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Investments

Collecting Contemporary art involves supporting artists whose price structures are still under construction and whose offer (the number of works in circulation) is likely to evolve. This makes the prices in the Contemporary art segment more volatile than for the artworks in previous artistic periods, which in turns makes the segment the most attractive and the most risky in the Art Market. Sudden surges in prices explain the fascination of collectors for this market; but the real financial interest of a portfolio of Contemporary works usually takes a relatively long time to emerge, i.e. when the unrealised gains have definitively outweighed the uncertainties.

Price explosions are usually due to two complementary phenomena: the emergence of new artists and the elevation of big names to the rank of art market icons. The risk of market contractions and periodical price adjustments has not (and does not) slow the growth in the number of art collectors.

Given these macro and micro-economic realities, the Art Market, particularly over the past 18 years, can be considered a safe haven in the face of economic and financial turbulence, generating substantial and recurring yields. At a time when Central Banks are effectively practicing negative interest rates that are literally destroying the population’s savings, the art market is showing insolent health with its Contemporary segment showing a 1,370% increase in annual turnover over 16 years. The result is a strong linear progression of the average value of a Contemporary artwork by 115% over the same period, i.e. an average annual return of +4.9% that even reached +9% for works purchased above the $20,000 threshold.

Auction market recognition

The early 21st century has witnessed the entry into the pantheon of art history of a group of artists born in the 1940s, 1950s and 1960s. Integrated into the most prestigious collections, exhibited in the best museums and supported by influential dealers, these artists have seen their prices soar, reaching highs previously reserved for great masterpieces.

While these artists have not quite acquired the same aura as Old Masters, the stars of the Contemporary art market benefit from a media exposure and an originality that exalts bidders. Over the years, their best works have become icons of Contemporary art and when these icons resurface at auctions nowadays they encounter demand on a completely different scale.

Value accretion of a selection of Contemporary artworks

PURCHASE SALE
Artist Work Price Year Price Sale
1 Richard PRINCE (1949) Untitled (Jokes) (1989) $26,500 1993 $4,757,000 10 May 2016 Christie’s New York
2 Jean-Michel BASQUIAT (1960-1988) « O.M.R.A.V.S » (1984) $77,400 1995 $3,610,000 11 May 2016 Sotheby’s New York
3 Felix GONZALEZ-TORRES (1957-1996) Untitled (L.A.) (1991) $162,521 1998 $7,669,000 10 Nov 2015 Christie’s New York
4 Rosemarie TROCKEL (1952) Made in Western Germany
(1987)
$57,260 2000 $1,805,000 08 May 2016 Christie’s New York
5 Thomas SCHÜTTE (1954) Melonen (From the Series
Obst Und Gemüse)
(1986)
$2,335 1993 $43,081 02 Jul 2015 Sotheby’s London
6 LI Huayi (1948) Landscape with Tree (1998) $18,508 2000 $288,960 05 Oct 2015 Sotheby’s Hong Kong
7 Keith HARING (1958-1990) « Untitled » (1983) $47,996 1990 $754,000 12 May 2016 Sotheby’s New York
8 Sudhir PATWARDHAN (1949) « Tree » (1995) $5,693 1999 $100,000 15 Mar 2016 Sotheby’s New York
9 Günther FÖRG (1952-2013) Untitled (1987) $26,039 2012 $437,965 28 Jun 2016 Sotheby’s London
10 Jean-Michel BASQUIAT (1960-1988) Untitled (1984) $21,441 2000 $245,000 11 Nov 2015 Christie’s New York
July 2015 – June 2016 / © artprice.com

This past year, the avant-garde œuvre of Richard Prince provided another stunning example of the speed and intensity of this transformation. His painting Two Leopard Joke (1989), acquired for $26,500 in May 1993 at Sotheby’s New York, sold for almost 180 times that price just 13 years later. Of course, no-one could foresee the place that Richard Prince’s work would be given in the history of Contemporary art. In fact, his price index only really began to take off in 2003.

Price Index for Richard Prince and Günther Förg

Price Index for Richard Prince and Günther Förg - Base 100 in January 2000

Base 100 in January 2000

Another outstanding result recorded this year highlighted the impact of the death of an artist on his/her prices. Drawing to a close the artist’s production, the disappearance of an artist can have the effect of triggering a sudden surge in market interest, as was recently shown in the case of Günther Förg who died in December 2013. In 2012, a year before the painter’s death, his Untitled (1987) was acquired for $26,000. In June 2016 the same work fetched no less than $438,000. While the gain is less impressive than that recorded for Two Leopard Joke, the speed of the operation makes it nonetheless remarkable: equivalent to an annual growth rate of +102%… The value of the work more than doubled every year for four years!

Price construction

Nowadays, more than ever before, any “news” about an artist can have an immediate impact on his auction prices. Today, both supply and demand take into account all available information, which sometimes significantly impacts an artist’s price structure.

Among recent examples, that of Joe Bradley (b. 1975) is particularly striking. Having received substantial exposure in 2011 on both sides of the Atlantic with the Almine Rech Gallery and Gavin Brown Enterprise, his works were suddenly in auction sales everywhere. Whereas his annual turnover was around $100,000 in 2010, by 2015 it had risen to $10 million.

Auction Revenue for Joe Bradley (1975)

Auction Revenue for Joe Bradley (1975) - 2000 – H1 2016

2000 – H1 2016

Market corrections

The extraordinary profitability of certain signatures is inevitably counterbalanced by the slowing market for many other artists. The current period of hesitation has led to significant adjustments in prices, which the faster they rose, the faster they can fall. With hindsight, however, the correction appears to be a “fair” return to prices corresponding to an art market that is nowadays “efficient”.

Among those who appear to have suffered is the generation of artists born in the 1980s for whom collectors eagerly wrote large cheques between 2010 and 2014. Jacob Kassay’s (b. 1984) painting Untitled (2010) fetched $125,000 in May 2014, but only $50,000 on 11 November 2015 at Christie’s New York (-60%).

At the same sale, a steel sculpture by Jeff Koons, Jim Beam-Box Car (1986), sold for $845,000 a fabulous amount for this small three-edition sculpture, but a disappointing result compared to its former purchase price of nearly $2 million in May 2008, just before the subprime crisis.

This impressive depreciation proves that the stars of the Contemporary art market are not immune to correction. Some works by Jean-Michel Basquiat may even have been overpaid. Among them, Untitled (Head of Madman) (1982) acquired in New York in 2013 for just over $12 million, recorded a loss of $3 million in February 2016 at Sotheby’s London.

Long-term growth

Fortunately, the Contemporary art market remains a profitable investment over the medium and long term. Despite various adjustments, the price index shows that the sector has maintained the vitality it acquired in the early 2000s. Its turnover growth of +1,370% in 16 years speaks for itself.

Price Index – Contemporary Art vs Global Market

Price Index - Contemporary Art vs Global Market - Base 100 in January 1998

Base 100 in January 1998

The Contemporary art market’s price growth was interrupted for the first time (this century) after the financial crisis of 2008 and it has been seeking to balance itself ever since in two to three year cyclical periods. While it still generates the occasional strong result, 99% of its transactions are beneath the $400,000 threshold. In short, the solid progression of Contemporary art prices essentially covers a wide range of price levels ranging from $10,000 to $400,000.

Price structure of the Contemporary art market

Auctioned lots percentage for a price inferior to
100% $57,285,000
99% $403,731
98% $183,789
97% $113,143
96% $81,250
95% $62,664
90% $27,802
80% $10,572
70% $5,282
60% $2,909
50% $1,629
40% $960
30% $575
20% $342
10% $176
July 2015 – June 2016 / © artprice.com

When a collector buys a work of Contemporary art it is in the full awareness that he/she cannot know what place art history will give to the artist who created it. However, the last fifteen years have shown that a well-diversified portfolio of Contemporary artworks should generate an annual yield of around 5.6%, well above the 2.3% yielded by the art market as a whole.


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