Tips for Investors

Vishni Art Advisors & Consultants Ltd (VAA&C)

Tips for Investors

Stepping into the contemporary Indian art market, and the art market in general, can be an intoxicating, confusing, dazzling, and disorientating experience. There are an overwhelming number of art exhibitions (sometimes it is difficult to determine whether something is an actual exhibition or just an unwitting parody of one) and fairs; there are a multitude of slick galleries; there are many pretentious and stuffy auction houses; there are an alarming number of unctuous dealers; there are an abundance of impenetrably-written publications (not to mention glossy, week-end lifestyle supplements nudging you to believe that owning art raises your profile and makes you sexy); and, perhaps most importantly, there are many talented artists from whom to choose. There are all of these market players, not including  the burgeoning number of art consultancies!

Witnessing piles of money sloshing around and feeling the need to participate in the art world can lead amateur and novice art investors to pay overinflated prices for artworks that will soon depreciate in value. If you are a long-term collector and not interested in selling your collection, then a depreciation should not bother you. However, if you are thinking of investing for a profit (potentially even ‘flipping’ to make a quick profit), then find a copy of ‘Art As An Investment?’ by Melanie Gerlis. Ms. Gerlis makes it abundantly clear that art is a very risky investment and that very few investors ever see a profitable return on their capital/original investments.

We realise that VAA&C may not be the optimal firm to assist with every art acquisition. Perhaps we don’t offer the same breadth of services as other advisors and consultants, but that is also our strength. We made a conscious decision to focus on a specific service and expertise, to offer specialized and unparalleled services in a growing market. Our irreverent outlook on the art market may appear contrarian, but it is out of caution for our clients in a challenging market. We are proud to present a list of tips to help with the purchase of contemporary Indian (and non-Indian) art in the safest way possible. You’re welcome!

BEWARE OF FAKES
Occasionally, buyers unintentionally purchase a fake! Indeed, even the most famous and reputable auction houses have inadvertently bought and sold fakes and then found themselves embroiled in costly litigation. 

If you are interested in purchasing a work of art, then ENSURE before-hand that you are NOT buying a fake: get the work professionally appraised and assessed by independent third parties. Do not simply take the word of the dealer, gallery, auction house or, art consultant-advisor. If the vendor doesn’t allow you to appraise and assess for its condition and authenticity, then walk away from the sale.

INDEMNIFY yourself against being sold a forgery by drawing up a contract with the  vendor, clearly setting forth damages, if it is determined at  a later stage that the work is a forgery. We strongly recommend engaging a specialist law firm to assist you in drafting the contract (whether it is for the vendor or for the advisor-consultant).

Most of the contemporary Indian art market’s transactions are conducted outside India, primarily in Europe and the US (although Indian auction houses such as Astaguru and Saffronart are slowly claiming a bigger piece of the pie), where you have recourse in the local courts in case of a dispute. However, given the lack of expertise within the Indian legal system concerning fraudulent art transactions, buyers must be EXTREMELY cautious before making a purchase in India. DO NOT make a purchase without physically inspecting the piece, preferably in the company of a professional appraiser/assessor. Online sales are all the rage, but you cannot properly verify the condition and authenticity of a piece online.

Unfortunately, if you buy a forgery from an India-based vendor, there is very little that can be done, apart from initiating legal proceedings against the vendor; yet it is likely that, apart from dealing with inexperienced courts, you will also have to wait for years before your case is heard.

GOING NATIVE
By all means, explore the possibility of purchasing contemporary Indian art from European and North American vendors, but remember that a wider selection is available in India. In addition, you may get more value for your money if you visit art fairs in India. (But, again, bear in mind the risk of buying a forgery and not being able to do much about it afterwards).

There are two fairs on which you should focus: the India Art Festival, which is held once-a-year in Bombay (usually in November) and once-a-year in Delhi (usually in late January/early February) and the India Art Fair,  held only in Delhi, once every year, also in late January/early February. (Conveniently, the Fair and the Festival never run concurrently).

If you visit India for the art fairs, then make time to visit the galleries as well. Although some might exhibit at the fairs, many smaller galleries probably won’t because the stand rents are too expensive.

Another source of information is the local art press: publications such as ‘Marg’, ‘Art India’ and ‘Art and Deal’ have useful information on the latest trends in contemporary Indian art.

To get a better idea and perspective on contemporary Indian art, in addition to visiting the art fairs and galleries, try and visit the National Gallery of Modern Art (in Bombay, Bangalore and Delhi).

Researching contemporary Indian art in India can be an exciting and fulfilling experience but, as ever, watch out for the cowboys amongst the Indians!

HEADY CONC-AUCTION
In what world do normally business-savvy and astute investors fall over themselves to out-bid each other to pay the highest price? It truly defies logic to try to pay MORE than what an object is worth when the laws of economics dictate that one should aim to get the best possible deal by bargaining for a discount. But auctions miraculously have a way of making the wealthy part with their money (and sensibility) quicker than a subprime mortgage-backed security!

Without resorting to cod-psychology, the subconscious motivations behind auction bidding appear to be a fear of appearing not quite H.N.W (High Net Worth), and wanting to emphatically demonstrate that one is “in The Game now.” Either way, auctions seem to bring out the Alpha Male (and Female) instincts.

The trick to bargaining at an auction is to wait until the auction is over. Auction houses usually have unsold lots, and they will be keen to sell them, even if it is below “sticker-price.” The unsold lots may have been consigned by someone who needs to raise capital and, for them, some capital is better than no capital at all. In this case, it is quite possible that a consignor or auction house may accept a bid to alleviate a solvency or liquidity crisis. And, of course, the auction house will be happy to make its commission whether it’s during the auction or by facilitating a private post-auction deal.

In fact, the best time to buy art is during an economic crisis.  For example, during early 2009, during which time Sotheby’s shares were trading below $10, investors and collectors, galleries, and dealers were trying to liquidate their art collections and investments when their margin calls got triggered. It is a great time to invest in art when collectors and investors are trying to raise cash and are willing to accept significantly lower prices.

Another opportunity to bargain-hunt is when a gallery or dealer is going out of business. They won’t have the leverage to demand their desired asking prices anymore and they will be more than happy to accept a lower offer.

INVESTING FOR PROFIT
If you’re aware of the inherent risks of investing in art and you still want to invest in the hope of making a profit, then we strongly suggest doing so through an art fund, preferably one registered in a protective jurisdiction (the US – with its fearsome Securities and Exchange Commission, Department of Justice and the New York-based Department of Financial Services – comes to mind because authorities are willing and able to protect investors and ensure legal behaviour). Have confidence that your fund/asset manager will choose the appropriate works in which to invest. But, DO make sure you thoroughly research the fund and its past performance,  DO request a copy of the fund’s Private Placement Memorandum, and DO meet the professionals managing the fund.

GOING SOLO
Finally, if you decide to instruct an art consultant/advisor who works independently, then make sure he/she knows about the artist’s cannon (it is too easy to cut-and-paste information from an article and pass it off as “research”, without acknowledging the source of the article). 

SimiIarly, if you decide to instruct a consultancy, then make sure the company knows about the artist in whom you’re interested, and make sure the consultancy understands what is required and, most importantly, that the group can provide what you require. If you do not want the advisory-consultancy to source alternative artists for you, and they are unable to advise you on the particular artist, then you must make your interests and needs very clear in writing.

Never rely on word-of-mouth agreements and handshakes (those agreements are often unenforceable), and always sign a professionally- written contract, ideally with the assistance of a law firm that specialises in art-related transactions.

DISCLAIMER: The materials provided on this website are for general informational purposes only. These materials do not, and are not intended to, constitute legal advice, and you should not act or refrain from acting based on any information provided on this website. Please consult with your own legal counsel on your situation and specific legal questions you have.

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