Tiers within the Artworld
Firstly, it is important to understand that there are many alternative tiers within the Artworld. These are the various different subsets and networks that consist of Artists, buyers, collectors, gallerists, curators and consultants.
From the Artist selling paintings for $1000 each and making a successful living, right through to celebrity living Artists that have achieved an infamous, cult like status (such as Damien Hirst), these are examples of the markers that can be used to draw lines and distinguish between these different tiers. Within this article we will concentrate on the very upper end of the spectrum.
The Continuing Boom of Sales
In 2012, Edvard Munch’s iconic painting ‘The Scream’ sold for around $120 million at auction. Many prophesized that this was the pinnacle of an Art Market bubble, one that was destined to crash, yet less that a week later, the Abstract Expressionist painter Mark Rothko’s artwork ‘Orange, Red, Yellow’ sold for nearly $87 million.
The prices for Artworks at this end of the spectrum are astronomical, yet according to Sergey Skaterschikov, a man who publishes an influential art-investment report; no painting bought at $30 million or more has ever been re-sold at a profit. At this level, cultural prestige and the ability to signal wealth are just a couple of the defining factors for sales. One would hope that a deep and profound love for Art, and the historical value of a work is also a motivating desire for these buyers as well.
Art as an asset for a small subset of super wealthy individuals
Benjamin Madel is an economist at the Federal Reserve Bank of New York and studies the Art Market because ‘it’s a great way to study asset price valuations.’ In his opinion, Fine Art (at this price level) is, in a sense separated from the rest of the global economy because it is in fact part of an economy for a small subset of the super rich. These people are often referred to as Ultra High Net Worth Individuals (UHNWI). From Mandel’s research he concluded that for their economy, Fine Art has retained solid stability over the years.
The rise of UHNWIs in Brazil, China and India has also provided an influx of new individuals interested in the purchasing of high end Artworks for exceptionally large prices. This movement also places even greater emphasis on the Artists from these countries, and resurgences in esoteric styles that had previously been largely ignored by this market are becoming more and more popular as collectors, consultants, gallerists, dealers and institutions look further for new talent. Or more accurately, search for talent that will become even more successful later. This happened for Korean Minimalism, as well as a newfound interest in older Scandinavian Landscape Painting for example.
To demonstrate the rise in investment from these wealthy collectors, in 2003, at Christie’s in Hong Kong, sales came to around $98 million, whilst in 2011, they has risen to $836 million.
What this means for the Artists
Gerhart Richter, the prominent German Painter was recently cited as commenting on how odd and abstract he found these high prices. As an Artist himself, he wanted to remind people that it was generally after an Artwork had been sold (for which an Artist normally receives 50% of the sale and the Gallery takes the other half) and then consequently resold, that the value tended to inflate. In his eyes some kind of crash is inevitable when people are dealing with money and value in these extremes.
Art Funds and insider trading
There are also Art Investment funds that operate much like hedge fund or asset management firm. The ‘Fine Art Fund’ work on a minimum investment of $500,000, and their managers use industry connections and Art expertise to buy Art cheaply, at the right time, before selling it on at a much higher price and returning the profit to the investors. The Art Market isn’t regulated like financial securities, so this kind of insider trading isn’t illegal.
Art and value
With the rise of the UHNWIs, there are many more willing global buyers, and this continues to push up prices. Art is completely unique in the way that it is valued because its fiscal value is directly linked to a network of wealthy collectors, dealers, institutions and gallery owners. Working out the cultural value of a completely unique Picasso, Munch or Van Gogh painting in financial terms is an incredibly complex process. And at the end of the day, if there is a willing buyer ready to part with a spare $120 million, then the sale will probably go right ahead.