CHINA CONSTRUCTION BANK SEMINAR SERIES
at the UK Campus of Peking University HSBC Business School
Why People Invest in Art and Antique Market in the UK?
Ms Tess Situ
On Wednesday, 3 April 2019, the CCB executives had the pleasure of having an art specialist Ms Tess Situ, Head of Global Sales and Marketing at The Swan, give them a specialist seminar about the financial aspect behind the business of buying and selling art. The Swan is an auction house in Tetsworth which boasts more than 40 showrooms of the finest quality English, French and country furniture from the 17th century to collectors’ items. As for our speaker, Ms Situ has been in the antique trade for over ten years, and very experienced business practitioner in art trading. on top of her international experience in finance.
Before diving into the business aspect of the antique market, Ms Situ gave the executives a brief history on the art market. Before the 1800s, the art market was very different because at that time the artists’ work was usually commissioned by his patron hence it was not tradable. As a result, the artists did not have any creative freedom, nor did they have any respect or fame. Further, more attention was paid to the art materials used, such as gold or precious stones, rather than the art itself.
Next, Ms Situ explained to the executives that the development of the art market depends on three factors: the number of collectors, movable art, and the development of mechanisms for the selling of said works of art. In particular, the English auction mechanism, which operates on open ascending price auction - the most commonly used mechanism today. The participants openly bid against one another, with each subsequent bid higher than the previous one.
In terms of art valuation, Ms Situ also explained art valuation is essentially is an art-specific subset of financial valuation with the main difference being the level of subjectivity in art. As such, art valuation involves comparing data from multiple sources, such as other auction houses, private and corporate collectors, curators, art dealers, etc., in order to arrive at a value.
As for how the auction house earns revenue, Ms Situ explained that sellers pay a catalogue fee or a commission of 15% of the hammer price to the auction house whereas the buyers pay a buyer’s premium of 15% of the hammer price. The auction house also charges 20% VAT which would contribute to their revenue.
Ms Situ also gave the executives a comparison between the art market and the traditional financial markets which include securities and commodities. In particular, she highlighted that the art market is unique in the sense that the number of participants is small and the establishment of the primary and secondary market is different.
In the second half of her talk, Ms Situ took the CCB executives through a SWOT analysis of the current antique market. She highlighted the strengths of the market to be affordable art in the primary market, unique product with pricing power and the art market is a predictable market. However, there are some notable weaknesses too, namely the small pool of participants, the unique nature of art, the dependence on the advice of a specialized market analyst, and the division of the market between well-known artists and unknown artists. One of the major pitfalls Ms Situ warned was that the art market destroys high quality art in exchange for short term economic success. Also, the market is very seasonal and some galleries tend to control the line of supply in order to achieve high-market value for art. Further, these galleries tend to represent emerging artists instead of unknown artists.
However, the art market is not as grim as it sounds. Ms Situ said that many investment opportunities are present because art and antique fairs are becoming increasingly important which would ensure more guarantees and comparisons of different types of antiques. The online market also improved access to the international stage as well as increased transparency in the market which allowed for a closer link with the financial market.
Despite the investment advantages, Ms Situ did warn the executives about the existing threats to the art market like tax evasion, money laundering, corporate collectors who pose a problem to the evaluation of its art assets. Also, the close relationship between the financial market with the art market results in volatility in the art market. In addition, art is a transient thing and is subject to trends and fads. Also, the market is privileged, which results in a lack of competitors. There is also the problem of art crime and art scandals.
In summary, the executives learned a lot about the financial aspect of the art industry that afternoon. The seminar opened their minds to a different investment sector and broadened their understanding of a very niche and privileged field of investment. They all enjoyed the talk tremendously and look forward to learning more from Ms Situ in the future.
(Reported by Dr Carryn Yong, and edited by Guy Liu)
|Last modified: 2019-04-30 15:07:21 by Zoe Toone||Created at: 2019-04-29 09:25:17|