There’s still life in the art market

With contemporary art prices plunging, things looks bleak. Or are they? Philip Hoffman of the Fine Art Fund identifies the positives.


Francis Bacon’s self-portrait failed to find buyers at auction last year

Francis Bacon’s self-portrait failed to find buyers at auction last year

Shrinking fine art sales and price drops of up to 30 per cent present a bleak picture for the art world. But Philip Hoffman, who founded the UK-based Fine Art Fund — one of the world’s largest fund management firms — believes there is reason to remain upbeat.

“We have raised more money in the past four months than we did in the past year or so,” says Mr Hoffman, 47, who founded the fund in 2004. For a minimum of £125,000, it helps investors buy and sell paintings, from old masters to contemporary art. Purchased works are stored in a Geneva warehouse.

According to Mr Hoffman, up until last year, contemporary art was the boom market, but old masters are now proving particularly popular. “In the past month, world-record prices have been paid for old masters (17th and 18th century pictures). Yet prices on works from the past 30 or 50 years have dropped off by 20 or 30 per cent.

“If you bought something in June for £5 million, by November, you might be looking at £3.5 million or £4 million. Whereas, if you bought something for £1 million five years ago, you would probably be up to around £2.5 million.

“The prices have gone up enormously in the past five years but have now tailed off.”

In fact, Mr Hoffman says now is an opportune time for investors of more mainstream means to profit from a market that has traditionally been for super-rich Russian oligarchs and hedge-fund billionaires, now stung by the credit crunch. He says: “The next 12 months will bring some of the best opportunities in the art market ever. There will be distressed sellers who need cash immediately. If you’ve got cash, you’ll get some bargains, and if you sit on the work for three to five years, you will be able to double, triple or quadruple your money. A more sober market may attract new collectors or lure back those who were priced out in recent years.” Mr Hoffman is hoping to raise between $50 million and $100 million for an “opportunistic” investment fund to cash in on the bargains thrown up by the credit crunch.

“We are seeing good quality at attractive prices. We are still buying, and from those who need the cash.”

He adds: “We are looking to raise more money, even though people are shy of investing. I think that people are persuaded by the argument that they can have opportunities to buy really interesting art at bargain-basement prices in some areas. And, in other areas, you will just have to wait six months or so.”

In November a self-portrait by Francis Bacon, whose paintings have fetched some of the highest prices in recent years — including one that sold for $86 million last May — failed to draw any bids at $25 million despite a $40 million pre-sale estimate. And news last week that auction house Christie’s is to let up to a quarter of its 800 London-based staff go as it suffers in the downturn will not do much to boost confidence.

So, where are the best places to invest? “I think there are some artists that have further to fall. I am not a big fan of Richard Prince. Likewise, Damien Hirst and multiples: that’s a tougher market. But really important early works by Philip Guston will make record prices, because people want rare things.

“The rare ones are the ones to invest in. You have to be looking to spend more than a million dollars for the really rare pieces. The sweet spot is probably in the $1 to $5 million bracket. There are plenty of people who can afford to spend that on art, even now.”

Around four months ago, a work by Hirst fetched more than £111 million, a record for a sale dedicated to one artist at auction. Mr Hoffman himself has made some profitable deals. In October, he sold a work for £400,000, for which the fund paid £125,000. The fund also made a huge profit on a Degas, which was bought for £1.9 million and sold for £2.4 million 15 months later. The fund’s average return to date is 30 per cent.

According to Mr Hoffman — who, by his own admission, is no art lover — for those approaching the art market primarily for profits, investing in old masters and contemporary art is way up on hedge funds.

“Art is a relatively safe investment. People haven’t borrowed money to buy art. They may have borrowed money to buy property, shares and hedge funds. Most banks don’t like lending against art because they don’t really follow or understand it. So there is very little money being called back by the banks against their art portfolios.

“There is a reduction in the amount of art available on the market and generally, it is the less-good art that’s coming on.”

But surely art is a luxury that people will cut back on as they tighten their belts? “If you compare this with 1991 — the last time we saw a significant drop in the art market — even then, important sales were made. There are many contemporary works where you will still see record prices; recently a Guston piece in New York made £10 million — phenomenal when there is a so-called credit crunch.”

He identifies the Middle Eastern market as incredibly strong. “It is so small but there is so much money there that it is inevitably having an affect on prices. What you could have bought for £10,000 two years ago you might have to pay £50,000 for this year.”

He adds: “The top end of the market is very rare and will get rarer, whereas with something like wine for instance, they produce every year. Rembrandt, Rubens [Peter Paul], Picasso [Pablo] — you may get one chance to buy it in your lifetime and if you don’t buy it now, you won’t get another chance. People will actually put their hands in their pockets and spend money if it’s something really important.”

Mr Hoffman, who lives in Chelsea, West London, fell into the art world by chance. Having graduated from York University with an economics degree, he worked as a chartered accountant at KPMG International before landing a job as finance director at Christie’s.

    Last updated: 2:50pm, January 29 2009