How can HNIs invest in the Art Market

Art has always been the preserve of the rich and the famous. For centuries royal families as well as ultra wealthy business families across the world have patronised some of the best art and the artists that created those masterpieces.

While a lot of these masterpieces have found their way into museums across the world, a vast array of paintings and sculptures that are valued in millions of dollars, are part of private collections and remain stashed away in secret vaults.  
 

New money and the art market

The art market has traditionally been accessible only to old money families that often have such tastes, a discerning eye for all the finer details and deep pockets to be able to afford such expensive luxuries. Over the last few decades, however, an emerging class of collectors that come from first generation wealth, have also begun to seriously dabble in the art market.

In fact, the art market has lately become democratised and accessible enough to first generation high networth individuals (HNIs) that art is now considered not just an investing class on its own, but also a hedge against the uncertainty in capital markets.

Art as a hedge against volatility and inflation

Arts and collectables have generally shown a lower correlation with traditional asset classes when it comes to ups and downs besides having an emotional appeal that makes an investor desire and then hold on to a painting or a sculpture or for that matter an antique item of historical significance that may appreciate in value in the years to come.

This makes art an ideal hedging tool against inflation as well as an instrument that allows an HNI investor to diversify his or her portfolio.

While the increased participation of HNIs in the art market has been a global phenomenon, it has largely been driven by wealthy investors from Asia- mostly China and India. As these countries develop and a new class of the wealthy and the ultra-wealthy emerges, more and more of them are taking a keen interest in betting on expensive art and other collectables such as watches, wines, cars, gems and jewellery and classics.

How big is the art market?

It is no wonder then that the size of the art market has grown strongly over the past several years. In 2023 the global art market was estimated to be worth more than $520 billion and is expected to grow to nearly $560 billion in 2024. By 2028, the global art market will likely be worth more than $700 billion and by 2032 it is expected to cross the $880 billion mark.  

 

Art market segmentation

The art market is divided into seven main segments-

1. Art shop
2. Art gallery
3. Frame shop
4. Appraisers
5. Art collectors
6. Antique stores
7. Other collectors 
   
   1. Antiques
   2. Jewellery
   3. Comic books
   4. Coins
   5. Stamps
   6. Wine

This segmentation is not water tight and could vary across geography. But as an HNI investor you should be aware of how the market works.

The Indian art market

India is at a fascinating inflection point as far as its art market is concerned. This is borne out by the fact that art galleries and exhibition spaces have been opening across the country. The latest such space to open was the Reliance Industries sponsored Nita Mukesh Ambani Cultural Center in Mumbai. This will soon be followed by the Brij Museum in Delhi as well as the Hampi Art Labs in Karnataka.

In 2023, long term curator Payal Kapoor, who manages Arushi Arts, had launched the country’s first travel art fair Artix. In February this year, the India Art Fair saw more than 100 exhibitors showcasing their wares.

Art galleries galore

Art watchers say that an increasing collaboration between institutions, patrons and commercial galleries are helping support local art scenes. The growth in the art market is being supported by a strong economy and surging stock markets, art experts say. In fact, they say that since Mumbai is home to some of the wealthiest people in India, it is no coincidence that India’s financial capital is seeing the most prolific activity as far as the art market goes.

While on the one hand well known international art advisors and collectors such as Lawrence Van Hagen are bringing works of artists of the league of Andy Warhol, Keith Haring and Roy Lichtenstien to India, on the other, a new generation of tech savvy nouveau riche investors are popping up, looking to invest in “affordable art.”

Delhi too has not been left untouched by this upsurge in interest. Commercial gallery DAG has opened a new gallery in Janpath, in the heart of Lutyens Delhi and has taken over the residence cum studio of the late modernist artist Jamini Roy.

Industry watchers say that first time art buyers with increasing amounts of disposable incomes, are interested in acquiring works by upcoming artists whose paintings and sculptures could appreciate in value over the years.

Online art marketplaces

But it is not just offline art galleries that are seeing greater footfalls. Online marketplaces such as Mojarto.com, Gallerist.in, Fizdi.com, Artiflute.com, Myart.com, Indianartideas.com and Indiaart.com are seeing a great deal of interest from this category of buyers. In fact, new buyers first get introduced to the intricacies of art by visiting some of these platforms, and then begin visiting art galleries.

On these platforms you can buy paintings, fine arts, prints, lithographs and other works of art ranging from a few thousand rupees by upcoming artists and going into lakhs by some of the more established ones.

So, how much of your net worth should be invested in art?

There is no limit to the amount of money you can invest in art. But if you are a first time investor, still trying to understand the intricacies of the world of art, you should invest no more than 2-3% of your net worth in expensive art.

While there is a good chance that the painting you bought from that upcoming artist will see its value rocket, there is also a fair chance that this may not happen and you may end up with an investment that is unlikely to appreciate. Moreover, works that sell in the millions, are often by established artists who are no longer around or not active on the scene any more. The more scarce the piece of art, the more valuable it will be. Art is therefore an extremely speculative investment.

Finally, only that portion of your money, which you can stash away for the long term should be spent on expensive art. This is important to keep in mind also because art is not an investment that will generate regular income or cash flows but could potentially only generate handsome returns after several years