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Kevin Marron

Wednesday, January 22, 2003

Though the high-tech bubble has burst, there is still a bull market in fine art thanks to successful dot-com investors and entrepreneurs who are now looking for action in galleries and auction houses, according to art dealer David Heffel.

Mr. Heffel, president of Vancouver-based Heffel Gallery Ltd., which runs Heffel Fine Art Auction House, says the same thing has happened in previous economic cycles, with art markets continuing to do well for a period of six months to two years following a stock-market correction.

"New money, probably generated in recent years in the stock market, has found a new home in the Canadian art world," says Mr. Heffel. He observes that many younger art collectors pulled their profits out of the stock market a couple of years ago, spent money on upgrading and renovating their homes and now feel comfortable about buying art at a time when "maybe they don't feel too optimistic about putting money back into the stock market or developing other business ventures."

Mr. Heffel says the new generation of art investors appears to be serious about art, using the wealth of on-line resources now available to educate themselves and research the market.

They are different in this respect, he says, from the new art collectors during the last big boom in art sales in the late 1980s, who seemed to engage more in "trophy hunting" and speculative purchases.

Vancouver-based art dealer and analyst Anthony Westbridge, publisher of the Canadian Art Sales Index, says the last big peak in the art market in 1988 and 1989 was "driven by people who were less informed and saw the rise and went hog wild to buy anything they could. Many of them got burned."

The 1980s boom was fuelled by the popularity of Canadian abstract artists and was followed by a six-year period in which sales tapered off, Mr. Westbridge says. "The prices for some of that abstract stuff were absurdly high and probably won't ever be seen again for some of the artists."

The current Canadian fine art bull market, now in its seventh consecutive year of growth, is different, according to Mr. Westbridge, because it is being driven by astute investors and sales of high-quality paintings by great artists with proven records.

The potential returns are spectacular, he says, noting that a painting by Paul Kane, which sold for $2.2-million last year, was purchased in 1999 for about $500,000.

Even though prices have reached record highs by Canadian standards, much of the domestic art market is still undervalued by international standards, he adds.

"While I expect there is going to be a correction in this market because it cannot go on forever, I don't see at this point in time anything that's over-inflated," Mr. Westbridge says, noting that the Canadian market tends to be dominated by a few dozen well-known artists, with the result that there are many bargains to be found -- "great paintings by wonderful artists that haven't reached their maturity."

But collecting works by lesser-known artists definitely involves a "buy-and-hold" investing strategy, as it may take a long time for their value to be recognized and realized on the market, he says.

People who invest in Canadian art must also accept the fact that it is "tough to near impossible" to sell Canadian art outside the country, whereas higher-priced international works can be traded anywhere in the world, Mr. Westbridge warns.

Art consultant Karen Mills, who managed one of Canada's largest private collections during the 1970s, says would-be art investors should be wary of the cyclical nature of the art market, where tastes and critical opinions change and "things go in and out of fashion on about a 35-year cycle.

"You can make money acquiring works of art, but you really have to know what you are doing and there are absolutely no guarantees. It is far better to be acquiring art for other reasons than purely for investment," says Ms. Mills, managing director of the consultancy service Public Art Management, a part of Hamilton-based Mills and Mills Consulting Services Inc.

If you are investing in art, you have to be armed with knowledge, says Ms. Mills. "Understand some of the basic things. What condition is it in? Has it been retouched? Does it have a good history? Has it been on the market for a long time or has it been on and off the market?"

She suggests consulting reference guides, such as the Canadian Art Sales Index or other similar guides that keep track of international art sales and auctions. By tracking previous prices paid for works of the same artist, you can get an understanding of what is reasonable to pay, though prices vary, depending on the quality of each work and its subject matter, Ms. Mills says.

Mr. Westbridge says it is foolish to spend a lot on works by unknown new artists and think that you have made a good investment, but people can do well buying works that have a good record on the secondary market, if they stay beneath or within the range of prices that other similar works have fetched.

He suggests balancing assets in an art collection, as in any other investment portfolio, so that most of your funds go to blue-chip works by well-established artists, while a little is devoted to more speculative purchases of newer works.

"There are risks in every form of investment and the art market is no different.

"If you are forced to sell when the economy is as flat as can be and you have a minor work, you are probably going to be forced to take a loss.

"However if you've got a great work and are forced to sell in a down market, you'll probably still do well, because great works seem to survive every form of economic downturn. There's always money around to buy great pieces.

"I maintain that if you buy sensibly and carefully, with research, that you can do extremely well and, yes, it is a damn good form of investment and about as exciting and enjoyable an investment vehicle as you are ever going to find," Mr. Westbridge says.

"The research, the discovery of a work, the adrenalin rush when you're bidding on a work or trying to negotiate -- these are powerful things and they sure beat the hell out of phoning your broker and saying, 'Buy me a thousand ABCs at $1.97 and sell when they're at $2.10.' Then you've got the added bonus of the sheer pleasure, the prestige, the joy of owning the piece, putting it on the wall and admiring it. These are profits in themselves."

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