Nigerian Stock Exchange Chief Executive Officer, Mr Oscar Onyema says though the art industry is worth over $3 trillion, with a yearly $30 billion turnover, investing in it is not as good as investing in property, land, bonds, equities or precious metals. Assistant Editor (Arts) OZOLUA UHAKHEME reports.
The guests at the 10th Ben Enwonwu lecture titled: Arts as an alternative investment, held at the Taraba/Rufkatu Hall of the Wheatbaker Hotel in Ikoyi, Lagos, were at home with the topic. So, also was the guest speaker, the Chief Executive Officer of the Nigerian Stock Exchange (NSE), Mr Oscar Onyema, who was conscious of the expectations of the mixed audience- artists, investors, collectors, stock brokers, auctioneers, gallery owners, among others.
Onyema said art is no longer appreciated for its aesthetic value and the expression of its lofty ideals as it is more than ever before, considered an investment.
He said the amount paid for certain art pieces have attracted global attention. As an object of investment, art has become, particularly alluring. He cited Ben Enwonwu’s Seven wooden sculpture sold for £361,250 and Mystery for £300,000 and Edward Munch’s The Scream for nearly $120 million as examples of some of such art pieces. Art, according to him, has become the new hip, must-have investment.
He said art as an investment has an increasing demand, coupled with an absolutely limited supply, and the ability to survive the economic downturn.
“Art as an asset is in a class all of its own. As assets are grouped together based on the characteristics of their underlying companies, art is grouped based on the period in which it was made, the artist (whether they are living or dead), style and medium. Art acts as an asset because it is owned and holds monetary value, and it can be exchanged for such a value. The main attraction and the prime reason for the resurgence of art as an investment is its low correlation with other financial assets,” he added. He however cautioned that putting money into art is not as straightforward as investing in property, land, bonds, equities or precious metals, such as gold.
Onyema listed nine characteristics of arts that make it a high risk investment. He said:
“•Art is a heterogeneous product, artworks are unique,
•Loyalty to an artist is low, and the perceived value of the product very much depends on an art dealer’s taste,
•There is a lot of competitive pressure in the industry, and barriers to entry are high due to high fixed costs.
•Costs of exiting the industry are also high, as it is difficult to liquidate assets.
•There is a mutual interdependency between firms, dealers and art fund managers. (The big three auction houses–Christies, Sotheby’s, Philips –are said to be price-makers and not price-takers.)
•The art industry tends to compete on uniqueness of artwork, not on price.
•The price of art within art markets is affected by uniqueness of product (the work of art), limited supply of works by the artist, production and sales costs, the market, and the macroeconomic environment.
•The issue of value is often subjective, because of its heterogeneous nature and
•There is an inelastic supply for art, since most tradable art is trapped in private collections.”
He noted that despite the emergence of new products such as securitisation of artwork, structuring of private art collections into funds and other collective schemes, art financing–extending credit using art collections as collateral and art financing that guarantees minimum sales prices at auction, in practice, perfect knowledge of market never exist.
“The art market can be characterised as highly uncertain, and knowledge is scarce. The imperfections in the market, thus, become a tool of competition,” he said.
According to Onyema, the dividend from art is the enjoyment the collector gets from it because it does not pay dividend. “But you find increase in valuation of art over a time. It is the equivalent of what you get as dividend in stock market. Investing in art is very risky and volatile. And there are many things that go into what make people collect art,” he said.
Onyema pledged the support of NSE for the establishment of an Art Fund, noting however, that the exchange is not the platform for its establishment because it cannot be quoted on the exchange.
He said some of the advantages of the fund include that it allows access to art expertise, insider knowledge of the art market, low transaction costs if you are an investor in the fund, due diligence services, good advisory services, and the potential for higher returns. However, he identified liquidity, pricing, performance, costs, track records and conflict of interests as some of the disadvantages.
He observed that participating in art fund gives access to co-investment and adds diversification to a portfolio. “But due to the high volatility of art’s value, it is necessary to invest over a longer period to adequately hedge.
“•Understand international factors affecting art such as exchange rate movements, cultural factors affecting art and market preferences.
•Rising demand for artworks and increasing prices are driven by increasing global wealth.
•Artwork in the lower price categories react negatively to economic slowdown –demand drops while supplies increase, thus forcing selling.
•Artworks in the top price categories hold up well during weak economic environments.
•Art prices tend to have a positive correlation with inflation.
•When the stock market is in a downturn the art market booms –investor appetite shifts to tangible investments,” he added.
