Assets in the eye of the beholder

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He may be a business-savvy art connoisseur with a scholar’s comprehension of modern Arab art, a buyer for the London-based Fine Art Fund Group and a founder of Lebanon’s Agial gallery, but Saleh Barakat will gladly “kick people out the door” if he is asked to tip them on the next big art investment.

“The word [investment] irritates me,” he said. His is a love of art for art’s sake. But Barakat probably realizes, just as much as anyone who has tapped into Middle Eastern art recently, that the market is following a global trend away from volatile stock markets, and into “passion” investments.

“Financial markets are shifting from a multi-decade cycle of being overexposed to paper assets, toward a new cycle of investing in real assets such as real estate, gold, silver and collectibles such as art and diamonds that have no expiry date,” said Khaled Samawi, owner of Dubai-based Ayyam gallery. Capgemini and Merrill Lynch’s 2010 world wealth report states that the uncertainty of financial markets has led to a new breed of “investor-collectors” who are pouring their money into tangible items with long-term value.

The MENA art investment hub

Dubai, which anchored itself as the Middle East and North Africa region’s art capital after international auction houses Christie’s and Sotheby’s set up shop in the emirate, is already fostering tentative but burgeoning efforts by Emirati financial institutions to include art in their investment portfolios. In 2007, Daman Investments, the Dubai financial services company, set up a five-to-seven year, $13.6 million contemporary Middle Eastern art fund. In early 2011, Emirates NBD partnered up with the Fine Art Fund Group to include art advisory services for high net worth individuals with wealth of more than $3 million.

“An increasing number of financial institutions are regarding art as an alternative asset class, providing a hedge against inflation and also proving to be a relatively good store of value, particularly in the current climate of uncertainty,” says Michael Jeha, managing director at Christie’s Dubai.

But while art is gaining favor as an aesthetically appealing asset class for high net worth Arabs, institutions such as Addax Bank, the regional representative for the Fine Art Fund group, still hold a cautious stance on passion investments. Requiring a relatively low minimum commitment of $100,000 for its “Middle Eastern Fine Art Fund,” Addax Bank advises newcomers to invest no more than 5 percent of their net worth into art.

According to art consultant and artistic director of the 2011 Menas art fair, Pascal Odille, the conservative approach is due in part to the way these funds are devised with a short-to-medium term artwork resale in mind, which is unlikely to be profitable during an economic downturn. “When times are tough, art funds are as risky as stocks and bonds to investors,” says Odille.

Still, it is the dependable value of well established art that banks and financial investment companies bet on to hedge against risk. “If you have a $3 billion portfolio, it’s not a bad idea to have $15 million invested in art… When real estate bubbles burst [and] currencies fluctuate, a Tintoretto is still a Tintoretto,” says Barakat. Isabelle de La Bruyere, Middle East director at Christie’s, says the art market has shown stability and resilience to the wider economic environment, while other markets have not. “We continue to see impressive prices in the sale room with significant liquidity and participation at every level of the art market,” she adds.

For Roxane Zand, director of the Middle East department at international auction house Sotheby’s, keeping it safe lies in collecting blue chips. “An aspect of our advisory is to collect the best of an artist’s work, the best period and the best quality in each category. It’s hard to say where investors diverge in taste from passionate collectors because sometimes it can be one of the same,” says Zand.

Buy from the heart

Of course, the array for amateur and “investor” collectors is much wider than that for art fund managers. For those looking to cash in on their collections, connoisseurs unanimously agree on a first rule of thumb: buying from the heart. “No matter what, it should be a coup-de-coeur when you buy a piece of art,” says Nada el-Assaad, FFA Private Bank’s art consultant, the reason being that if the artwork proves to be valueless with time, the personal attachment could compensate for the bad investment.

“It is important to seek advice if possible and look carefully at the provenance, rarity and condition of a work of art when considering its acquisition,” says de La Bruyere.

And while Assaad asserts that no one has the clairvoyance to assess the future value of an artist’s work, she has some clear pointers for FFA, which exhibits contemporary Lebanese artists two to three times a year and buys their work through the exhibitions. “I’m advising them to buy middle range artists that are in their thirties or forties, those that have emerged but not quite reached their peak,” she says, adding that FFA could rake in quite a profit from its current collection.

Nadine Bekdache, owner of the Janine Rubeiz gallery in Lebanon, believes the staggering prices young MENA artists are charging for their work through auction houses hardly reflect their value. “When an artist has been around for at least 25 or 30 years and you follow their evolution, you can tell what the capital increase is going to be,” says Bekdache, adding that anyone purchasing a Chafic Abboud [the late Lebanese contemporary artist]painting 30 or 40 years ago understands where the investment lies. An Abboud painting that cost some $15,000 in 1996 or 1997 is worth well over $150,000today. Similarly, a Paul Guiragossian work from his peak years goes for no less than $200,000 and could reach $300,000. “When you buy a good [Guiragossian] it’s better than money in the bank,” says Agial’s Barakat.

Gregory Gatserelia, founder of Gatserelia Design, admits that certain artists always guarantee a capital increase. “When you are buying just for investment, there are certain names and this is what you have to buy. The consultants will tell you which [artists],” says the avid art collector.

Lebanon’s undervalued aesthetic

While Iranian art has broken all sorts of records at both regional and international auctions over the past few years — Iranian contemporary artist Farhad Moshiri scored a record price of $900,000 for his “Love” piece through Bonham’s in March 2008, while five works by other Iranian artists sold for over $1 million at Sotheby’s during the same time — Lebanese art has not. Nonetheless Nadine Bekdache from Janine Rubeiz gallery considers it to be at the forefront of the Middle East art scene along with both Iranian and Iraqi art.  But she also concedes many barriers devaluate Lebanese art as an investment. For one, the value of Lebanese artwork is distorted the very moment it circulates between Lebanon and abroad. “As a gallery we suffer from tariffs, as opposed to Europe where artwork circulates for free,” says Bekdache, noting that government, import, export and sales revenue taxes could make up as much as 20 to 30 percent of an art piece’s price.

 

Stressing the importance of exposure to boost an artist’s reputation, FFA art consultant Assaad says there simply isn’t any for the Lebanese artist. “We don’t have any public institutions for contemporary art except for the Sursock Museum,” she explains. The museum was recently refurbished and moved to new premises, which means it is likely to widen its collection of contemporary art. “That is not enough,” asserts Assaad.

What makes it all the more difficult, according to Assaad, is that high net worth Lebanese collectors who participate in offshore auctions do not come through for artists from their country.

“It’s a nationalistic feeling in that sense where Syrian collectors buy Syrian art, Iranian collectors buy Iranian art, while Lebanese collectors are not very keen on buying Lebanese art,” she says. Sotheby’s Zandagrees that regional Arab collectors tend to buy art representative of their own heritage, such as calligraphy, and are more than willing to support it in auctions when need be. 

But de La Bruyere says Christie’s latest auctions reflect more regional cross-buying activity, as collectors are being exposed to catalogues and sale viewings that are exhibiting artists from different countries at once. “As the market has matured, we have seen a change in collectors’ appreciation for art from other countries,” she says.

For Odille, the still blooming Middle Eastern art market functions, for now, on the fundamentals of supply and demand. Lebanon’s old and established art scene means there is ample Lebanese art to go around, which might weigh down on its value in the eyes of collectors.

“Everyone knows [Lebanese artists] Shawki Shamoun, Simone Fattale and even the younger Ayman Baalbaki. When [Saudi Arabian artist] Abdulnasser Gharem suddenly bursts on to the scene, there is a notion of novelty,” says Odille. Case in point: Gharem’s installation “Message/Messenger,” had a pre-sale estimate ranging between $70,000 to $100,000 but sold for $842,500 at Christie’s Dubai April 2011 auction, beating Ayman Baalbaki’s “Let A Thousand Flowers Bloom”, which still went for $206,500. According to Zand, modern Arab art is taking away the highest bids at Sotheby’s regional auctions, partly supported by the new blood of Arab collectors. “You have high net worth younger professionals who have their spending power and who enjoy art. The royal sheikhs have been known to lead the way in terms of collecting throughout the region,” says Zand.

Market drivers

But while de La Bruyere is encouraged by the 20 and 30-yearolds’ presence at pre-sale exhibitions, she says clients from Asia, Europe and America, which accounted for 45 percent of Christie’s latest auction sales —compared to a 20 percent share a few years back — are driving the market towards contemporary Arab art. “We have seen this group become increasingly interested in contemporary art [since 1960] versus modern [1915-1960] works and so, more recently, we have been curating our sales to better reflect this developing taste,” adds de La Bruyere.

Still, Barakat sees risk in a market-driven Middle Eastern art scene, one that he deems highly speculative and lacking the vital layers to educate buyers on viable art investments. “There are hardly any museums, no departments for Middle Eastern, regional or local art at universities and no specialized publishing houses,” he says. 

Much to her dismay, Bekdache acknowledges that promoting young, or even established but less renowned Lebanese artists, to auction houses means guaranteeing the latter a price floor for the artists’ works, and then locking down bidders for them. “If you have a Hannibal Srouji [a Lebanese artist], you go to Christie’s, convince them that this will bring in a minimum of $20,000 and then you talk potential bidders into making that price happen. Unfortunately it’s about deals now,” she says, adding that Dubai’s biggest auction house is driven by what it knows collectors want and therefore it doesn’t research and seek out artists whose short-term returns may not match their long-term potential.

Gatserelia concurs: “It’s a big conspiracy between galleries and auction houses. They know how to create attention; they have people who pretend to bid…the world of art is manipulated. The galleries can bring an artist up or down for their own reasons,” he says. But while speculation is almost inevitable in all markets, it puts in question the very safety and stability of art as an investment vis-à-vis other asset classes. The danger, says Bekdache, lies in the fads that are hyped up on the spot, only to turn out worthless later on. “Just like there is [Louis] Vuitton in fashion, you have five or 10 Vuittons now in Middle Eastern art,” she adds.

Political art in the Arab Spring

The “Arab Spring” brought in its wake an outpouring of artistic expression, evidenced by June’s Venice Biennale, where the Egyptian pavilion was dedicated to artist Ahmed Basiony, who died during the uprisingst hat toppled leader Hosni Mubarak, while works of Tunisian artist Nadia Kaabi-Linke, such as “Butcher Bliss”, spoke volumes against the Ben Ali regime. “There is no doubt that politically engaged art is more fashionable now,” says Barakat.

The Qatar Museum Foundation has already begun archiving works inspired by the Arab uprisings. But whether such art will be valuable in the future for its monumental content or not will only become known with time.  For now, some experts are wary of collectors’ interest, let alone investment, in newer mediums that young MENA artists are experimenting with. Photography is one example of an art that makes for tricky sales, says Odille, while video also poses difficulties. Ayyam’s Samawi has an even more worrisome outlook on conceptual art trends, which he believes will be both historically and financially worthless in the future. He says, “I am not a big fan of installations and other new forms of art. I believe that in 20 or 30 years from now a lot of big conceptual names in the spotlight today internationally and regionally will be forgotten.”

For Zand, nurturing artists and educating people on both the buying and management sides of the Middle Eastern art scene is the first step towards having a real market that is not easily manipulated. “That is where the challenges arise,” she says.

 

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