For the heart or the vault?

Posted: 10 Nov 2010  |  By: Patricia Anderson - Editor

For some time now, art collectors have been able to make their private collections a component of their personally managed superannuation funds. The Cooper Report's recommendations on superannuation, released on 29 April 2010, sought to overturn this, which would have reduced investors to buying for love, not for capital gain, so there was quite a lot at stake.

In the last decade or so, the contemporary Aboriginal art market expanded like a supernova and many galleries around Australia bathed in its radiance. Artists - some of them - saw either the equivalent of respectable incomes or an explosion in their bank accounts. Resales at auctions were surprising buoyant and interest in young emerging artists, whose prices are modest and can only go up, increased.

But the art market can be a murky place even for the patently knowledgeable. It has nothing like the transparency of the real estate marketplace or the share market. It is open to specific kinds of manipulation, and it may be this element which has caught the attention of the regulatory authorities. Here is one hypothetical example. Suppose a wealthy individual was to back a gallery, and then proceed to buy (discreetly) a large number of works by key artists in that gallery's stable. The outbreak of red dots around the room of an opening exhibition is an intoxicating event - being a former art gallery owner I know this fleeting feeling very well. The word soon circulates that there is a new, collectable artist on the scene. This attracts more buyers. The prices move upwards accordingly at the artist's next exhibition. In boom times, they can move very fast indeed. The next step might be to seed this rising star's work in the sales of the more prestigious auction houses, and then arrange to have the bidding increase to quite a dramatic outcome. Repeat this on a couple of occasions, and word in the art industry circulates that 'x's work is an excellent investment. Enter the art consultant, the art valuer and the art accountant. However, there are countless contemporary art works which changed hands in the late 1980s for upwards of $60,000 which are now struggling to find buyers at $30,000. So one is reminded of the inherent instability in a marketplace which has a higher emotional investment than, say, shares.

Then there is the issue of fakes. Suppose a buyer acquired an original work by a prominent artist, with the necessary documentation to support the six-figure payment.

Ten or more years down the track, this buyer seeks to sell the work and expects some sort of profit. Picture the chagrin when a specialist is called in to examine the work and finds it to be 'problematic'. One expert recently remarked that up to ten per cent of the market could be so classified.

Another cautionary tale is that of Sydney art dealer Ron Coles who, on behalf of clients, exhibited, stored and resold 'valuable' art portfolios over a number of years. Many of his clients had self-managed superannuation funds. Coles vanished owing tens of millions of dollars, and furthermore, it appears that many of the works were fakes.

Now, at least the art world can breathe more easily - the Cooper recommendations will not be taken up in their proposed form, although the rules for investing in artworks will certainly be clarified. This has been a very happy outcome for the determined lobbyists of the 'Save Super Art Campaign' of Australia's art world.