencies.
Every strategy should be underpinned as much research as possible (both secondary research and by visiting galleries, auctions and museums). Request to be added to mailing lists and build connections. Become familiar with artists’ work and track the progress of artists over time. Information dissymmetry is a huge advantage in art investing and can reap financial dividends. We outline some strategies below about how to invest in the art market, and the advantages and disadvantages of each method. It should serve as a useful guide before becoming actively involved.

Buying Artists’ Rights
A method not discussed in the literature on investing in art is the possibility to purchase rights to artists’ works. This is a risky (and potentially expensive) venture but it does offer the possibility to gain a share of future profits gleaned by an artist. An example would be if an investor paid an artist 10% of the artist’s proposed annual salary (something akin to an arts council grant) and in return, received the rights to 10% of the artist’s revenue. This is controversial, as from the outside, it can be seen as exploitation of someone struggling to make a living. On the other hand, it can be seen as financing or patronage of the arts. The terms would have to be established beforehand and could make an interesting investment. Perhaps the artist could be limited to releasing a certain amount of pieces, or be set a floor for the amount of pieces made in one year. The drawbacks are the potential legal costs and the shoe-leather costs of getting in touch with artists. The benefits are potentially lucrative and if nothing else, a claim to patronage and a share of an artists’ future revenue.

Professionally managed art funds

Although art funds have been on the scene since the beginning of the last century, they have grown in popularity over the past decade in line with the art market’s own general upward trajectory. As with more popular investment funds (pension funds, etc.), the investor hands over money to the fund, which then charges management fees, entry and exit fees and other possible administration fees.
The advantage here is that by pooling resources with other investors, you gain increased access to more expensive pieces that come available. Additionally, your money is being managed by professional art dealers, who buying in larger amounts, can arrange discounts with galleries and auction houses (at least in theory).
The strategies used by each art fund are different, and should be checked in advance. For example, some art funds press museums to include their works to enhance the value of their portfolio. Past performance is also important as a guideline but not a guarantee of future returns.
Many funds focus on one particular type of art (early 20th century, post war, impressionist, etc.), while others are highly diversified, such as the Art Fund in London. What they almost all have in common are relatively low barriers to entry and generally good art market contacts.
On the downside, not all funds are well-managed (as with pension funds). There are numerous cases of them going under for incompetence, fraud or most likely – overly high management fees. Therefore, due diligence is required before getting involved in any art funds.
Join (or start) a private investment partnership
Not unlike an art fund, a private investment partnership is a group of investors that pools its money and purchases investment grade art with the assistance of an adviser. This is a more informal arrangement than an investment fund and may require more legwork on the part of the investors to attract more investors.
The advantage is that investors have more of a say in which pieces are purchased (a case of too many chiefs and not enough Indians?). On the downside, there are bound to be conflicts over management issues such as when to sell the art and for how much. Likewise, agency problems often arise with advisers hired by these groups.
Irrevocable bids at auction
This is an increasingly popular mechanism being used by art galleries to guarantee a minimum price is met for their pieces. From their perspective, the irrevocable bid adds liquidity to the process. From the perspective of the buyer, it offers the chance to purchase works at lower prices.
The irrevocable bid system works as follows: an auction house finds a bidder (in this case, an investor) who will pay a fixed amount for the work, below the low estimate. If no-one bids higher, the bidder buys the work. However, if someone does bid higher, the person making the irrevocable bid gets a percentage of the sale.
The advantage of this system to an investor is that even if the art isn’t ultimately purchased, they receive the bonus of a kickback from the auction. However, if the piece is purchased by the investor, the question has to be asked, “why own a piece that couldn’t reach its reserve price at auction?”

Emerging Artists

Tracking the progress of emerging artists can be particularly lucrative. There are several bonuses to the practise aside from the potential payoff, however. For one, the entry costs are generally lower. Another bonus attached is that the investor has the built in satisfaction of supporting an up-and-coming artist.

When an artist moves to a higher-end gallery for the first time, it’s a solid indication that he or she achieved new credibility and/or a new collector base. If nothing else, it increases publicity around the artist, which is important. Nevertheless, like all suggestions listed here, it’s not a sewn-on certainty for a good return.

Several galleries and collections warrant attention for this type of investment. In America, there are the Pace Gallery, the Gagosian Gallery or the David Zwirner Gallery. In addition, several municipalities  and universities[2] have committed funds to investing in art so it may be worthwhile to see where their money is directed.

Invest in emerging markets
Emerging market bonds and shares are taking something of a battering these days, so there may be less people in the galleries and auctions of Shanghai and Mumbai than there may have been just a short time ago. This may present opportunities for good long-term investments in art.

The literature on art investment is laden with stories on the growth of the Chinese market in particular. Even after considerable growth over the past decade, most agree there is still room for demand for art works to increase substantially over the coming years. Sothebys and Christies commencing business in emerging markets (China and India in 2013, Brazil in 2014) is also a positive signal.

The main risk of this approach is a lack of information and that the market will fall out. Older investors will recall the art boom in Japan (albeit not an emerging market at the time) in the 1980s and how many purchases were made well over the odds. The best approach, as always, is to use a good adviser or dealer who can steer the investment towards bargains.

Geographical arbitrage
For investors willing to put in the hours, this particular strategy of art investing can be the most lucrative strategy of investing in art of all. This particular strategy is likely to lose its lustre with the rise of the internet, where anyone looking to sell a painting can immediately reach millions online.

The method basically consists of purchasing works of art at regional or out-of-the-way auction houses and selling them on for profit at auction houses with bigger fish. The example springs to mind of a Rodin Sculpture purchased in 2009 for $4.3m and sold under a year later for $11.8m at Sothebys.[3]

Needless to say, this strategy pays off most because it’s arguably the hardest to pull off of all. It’s not as simple as driving to a car boot sale on Sunday and taking the painting to Christie’s the following morning for millions in profit. Nevertheless, it can happen so qualifies as another strategy for investors to consider.

Invest in auction Houses

Technically, this is less “investing in art,” and more a means of “making money from art,” to make a small distinction. However, with at least one publicly-listed auction house now trading on a major stock exchange, this represents a relatively low-cost way of capitalizing on a booming art market in the short-term while the newly-minted art investor carries out research on which end of the market to enter. We discuss this in further detail in the next section.

Trends in art
Trends in art change quickly, so bear that in mind every time a so-called expert tells you what’s “hot” at the moment. Fashions in the world of art can be very fickle. It’s the nature of a market where a piece is only as valuable as the next dealer says it is.

The example of “Young girl seated at the virginals,” by Vermeer is a case in point. The piece came to auction in 2004 with a guide price of $3m.[4] However, with Vermeer being highly en vogue at the time, driven by the success of the international best-selling book, “girl with a pearl earring,” the piece ended up being sold for $30m.[5]

Pricing works of art, as the above example shows, is difficult to say the least. This poses many dilemmas from an investment perspective. Whereas many market analysts use the Mei Moses Index for pricing, we would advise extreme caution in doing this due to the usual reasons (liquidity, selection bias, etc.). However, the Index has its use as a tool for analysing trends at the upper end of the market.

Michael Moses, co-founder of the Mei Moses Index, often provides fair and seemingly unbiased opinions on trends witnessed on index. One piece of advice he provides is, “low-priced art tends to outperform high-priced art.” In late 2013, when pushed about what trends currently exist in art, he stated, “post-World War II contemporary paintings and Chinese works have been doing well for some time.”[6]
Mei Moses: This is what a frothy market looks like.
However, even Mr. Moses’ description of what trends exist in the market is a little vague. The art market is so vast that, to be fair, it can be difficult to pin down a trend at the best of times. From a financial perspective, Michael Plummer, a founder of ArtVest, suggested a novel approach in a round-table in the Wall Street Journal[7]:

“We think it is better to look at returns on art coming about from variances in demand for capital. Except in times of market dislocation, art is not correlated with equities markets, and to some extent tends to languish when the global economy is expanding and the demand for capital in corporate infrastructure is high.”

Whether Mr. Plummer is correct or not, is a matter of debate. We would caution against searching out too many trends in data, where relationships and correlations can always be found if searched hard enough for. For clarity, we believe that the art market can be divided into pieces under $1m and pieces selling for over that amount. We set out the reasons for this below.

Reasons for segmenting the art market for analysis
The main reason we divide the art market between works being sold for under $1m and those sold for over $1m is that there is such little crossover between the two. To provide a simplistic analogy, the former market is like the market for second-hand hatchbacks while the latter is like the market for Ferraris and Porsches.

The two categories’ markets are therefore subject to different trends in their own right (which we shall examine further later in this document). And what works in one market will not necessarily work in another. Likewise the market for cheaper pieces is becoming more and more liquid, while the market for higher priced pieces shows no evidence of increased liquidity (there are higher prices paid but not increase volume of transactions).

The market for high-priced pieces is still quite volatile and we predict a 10-20% fall-off in prices (on the Mei Moses Index) in 2014 (although take these figures with caution), while the market for lower priced pieces, increasing in depth as it continues to do, is becoming less volatile and resembles more of a traditional secondary market. And while more than 50% of higher-priced pieces are sold through private sales, while almost all lower-priced works are sold publicly.

Finally, a major (but often not considered) difference between the categories is the amount of innovation that typifies each. Art works which cost over $1m are dominated by established artists, often conveniently fitting into a specific genre of art and possess a range of contemporaries against which sales can be measured. New artists, on the other hand, often don’t fit any particular category and tend to innovate more with their art. Their works are sometimes difficult to value and divide opinion before becoming mainstream (also, if they do become mainstream, it’s likely their art will have appreciated far more than their on a percentage basis than the more established artists’ works).

For the reasons outlined above, we have decided to divide the art market into two broadly-defined categories when analysing currently-existing trends and where we see the markets for art investing heading.

Trends in high-priced art (>$1m)
“I don’t approve of what Wall Street and the wealthy have done to this country, but they are the very ones buying my paintings.”[8]

The above quote from contemporary American painter Scott Kahn illustrates why it’s important to divide the art market into (at least) two markets: those at the upper end of the market and the masses. If it wasn’t for Italy’s merchant classes, Arab Sheikhs, Russian oligarchs and assembled investment bankers, the art market would take a very different complexion.

It’s important to keep this is mind when looking at a respected art-price Index such as the Mei Moses Index (see performance below). From the outside, the index tells us everything and nothing. We can see that the art market index has grown by over100% since the end of 2002 (against 175% for the S&P 500) but what does this mean?

Reproduced from Financial Times
Broadly speaking, it means that mid- to upper-market pieces, above $1m have been doing well. Unlike a stock-market index, the Mei Moses Index isn’t weighted, so if one piece were to sell for several billion dollars, the Index would show incredible growth over a year, even if only the owner of the piece reaped the rewards.

Digging down into the data provided by Mei Moses, one can tell a little more about prevailing trends: The website provides available data on 5 separate categories of art. These are traditional Chinese works of art, power-war and contemporary works, impressionist and modernist and old master and 19th century works (see below).
Reproduced from the Economist

From this, we can tell a little more about the upper end of the market. Firstly, traditional Chinese works of art and post-war and contemporary pieces have been driving the market for ten years now. It’s tempting for an onlooker to think that impressionist and modern pieces and old master and 19th century pieces aren’t doing as well, but we can’t know for sure: perhaps they didn’t come on the market in the same volume as the other pieces (in fact, we can almost say this with certainty).

For these reasons, the Mei Moses Index and others are to be used as guidelines for investors, but not absolute maxims.

The greatest trend at the higher end of the market is modern art
Modern art is something of a catch-all expression, but it most often refers to post-war artists, including contemporaries. As the Mei Moses Index shows, this market has driven the higher-end of the market (and the lower end too) since the beginning of this century as the masters and historical pieces come to market less and less frequently.

The modern art movement is now so large as to no longer be considered a fringe movement. When people ask, “what is modern art?” The answer from an investment perspective, should be “huge.” As one Los Angeles-based dealer told the Economist, “The interest in contemporary art is much broader, much richer and much deeper than it was when I started out 30 years ago.”[9]

Sales of contemporary art are now global in their very nature and the prices reflect it. Most large cities possess a modern art museum of some shape or other and artists like Andy Warhol and Damien Hurst are household names. If you don’t know the artist by name, you’ll likely know their pieces upon seeing them. Jeff Koon’s “Balloon Dog" is one of a set of five and its owners include world famous art investors such as Eli Broad and François Pinault. Christie’s recently sold the orange edition for just under $60m, a record price paid for a piece by a living artist.

The growth of modern art galleries also reflects a growing interest in the genre, even by the mainstream public. Modern art galleries now regularly feature on the agendas of holiday-makers in cities everywhere. The visitor figures for some of the bigger galleries (see below)  only serves to raise the profile of existing modern art pieces and raise the growth potential of those coming on the market. It begins to take on something of a virtuous cycle: more visitors, creates more interest, which leads to further modern art galleries and exhibitions.


As previously stated, most of the old masters and impressionists are already claimed and sit in museums, billionaire collections or foundations, (which also serves skew the market in favour of contemporary pieces by taking these out of the equation). Since 2009, sales in the contemporary segment have grown 2,000% to $6 billion by one estimate at Arts Economics[10]. And as more of these are taken up by the museums above, prices, in theory at least, rise on the remaining pool of available pieces.

The primary contemporary sales primarily happen once a season, the biggest being in spring. In 2013, Christie’s, the dominant contemporary art market dealer in the upper priced segment, sold $495 worth of contemporary art – a then record and effectively announcing contemporary art as having arrived on the upper end of the market.

Looking inside modern art

Without getting too specific, it may be worthwhile to examine some of the trends within the trend: what’s selling particularly well in modern art at the moment. The major concern about investing in modern art is that it can be so fickle. Whereas Michelangelo is unlikely to ever go out of fashion, can the same really be said of Francis Bacon?

One Guardian article[11] points out, “as recently as 10 years ago, the highest auction price for Francis Bacon stood at $8.5m.” In late 2013, Tryptych, a Bacon piece, sold for $143m, a record price but also a landmark in modern art. It represented a shift in the big money towards pieces which not long ago would have demanded reasonably modest amounts.
T
he Artnet Quarterly Report is essential reading for investment in art at the upper end. For anyone wishing to look at trends inside contemporary art at the higher end of the market, it is a must-read. Its report for Q4 2013 shows that the market has inceased depth (based on the fact that China and UK sales were down considerably on 2012 and yet overall sales were only fractionally down) It’s list of the biggest sellers of 2013 tells its own story for post-war and contemporary art and the trends happening within it:

“The top 20 artists in 2013 by value sold at auction include Andy Warhol (2013 sales of US$427.1 million), Pablo Picasso (US$422.8 million), Zhang Dagian (US$320.6 million), Jean-Michael Basquat (US$422.8 million), Qi Baishi (US$265.6 million), Francis Bacon (US$219.8 million), Gerhard Richter (US$189 million), Roy Lichtenstein (US$160.9 million), Zao Wou-Ki (US$158.3 million), and Claude Monet (US$157.1 million).

Interestingly, Artnet has also released data on the most searched artists on its website[12] (providing a proxy into the interest in an individual artist.) With the exception of Picasso (who could also be classed as modern, but more commonly falls under surrealist), every one of the artists on the list was from the contemporary and post-war category. 

The list is as follows:

1.    Andy Warhol
2.    Pablo Picasso
3.    Banksy
4.    Roy Lichtenstein
5.    Michael Dweck
6.    Jean-Michel Basquiat
7.    Keith Haring
8.    Marc Chagall
9.    Vik Muniz
10. Alexander Calder

What’s interesting about the list, from the perspective of any onlooker, are the narratives that exist around all these artists. From Warhol and his often-quoted line about fame, to Banksy and the publicity his works generate despite his own anonymity to Vik Muniz, the Brazilian celebrity painter who made an award-winning film, to Alexander Calder, the artist who died at the age of 27. Narratives are important in most art and modern art is no different. It’s something for investors in modern art to keep an eye on: people look for a story behind a piece as much as what’s on the canvass.

The inevitable downturn?

It takes no great stretch of the imagination to suggest that the surge in modern art prices has been driven to a certain extent at least by speculation. The extent of decline in modern art prices will be more or less directly proportional to the extent that speculation increased prices in the first place. It is our contention that there will be a slight fall off in the market in the coming two to three years, as it has seen unprecedented growth in the past fifteen and a return to equilibrium is called for.

When prices rise 2,000% in little over 10 years as has happened with the modern art market, the market is almost certainly experiencing a sustained economic bubble. According to a Forbes article[13], one unnamed Christie’s executive said that we have reached “a new era in the market.” When talk like this appears, investors should be very weary. Experienced stock market investors run for the hills when they hear the notorious expression, “this time it’s different.”

A dedicated site to art dealing, artbusiness.com, puts it rather bluntly[14], “you have people who love art and you have people who love money. The people who love money will exit the art market the moment it goes south. In this current incarnation, those money lovers will either be forced out due to lack of funds or will get out when they realize that they can’t liquidate their “assets” like they thought they could, the upshot of which will inevitably precipitate a rather unpleasant downward price spiral.”

Earlier, we mentioned that artnet provide details on the most searched artists on their website over the course of a year. Internet search data is increasingly being used to track trends in interests over time and for the purposes of objectivity, it is only right to include a more negative search trend that merits mention. Internet searches on Google for “art investing” (see below) have fallen consistently since 2007.



This doesn’t mean that art investing is becoming less popular over time. It’s merely another metric – this one readily available – for art investors to use to gauge interest in various art-related subjects.

Does Sothebys offer a safer route for investing in art?

At the end of the market we have been discussing until now, Christie’s of London is the undisputed current champion. In the spring auctions last year, it outsold Sothebys by $200m. Nevertheless, Sothebys is still the second largest auction house and its two centuries-old reputation gives it leverage that other auction houses envy.

For the purposes of investing in art, Sotheby’s offers an interesting alternative route to the high-end of the market – through the stock exchange. Sotheby’s has been listed on the NYSE since 1977. Therefore, instead of purchasing an Andy Warhol piece, an individual looking to dip their toes in the higher end of the art market can instead purchase shares in Sothebys, following the age-old maxim, “if you want to make money from gambling, buy a casino.”

The evolution of the share-price is as follows:



Note the growth since 2009 has been quite impressive – around 400% in around 4 years. The stock market being what it is, most of the potential growth from future auctions in China and India will also already have been factored into the current share price (at time of writing, just under $48 per share). That said, had investors bought Sotheby’s stock two years ago, they could have locked in returns of around 60%.

Emerging markets come to the fore

The current boom in contemporary and post-war art is in large part driven by new capital emanating from emerging markets. China in particular, has entered the investment grade art world in quite dramatic fashion, overtaking the United States to become the biggest spender on art by country in the world, according to the Mei Moses index.

Trends in affordable art (<$1m)

"I was very embarrassed when my canvases began to fetch high prices. I saw myself condemned to a future of nothing but masterpieces."
Henry Matisse, French Impressionist

Art is one of the few mediums which the digital revolution hasn’t changed irrevocably. Whereas the internet has led to a dramatic fall in prices as well as access to new markets across the board in retail, art has seemed impervious. However, we believe that this is about to change and with it, the market for lower-priced pieces of art will undergo a revolution.

According to a report released in 2012 by the European Fine Art Foundation (TEFAF), just 10% of the art trade is online. This statistic is often touted around by those that don’t believe in art sales moving online (most of whom have an interest, presumably, in it staying offline). However, a statistic which points more in the direction of an online future for the industry is that 45% of Christie’s online traffic is new buyers.

Online websites such as Artsy, Artfinder, Artsicle and Paddle8 are turning the traditional market on its head and at a startling pace. In case anyone doubted that this is a fad, it is also backed by smart money. Artsy’s private equity backers include Jack Dorsey, founder of Twitter, Eric Schmidt of Google fame, Peter Thiel, a renowned venture capitalist, Darya Zhukova (better known as Mrs. Roman Abrahmovich) and other well-known venture capitalists[15]. Because of these backers and the potential of the business, it can also call on the biggest art moguls for advice on works.

Artsy’s statistics are impressive. Its annual report for 2013 was released at the end of January 2014. It currently hosts 90,000 images with over 50,000 individual works being for sale (including pieces held by galleries and benefit auctions). In 2013, it attracted over 2 million viewers from 180 countries and has a membership of over 215,000. Other statistics abound. The report states that the “average distance between a buyer and seller was 2,086 miles,” to the horror of car boot sale bargain hunters everywhere.

At its outset, it had partnerships with around 250 galleries and 50 “museums and institutions”. Today those figures have swelled to nearly 2,000 and 200 respectively. The site also has also begun to collaborate with well-known art fairs and featured 17 in 2013 including Art Basel, Freize London and the Armory Show.

In keeping with its more traditional peers’ behaviour, Artsy is still very coy with its sales figures. Its annual report only provides a few clues to the extent of its progress on the sales front. One of its sales tools is to introduce collectors to galleries when collectors express an interest in a work of art. The figures for these introductions (where the seeds for art sales are sown) grew exponentially in 2013 (see below).


While several thousand pieces sell for under $1,000, over 100 works are available for $1m or more. The site also uses sophisticated algorithms to match viewers tastes to pieces available for sale. By viewing Picasso (to take one simple example), the algorithm will lead the viewer to other artists such as Kandinsky, Dali and other less well-known artists (using budget, art genre and other filters as required).
The ease of use of the site makes it difficult to wonder why it hasn’t happened long before now. We suggest that the art world (at the lower price level, at least) may be at the same place that online book selling was around 10 years ago. In fact, the comparisons between Artsy and Amazon are all too easy to make. A single piece of art can be viewed (see below) just like books. The only difference is that investors don’t have a “rate this piece of art” element such as that at Amazon.

The site is also being credited with bringing some long-overdue transparency and liquidity to the art market. By bringing collectors to pieces similar to their own tastes, they are more likely to make a purchase. The hope is that the honour system that Artsy operates with galleries and collectors (sales are ultimately made off-site) will eventually lead to a huge database from which prices are more regularly accounted for than at the moment and the art market can finally begin to resemble a secondary stock market.
On a much smaller scale – but no less interesting – is artgallery.co.uk. This online resource offers an excellent view of what is currently selling and where in the UK. The site isn’t as sophisticated or as well-stocked as Art.sy but it does point to the rising use of online media as a means of selling art and features several best-selling and up-and-coming UK artists for those who wish to invest locally instead of internationally.
Predicting the future for internet art purchases

A 2013 report commissioned by the international specialist insurance group, estimated that online sales of art today account for around 2% of the total market but will increase by 150% by 2017.[16] Their figures show that the online market will be around $2.1 billion by that time. This strikes us as far too low an estimate. Amazon.com regularly records quarterly revenues of over $20bn. Nevertheless, it does show much space there is for the market to grow.

It seems logical that galleries should seek to move content online. As shown above, new sites like art.sy have proliferated and will no doubt continue to grow. Amazon.com has also teamed up with nearly 200 galleries to exhibit their works. When one considers that Amazon had sales of $75bn in 2013[17], it’s not difficult to see that galleries can reach a lot more paying customers than by having a bricks-and-mortar store alone.

According to the same international specialist insurance group report, 72% of galleries surveyed said that online sales were mostly aimed at new collectors – a younger demographic than is typically associated with art purchases. In addition, 43% of art buyers aged between 25 and 29 said they had already acquired art online and 67% said they would do so again in the future.

We can certainly expect to see more forgeries in the short to mid-term. Amazon.com offers no assurances of provenance or authenticity, which means that a painting being sold could be the Rembrandt its seller claims it to be, or it could be the work of a talented fraudster. As the market becomes bigger, these difficulties should be ironed out with. Remember, that Amazon was several years in operation before it made a profit (credit card forgery was considered a huge obstacle to online purchases at the time).

In the same survey, 80% of respondents said that authenticity and provenance of works of art were the biggest hurdle before online art sales can finally take off. We believe this to be short-term myopia. The high-margins on art works in galleries are a perfect example of where the innovative destruction of the internet takes hold. People already spend thousands online every year on items they wouldn’t have considered ten years ago – for the same reason they don’t currently purchase art.

The winners of the online rush to sell art (and it is a rush, make no mistake) will be the galleries that leverage their reputation best. When the Saatchi Gallery makes claims about a work of art, it is staking its reputation on the truth. It already has an online presence and nobody doubts the authenticity of what they provide. This is only the beginning. We estimate that the online art market will be far larger than $2.1 billion in 2017. There will be great opportunities to invest for those who are well-informed.



[2] Diverseeeducation.com cites the example of Ohio State University investing as much as $200m over the next decade with the intention of making Columbus a world-class centre of the arts. Several other examples abound.
[3] Artvest



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