The art-advisory service at Citigroup Inc.’s private bank is hiring its sixth art specialist, double the number it had in 2002. At UBS AG’s art-banking group in Basel, Switzerland, a dozen specialists cater to clients’ art needs, double the number when the group started in 1998.
American International Group Inc.’s AIG Private Client Group unit is expanding its art-underwriting department and a loss-management group that visits clients’ homes to evaluate the vulnerability of their artworks to fire, flood and other perils, says Katja Zigerlig, collections-underwriting manager. The company has seen a 30% annual increase in such policies since 2000, a spokesman says.
Barclays PLC’s private bankers, meanwhile, are developing their own knowledge of art in order to hold forth with sophisticated art collectors among their clients. Heather Maizels, director of Barclays’s private bank in London, says the effort reflects a “very evident” increase in clients’ interest in art.
The heightened appreciation for art as an investment is driven largely by rising prices at auctions, particularly for contemporary art. The Mei Moses All Art Index, which tracks repeat auction sales, rose 14.52% last year, compared with a 4.91% total return for the Standard & Poor’s 500-stock index. The art index has rebounded sharply from an early 1990s decline that saw it drop about 20% over four years.
Art-advisory departments at several private banks and brokerage firms help clients learn about art, buy it, sell it and loan it to museums. They handle complexities such as insurance, shipping, taxes, intellectual-property disputes and estate-planning issues. Some even structure loans that let clients extract cash from their treasures without giving them up. At Citigroup, net revenue from that lending business has grown about 20% a year since 2002, reflecting increases in the number and size of the loans.
While these specialists serve the ultrarich, art isn’t the exclusive province of the upper crust. Karl Schweizer, head of UBS’s art-banking group, estimates that 20% to 25% of art sales range from $10,000 to $100,000, and plenty of fine art moves at prices of less than $10,000.
As a result, financial advisers to even modestly well-heeled clients increasingly need to have a working knowledge of the art market. A few works on a client’s wall might represent a meaningful percentage of their net worth. Art might also reduce risk in a client’s portfolio, as research shows it has a low correlation with stocks and bonds.
Michael Moses, who developed the Mei Moses index with Jianping Mei, a fellow professor at New York University’s Leonard Stern School of Business, says the “second beauty of art” is its low correlation to many financial assets. That means investing in art can reduce fluctuations in a client’s portfolio.
To be sure, art does have significant downsides as an investment. Its value can drop sharply if the artist, style or historic period falls out of fashion. It doesn’t provide income like a bond does. There are costs of owning art, such as insurance and appraisals. Selling it can take months and bring added costs like shipping and auction commissions.
That puts even greater importance on not overpaying for artwork. Mr. Schweizer of UBS says many factors play into valuations, including the artist’s importance, prices paid for the artist’s work in the past and the significance of the piece in the context of the artist’s body of work.
For advisers who are more comfortable talking mutual funds than Monet, the idea of advising clients on their art collections might seem intimidating. But a lack of a graduate degree in art history isn’t stopping many of them. Peter Rohr, a Merrill Lynch & Co. private-wealth adviser in Philadelphia, has built a working knowledge by visiting museums and galleries, reading art trade publications and attending auctions.
