The Art of Collecting
Fueled by the rapid expansion of global wealth, the market for fine art and collectibles continues to climb along with prices. However the recent explosion of interest in the art and wine collection market creates new threats and complex challenges.
The global collections market continues to grow despite the current economic challenges. The record-breaking sales reported by Christies and Sothebys in 2011 represent a new breed of super-rich collectors from emerging economies such as China, the Middle East and Russia. These new patrons of the arts are often less experienced buyers who are willing to pay inflated prices. This buying behaviour has impacted the valuation of art and increased the risks associated with collecting.
It was once the yacht, sports car or race horses that marked one as smart, cool and successful. Now it is an art or wine collection.
Acquiring collectibles to establish status is not a new phenomenon. However, the inclusion of art, wine or other valuable articles in one’s investment portfolio is a newer trend.
Art Collecting: Is it Real or Isn’t it ? Along with less experienced buyers comes greater potential for fraud, theft, and counterfeit sales. In the U.S, The Federal Bureau of Investigations estimates the black market for art to be around $6 billion per year. Recent art thefts at well-known institutions illustrate the desire to possess works of art that are not available through legitimate avenues.
The black market is also very strong in Canada. There are active Professional Artists re-producing works by several members of “The Group of Seven” and their contemporaries behind the scenes. They will then consign their fakes through reputable Canadian Art auctions. Occasionally these artists are successful in selling their fake paintings for thousands of dollars. Unfortunately, due to advanced technology with respect to the finish on the painting, it is becoming more and more difficult for Professional Art Restorers and Auction House Specialists to spot these fakes.
This is why Provenance (the origin of the painting) is pivotal when a collector is considering spending hundreds if not thousands of dollars on an original piece of artwork. Building a valued collection can be an exciting and rewarding experience, if one understands and takes the appropriate steps to manage the risks. Whether it is the result of a lifelong passion or simply a means to diversify an investment portfolio, a collection needs to be protected with the same focus given to other highly valued assets and investments. Proper diligence, expert advice and close attention to market changes are critical success factors.
Wine Collecting: No Refills Wine collections can be misrepresented by re-labeling or re-filling bottles. The inclusion of art, wine, or other valuable articles in one’s investment portfolio is a newer trend fueled by expanding global wealth.
Wine has also experienced consistent increases in value.
Wine has become another source of enjoyment for collection and consumption as well as the target of fraud. Counterfeit wine comes in two forms. The first involves re-labeling the bottle to a more desirable vintage. In the second scenario, the authentic bottle is refilled with a lesser wine, re-corked, and foiled. Wine collectors are susceptible to fraud because they often hold bottles in their collection for years before drinking it, thereby making it difficult to locate the perpetrator after the sale. Pride also prevents a collector from admitting, let alone recognizing, that a treasured acquisition is a fake.
To combat this issue the application of tamper proof labels, originally developed for the pharmaceutical industry, is underway, as well as the use of microchips in corks to create winery “signatures” or “fingerprints.” Some companies are now using bubble technology in the wine bottle capsule to combat refilling used bottles. If the cork has been removed, a residue is evident making it more difficult to refill the bottle.
While people are looking for alternative investments, they are zeroing in on investments such as art, gold, silver and wine. However, before you consider venturing into any specialized investment strategy, consult with an expert or your Advisor. One wrong move can become quite detrimental.