✅ Experts in Every Investment: Art
To celebrate our first art exit, we decided to get into a conversation with our art expert and partner about the limitless world of art investments.
Our Chagall, selected and validated by our partner Artemundi, was successfully exited last week with a much quicker time horizon than initially projected. Marc Chagall’s “The Sleep of Love” (Le Sommeil Amoureux) from 1956-1957 generated exceptional returns and reached the optimistic scenario of year 2 after just 1.5 months. 640 Splint Invest users benefited from a 15.4% realised gain. During the same period, the S&P 500 recorded a value increase of 5%, while traditional stock indices such as the SMI and Gold experienced slightly lower value increases of 1.1% and 0.5%, respectively.
Javier Lumbreras, CEO at Artemundi, is an investor, developer, fund manager, philanthropist, and art collector. He is widely recognized as a pioneer in the field of art finance, particularly art funds. He currently serves as the chairman of the board of directors of The Art Fund Association in New York.
With 34 years of experience in managing art as an alternative asset, including securitisation and portfolio management, as well as art collecting, museum endowments, and art-related estate planning, he has earned frequent invitations to lecture at international forums, including The Alternative Investment Association (CAIA), The Authentication in Art Congress in The Hague, the Sotheby’s Institute at the University of London, the Heckerling Institute on Estate Planning, the Art Investment Forum, the American Appraisers Association, and Deloitte’s Art & Finance conferences, among others.
Get to know Javier’s expertise with us:
What deems you as an art expert and how did your passion start?
According to Malcolm Gladwell's seminal work "Outliers," mastering a specific skill typically requires around 10,000 hours of dedicated practice. I am proud to say that my experience far surpasses this benchmark by a factor of ten. Since 1989, my firm has been a fervent proponent of art as a valuable asset class. Over the years, we have managed a diverse range of investment vehicles, including the Artemundi Global Fund from 2010 to 2015, which stands as the most successful art investment fund to date.
Our firm boasts a distinguished track record in providing expert management of art investments, among other specialized services. Furthermore, since 2020, we have been at the forefront of integrating technology on a global scale to unlock new investment opportunities within the alternatives sector. This pioneering approach has expanded the horizons of traditional art investment and underscored our commitment to innovation and excellence in this field.
What criteria do you use to assess a work’s potential as a good investment? Can you elaborate on the significance of provenance?
Our Investment Process consists of seven phases, each including more than 10 validation points on average. Our proprietary validation scale considers curatorial, academic, and financial categories for use in deciding; based on a 100-pt. valuation scale.
Provenance is the ownership history or the "life" of an artwork, and it significantly influences the artwork's value. This influence can be positive if the artwork was once part of a prestigious collection, for example. Conversely, if the provenance is unclear or if one of the previous owners has a criminal background, it can have a negative impact on the artwork's value. In all cases, a coherent provenance from the artwork's creation to the present owner is non-negotiable for Artemundi, and we conduct thorough due diligence to verify it.
Do you have a preferred era for art?
While I appreciate all art eras and periods for their aesthetic and historical value, not all are equally viable for investment purposes. In my strategy, contemporary art, despite its appeal, is excluded as an investment vehicle due to its high volatility and unpredictable market performance. The inherent risks such as volatility and the absence of a stable investment methodology make it an unjustifiable choice for my wish-list.
Similarly, ancient paintings seldom find their way into my portfolio, primarily due to the frequent complications related to provenance, condition, and the accuracy of scholarly attributions. These factors introduce a level of uncertainty that detracts from their investment appeal.
In contrast, the production spanning from 1880 to 1980, encompassing Impressionism, Modern, and Post-War art, has proven to be the most reliable for investment with some exceptions. This era's artists have all passed away, ensuring that the supply of their works is both dwindling and finite. This scarcity adds a measure of security to their value as investments. The art from this period has also withstood the test of time, making these artists and their works less susceptible to the fluctuations of taste or academic reassessment. In essence, the best artists for investment are those who are no longer with us, as their legacy and market value have reached a stable equilibrium, largely immune to displacement.
What current trends are you observing in the art investment market?
Addressing the current trends within the art investment market could easily fill an hour-long podcast. The initial question that beckons exploration is whether a structured art investment market truly exists. From my vantage point, the landscape is teeming with individuals engaging in art investment, albeit in a manner that suggests a lack of depth in understanding and strategy. Many seem to be making acquisition decisions based on hearsay or the equivalent of flipping a coin, rather than through informed judgment.
Furthermore, the proliferation of advisors in the market, many of whom rely on nothing more substantial than the latest auction trends, adds another layer of complexity. This approach lacks a foundational methodology and fails to appreciate the art market's intricate dynamics. It raises questions about the sustainability of such strategies and the potential impact on the overall perception and value of art as an investment.
This scenario underlines a critical need for a more disciplined and educated approach to art investment. It suggests that while there is enthusiasm and interest in art as an investment vehicle, there is also a significant gap in expertise and strategic thinking. This gap not only undermines the potential for informed investment decisions but also affects the market's integrity and the intrinsic value of art.
What advice would you give to someone new to investing in art and has minimal art knowledge? Are there common misconceptions about art investment that you often encounter and wish to address?
If you have minimal art knowledge, and even if you are an advanced collector, collecting and investing are distinct realms. Common misconceptions about art investing often stem from a lack of depth in understanding the underlying asset and the intricacies of investment strategy. For instance, when an artist achieves a few auction records, it doesn't automatically equate to the next Picasso. The dynamics are more nuanced. To engage in successful art investing, one must comprehend the factors that make art truly great.
I cannot emphasise enough that not all art has the same investment potential. Various artists and their markets behave differently. At Artemundi, we exclusively work with deceased, established masters from the 20th century, such as Pablo Picasso and Salvador Dali, who have a strong track record and demonstrate greater predictability for the future. Unlike some young, top-selling artists whose market presence may be constructed and fuelled by galleries, these established masters respond to the greatness of artistic production and historical recognition. This crucial distinction sets Artemundi apart from other art investment companies that may focus on contemporary artists. Our investments are designed to be safe and reliable.
Can you share a success story where your expertise significantly benefited a client's art investment portfolio?
One of my most successful experiences involves advising the Artemundi Global Fund. Over 160 transactions took place under my guidance, and remarkably, only three resulted in losses. These losses were strategic, part of a package deal where the intention was to divest, even at a loss. I wouldn't have acquired those pieces otherwise.
As fractional art ownership pioneers, we offered the first Picasso painting as a fractional investment opportunity to investors in 2021 and were able to close the investment at a gain a 15% ann. ROI for co-owners. We are proud to open up art investment to a wider range of investors through fractional ownership.
Based on your experience, what range of returns have you seen from art investments? Over the last 10 years let’s say?
I have seen consistent returns around 15%, the lower benchmark is around 9%. Art is often classified as risky due to lack of transparency, liquidity and accessibility. Artemundi with its transparent and clearly presented fractional art ownership offerings is tearing down these traditional entry barriers and returns of around 15% in art become available not only to professional investors but private investors too.
How many art investment exits have you had, and what were the typical reasons for these exits?
Throughout my career, I've orchestrated hundreds, if not thousands, of strategic exits in the art market. My investment methodology is uniquely forward-looking, as I meticulously plan each acquisition with the end in mind. This means that whenever I purchase a piece of art, I already have a clear timeline for its sale, whether that be in one, five, or ten years. This approach is not just about timing but about understanding and anticipating market conditions to ensure the exit strategy aligns with optimal market phases.
I've come to learn that the most successful exits are those executed under ideal conditions, not out of necessity or in response to adverse market trends. The goal is to avoid the constraints of a bearish market or the limitations of a buyer's market. Instead, maintaining the flexibility to act opportunistically allows for capitalisation on the most favorable intervals for buying or selling. This strategy underscores the importance of patience and precision in the art investment world, ensuring that every exit is as advantageous as possible.
