How India's Ultra-rich Intend to Turn Their Passion for Art into Investment
Art has always been looked at as an important part of a family's investment portfolio
From a land that has produced the likes of M.F. Husain and Francis Newton Souza, it comes as no surprise that Indians have an affinity for art. Centuries ago, the royals got their portraits done that sell like hot cakes even today. Thus, art has been more and more making its way from galleries and museums into people’s homes.
But for the artsy, it has turned out to be an investment opportunity. Though restricted to the elite, buying art collectibles has been a growing trend in India. The wealthy business families, with a flair for art, have long been investing in art not just from Indian but also from international artists. So, when it falls to the hands of their family offices for choosing their investment portfolio, art becomes a natural choice.
The Art Bazaar
The Indian art market has seen quite a few ups and downs. The genres of paintings have undergone a change and prices revised and re-revised over the years. Gallery owners and art enthusiasts have been noting this trend over the years.
“In 2008-09, the contemporary art space in India witnessed a flood of investments. There was a huge hype around the same and it also led to the creation of many art funds (funds where people pool in money and the investments are made in art). Several auctions on contemporary art were held that year. However, things started changing quite a bit. The bubble burst and the prices began to fall. The art funds were sitting on a lot of inventories, which further put pressure on prices,” said Lakshmi Nambiar, an investment banker, who now runs the Shrishti Art Gallery in Hyderabad.
However, things have taken a turn for the good, again. Nambiar stressed that the market has now stabilized and there has been a shift in the kind of art people are investing in. “Given a choice between emerging artists and established names, people have started preferring the works of more established artists and especially the masters,” she said.
A Passion with Eye on Investment
Art has always been looked at as an important part of a family’s investment portfolio. However, families investing in art are mostly the ones who have an understanding of the subject.
“Art is purely a matter of passion with most families. They started building a collection more because they liked collecting art pieces, rather than the investment motive. With Indian art getting a lot of interest at auction houses, these collections started to get valued and added to the portfolio,” said Munish Randev, Chief Investment Officer, Waterfield Advisors.
An Artsy Risk
Even though there is a growing market for art investments, it still has a long way to go. “Very few from among the families we manage consider art as their investment option as this market still has to mature both from an angle of valuations and from understanding of the market dynamics. While there has been a small effort by some individuals to provide access to art via a fund route, those have been plagued by problems regarding transparency, governance and conflict of interest. Hence the only way most families can invest in art today by physically purchasing from either direct artists or at auctions. There’s still a long way to go before we call it an asset class of importance,” said Randev.
As a gallery owner, Nambiar receives a lot of queries related to buying of art. But, she has also seen an inherent problem in the same. “Art is very subjective. You can’t determine its value, so it requires an understanding of the artist and his/her work. So, you end up looking at the value of the artist in the long term,” she said.
A Closed Circle
Art investments usually take place in closed circles. From his experience in investments, Randev has noticed that many families have large collections and these families are usually inter-connected. “The ecosystem of serious art collectors is not a very large one. A few individuals do act as brokers or valuers of art but beyond that there is not much. Add to this, the collection has a cost of maintenance and also cost of storage, which includes temperature, humidity and dust controlled locations. On the flip side, since this is still a nascent market in India with few serious players the upside potential in valuations is large,” he said.
While Nambiar, too, agrees that art investments are at an early stage in India, she predicted the future to be bright. “Art is a good inflation hedge over time. Also it allows collectors to combine passion with investments. I believe that any diversified portfolio should have at least 5 to 7% investment into art,” she concluded.