Why do collectors buy art? Some collectors say they experience a gut reaction, a rush of excitement and a feeling that the work has to be obtained at all costs. Instinct is a good indicator about whether to buy the work or not. Some collectors buy for the love of the artwork; the subject matter resonates with them in some way. There is a great pleasure in owning a work of art that another individual has spent a long time creating. Not only does the collector own something of value emotionally but investing in the artist’s career is very satisfying. There can be tremendous influence over an artist’s career in the sense of being a patron.
Financial motivation has also become an increasingly popular reason for owning a work of art these days. In a good year, for some artists, art can give a higher rate of return than the stock markets. The abstract painting “Abstraktes Bild (809-4)” by Gerhard Richter, the German contemporary artist, acquired by Eric Clapton for $3.2m in 2001, sold for $34m at auction (Sotheby's) in 2012. Those returns are difficult to find by investing on the stock market.
However, on the whole, art has lower returns (7 – 8%) and a higher volatility (just over 20%) when compared with the annual returns of silver, wine and gold according to Joe Roseman, former head of economics at Moore Capital Management, who coined the phrase “SWAG” in 2011 standing for Silver, Wine, Art and Gold to describe assets that “had performed especially well over the last decade or so, despite two very deep recessions”. His book on the subject was published in 2012. (“SWAG: Alternative Investments for the Coming Decade”)
The number of wealthy individuals has been growing over the past decade and this group of people have consistently been putting a proportion of their wealth into their passions, instead of into stocks and shares. According to the 2013 Capgemini and RBC Wealth Management “World Wealth Report”, the greatest proportion of high-net-worth-individual (HNWI) wealth was kept in cash and cash equivalents (28.2%), followed by public equities (26.1%), with 10% reserved for alternative assets, which included art. This went up to 13.5% in 2014, while cash and cash equivalents went down to 26.6%.
“...art has performed especially well over the last decade or so, despite two very deep recessions”
Art is something that people are prepared to pay for and a whole industry has grown around art with auction houses, galleries, curators and many more activities all offering a service either to collectors or artists. In 2014 global art sales reached their highest ever-recorded level of £37 billion worldwide. That’s a 7% increase each year since the pre-recession level of £35 billion in 2007 according to the annual report by Arts Economics and published by the European Fine Art Foundation (TEFAF) in Maastricht, The Netherlands*.
Social prestige is a third reason for collecting art. The art world is full of celebrities these days and regularly partners with the fashion and luxury industries, particularly for contemporary art. The number of exclusive VIP events at contemporary art fairs has grown substantially over the past ten year, such as Frieze in London, and Art Basel in Switzerland. In fact, a whole new social calendar of annual events has emerged at which to be seen.
In the end, it would appear that collectors mainly collect art for the love of owning the work. Based on research conducted by Deloitte and ArtTactic in 2014, “Seeing the Bigger Picture: Art, Collectibles, & Wealth Management”, 83% of art collectors they surveyed said the emotional value of buying art was their key motivation, followed by the social value for 60% of respondents. Other important drivers to buying art were investment returns at 40% and inflation hedging at 25%. The report concludes that “emotional and social value, potential to outperform equity markets, and inflation hedge are the key drivers for HNWIs to invest in art”.