The aesthetics of art investing

As a student of investing and the son of a painter/art historian, I cherish art as a visceral, spiritual value but am also intrigued by its historical linkage to banking and the financial markets. The happiest moments of my life have been spent in the Prado, Tate, Hermitage, Rijksmuseum, Ufizi, Moma, Met, the National Gallery on Trafalgar Square, the Louvre, Musee d'Orsay and so many others. I only understood the relationship between art and high finance after I visited JPMorgan's palazzo in midtown Manhattan, Villa Ephrussi de Rothschild in Cap-Ferrat and the Medici financed palaces, monasteries, chapels and municipals buildings in Florence.
The Medici Bank was the Citigroup/Goldman Sachs of the Florentine Renaissance. Cosimo Vecchio, Lorenzo the Magnificent, Pirro Gordo, Giovanni Medici (who became Pope!) were some of history's greatest art collectors, patrons of Donatello, Michelangelo, Fra Angelico and Vasari. The Renaissance, Europe's aesthetic apogee, was unthinkable without the Medici. I used to love to lunch at the dining room at 1 Chase Manhattan Plaza, for the superb views of the East River/Brooklyn Heights but also to gaze at David Rockefeller's priceless modern art on the walls. It never surprised me that UBS and Credit Suisse are key sponsors of Art Basel or Abraaj Capital's prize in Art Dubai.
The art market is white hot for the 20th-century masters. Picaso's "the woman of Algiers" just sold for $179 million at a Christies auction, six times its price in 1997. A Mark Ruthko listed for $50 million at Art Basel. Economists estimate the size of the global art market at $50 billion. The UAE is emerging as a vibrant new art hub, with Art Dubai, the gallery scene in Al Quoz, the Louvre and Guggenheim and the lovely Sharjah museums. Viewing and buying art is definitely an emotional and spiritual act.
Like the stock and bond markets, the art market has myriad segments, with their own unique metrics of risk, return and secondary market liquidity. The "blue chips" of art are the Old Masters or 20th-century "immortals" like Pablo Picasso, Henri Matisse, Marc Chagall, George Braque or even Mark Rothko, Francis Bacon and Lucien Freud. These painters created works of art that will endure for centuries, whose supply is limited and whose demand is unsatiable. Modernist masters, the Abstract Expressionists and Pop Art greats - Andy Warhol, Jasper Johns, Roy Lichtenstein and Jackson Pollock - are also a distinct segment with a global "niche". Indian artist M.F. Hussain is coveted by dealers worldwide. Arab. Turkish and Iranian artists are like emerging markets equities, full of growth potential but also vulnerable to price fluctuations due to volatility of demand and liquidity risks. "Flippers" are as hated in the art market as in the Wall Street IPO market.
I have found online databases useful as a guide to art investment strategy. Apart from my mother's paintings, I specialise in late Ottoman and modern Turkish artists, ideally with Istanbul themes. This is a niche segment but the late Ottoman artists fascinate me because they synthesised avant garde themes from the Paris salons with the local art of Arabia, the Levant, the Maghreb, Anatolia and the Balkans. I acquired paintings of the Grand Mosque in the holy city of Makkah, Belle Epoque Pera and the minarets of Sultanahmet in winter mist that were painted a hundred years ago. I simply could not write these columns without the Ottoman paintings in my study to inspire me.
Serendipity is often the key to success in art investing. I love exploring art galleries, biennales, art school fairs, ateliers from Marrakesh to Bur Dubai, Beirut to Bastakia. Etchings, sculpture, prints, lithographs, even in my case, ill-fated, Tsarist and Ottoman bond certificates hanging in my study that remind me about geopolitical risk are all labours of love over a collector's lifetime. The Affordable Art Fair in New York can enable investors to buy works by artist based in Soho and Greenwich Village where I lived in New York during my "Vida Bohemia" salad days, for as low as $5,000. There are also "private art banks" that provide financing for collectors, accept paintings as collateral for loans, help assist in provenance and valuations of art works. While not every investor in the UAE has the money or contacts to amass a Charles Saatchi, Baron Rothschild or Francois Pinault scale collection, I believe that disciplined, patient collecting can provide financial windfall as well as the sheer joy of owning a piece of humankind's aesthetic genius.