As the late art critic Robert Hughes once said, “prices are determined by the meeting of real or induced scarcity with pure, irrational desire.” How prices are determined, as we have examined previously, is far from a new dilemma for collectors or investors. It can become particularly evident when an investor looks at the apparent pricing differential between the art market’s two distinct markets – primary and secondary.
So in which market should you buy? Let’s take a closer look at these two markets to see the difference in price.
The Secondary Market
The Secondary art market is the term predominantly used to describe the auction markets. Once the domain of the dealers and a handful of collectors, it is this market that is most often quoted in the media – such as the sale of Arthur Boyd’s Bride Running Away through Sotheby’s Australia last week for a record breaking price of $1.68 million.
It’s often thought that because it provides tangible evidence of how a work trades in the public domain that it’s a more accurate view of value.
Private Treaty
There’s a third market that by its nature is virtually impossible to track and that’s the Private Treaty market. Results are generally only leaked selectively. Interestingly, one of the trends that has established itself particularly in the wake of the GFC has been the increased activity by the major auction houses in the Private Treaty space, with both Sotheby’s and Christies reporting increases of over 60% in turnover in works sold in this manner over the past 12 months. We have also seen the auction houses in Australia developing strategies to be more involved in Private Treaty. What has become most apparent is that over the past decade the Secondary market has gone from the realms of the dealer to that of the broader retail market.
The Primary Market
The Primary market on the other hand is new work, fresh to market from the artist. It’s the term generally used to describe the gallery scene manifested through exhibitions and increasingly through art fairs. I’ve said before that the Australian market is increasingly driven by the contemporary market and, as such, the primary market has a massive role to play in this.
Undoubtedly, buying in the primary market carries a different risk profile to acquiring works at auction. Investors must understand that investment in the primary market carries a unique risk that appears to conflict with every ounce of an investor’s psyche and is heightened with work by an emerging artist. It’s a big hurdle to accept that you will probably not realise a return by on-selling the work within a month, a year or even a few years. The less established the artist – the greater the risk.
So how do we know that we are making a sound investment decision? How can we buy the million-dollar Boyd when it is priced in the tens of thousands?
The stuffed shark
In 1991, much to the bemusement of the British public, Charles Saatchi commissioned what was to become the most expensive work by a living artist for £50,000. By 2004, The Physical Impossibility of Death in the Mind of Someone Living, better known as “The Stuffed Shark”, by Damian Hirst was purchased reputedly for US$12 million. Hirst’s auction record in 1991? Zero.
The benefit of hindsight is obviously a wonderful thing when it comes to investing, but the astute investor looks for insight, so as a case study let’s consider an artist such as Chen Ping. Mist Mountain Big Tree Man (illustrated) was purchased for $15,000 earlier in the year. As it stands – Chen Ping’s auction record is equal to that of Damian Hirst’s 1991 Auction record – zero. If the work were to be offered today at one of the forthcoming auctions in Australia, would it sell for $15,000? Probably not. So why would we consider this work a strong investment play?
Determining value
The lack of an auction record in this case is simply due to the fact that nothing has been offered for sale by this artist. An auction house, particularly in Australia, will also take a view that this artist is untried and untested in the secondary market and therefore won’t warrant higher estimates.
Auction houses are in the business of selling – you should never lose sight of this. They are protective of the clearance rates that are reported. Consistency in sell-out exhibitions and growing waiting lists for works is arguably more important to monitor than the secondary market activity.
We should then consider Chen Ping’s CV. Classically trained at the Guangzhou Academy of Fine Art, he has established a regular exhibition calendar that sees his work represented all over the world. The Guangdong Museum of Art has acquired his artwork and he has a very influential dealer who has been showing his art alongside works priced in excess of US$400,000.
All the while, his work has been increasing in price and selling consistently well. In 2005, works of a similar scale were on the wall at $7,500, in 2013 for his US show, works at this scale will be going on the wall at US$22,000.
Risk and reward
Clearly there is potential, but will it be realised?
Only time will tell, but the weight of curatorial reference and consistency in selling exhibitions, both domestically and internationally, suggests it is a good start. Will Chen Ping be selling for millions of dollars in 10 to 15 years time? I don’t know, but it is certainly reasonable to suggest that he has the potential and the ability to rival the prices of his contemporaries.
The notable trait of very successful investors in this space is the term that they typically hold a work – something that is STILL too often underestimated in the Australian market. They also look to spread the risk over a handful of artists.
Of course, as I like to remind you, the golden rule is that the investment lies in the quality.
Alistair Bailey is now based in London and is the managing director of Art Equity Limited.
Disclaimer: Art Equity is the Australian dealer for Cheng Ping.
Important information:Â This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Anyone should, before acting, consider the appropriateness of the information in regards to their objectives, financial situation and needs and, if necessary, seek professional advice.
