How to profit from the Chinese art market and bag some cutting edge paintings while you’re at it
Which country has the world’s largest art market? Hint: if you’re thinking anything other than “China”, then you’re wrong.
Art information website artprice.com estimates that in the first half of 2016, China accounted for 35.5 per cent of the $6.53bn global art sales. Someone out there is making a killing from the Chinese art market, and chances are, it’s not you.
The dragon economy is notoriously inaccessible; woe betide the art connoisseur who expects to walk in and turn a quick profit. But a new company is offering a way in, turning what is traditionally seen as an investment of passion into something more strategic.
The Hong Kong-based Art Futures Group (AFG; artfuturesgroup.com) is a contemporary Chinese art brokering service whose primary aim isn’t about finding decorative pieces to hang on your wall but providing you with an investment that should appreciate in value between eight and 10 per cent a year.
The concept was born out of an awkward encounter at a gallery in Singapore. “I was living in the Far East and running a wine trading company that shipped and exported investment-grade wine from Australia to Asia,” explains Jeremy Kasler, founder and CEO of AFG. “Then the red wine boom began and the industry became more competitive, so I was on the hunt for better opportunities.”
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Having invested in asset classes including property, equities, gold, fine wine and classic cars, Kasler found himself looking at paintings in a gallery that had no price or benchmark. “When you buy a house in Mayfair, you know what the cost per square foot should be but in that gallery the painting that I liked could’ve been $10 or $1m — there was no way of telling. You wouldn’t buy a stock or share without first getting some advice. It gave me an idea.”
With no more than a passing appreciation for art, Kasler approached friends and gallery owners to see if there was an opportunity to set up a company that mirrored his wine business, but instead found Chinese artists with a proven track record and sold their pieces direct to investors.
Ren Zhen Yu standing in front of his painting of Mother Theresa
“Everyone said it was impossible but I ignored them and went ahead. With a ‘corridor view’ office in Central, my business partner and I announced to the local media that we were establishing ourselves as ‘stockbrokers for contemporary Chinese art’.” In a city driven by trade in goods and services, that got traction. “We had business straight away.”
By this stage, the Chinese art market had already established itself as a subject of fascination for both art world insiders and casual observers. The market first made its presence felt with the first significant contemporary auction in 1996 – Reality: Present and Future – which took place at Sungari Auctions in Beijing.
From that point on, growth was steady and the London auction house Bonhams held its inaugural sale of Contemporary Asian Art in 2006. But between 2009 and 2011, auction sales took off and grew at an astonishing rate from approximately $3bn to $13bn.
According to AFG, contemporary Chinese art – defined as anything produced post Mao – is the largest and fastest growing art market in the world. Already there are structural differences that make the Chinese art market interesting: wealthy Chinese investors hold a relatively high proportion of their wealth in art and antiques (17 per cent versus seven per cent in the UK, according to Citigroup), not to mention the rapid opening up and expansion of the Chinese economic system, which generated an extraordinary amount of wealth in a very short period of time. But taking advantage of this boom from a western point of view has been notoriously challenging.
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“We spent two months researching auction sales, looking at which artists had reasonable investment potential,” explains Kasler. He then sent a private investigator to the 798 District of Beijing – an area of former munitions factories and the city’s more industrial answer to Miami’s Wynwood, now home to many of the city’s artists – to get contact details and start negotiations.
“We decided to focus on ‘mid-career’ artists whose work sells for between £10,000 and £100,000 – what we deemed normal-sized investment units – and those who have the most potential for growth.” By offering to buy 10 paintings immediately rather than waiting for sales to come through, there was interest. “These artists are unbelievably talented and love their art but there’s an element of businessman in anyone who is Chinese.”
Fast forward a few years and this approach has established a large enough client base at AFG that when new works are released, they are generally sold right away. While some clients do buy the pieces – mainly oil on canvas – to hang in their houses, 80 per cent opt for the company’s leasing programme.
Born out of the practical problem that apartments in Hong Kong are typically small and clients lack wall space, this programme loans the artworks to local business and offices for a fee of 12 per cent of the value per annum. This is then split 50:50 between AFG and the client and paid, not unlike a dividend, every quarter. In one stroke it allows clients to buy more than one piece (some have as many as 100) and delivers a secondary income stream.
Chinese Democracy by Shi Li Feng
While about half of current clients are what Jeremy describes as “gwai lo” (a Cantonese word meaning ‘ghost person’ or Westerner) the remainder are Hong Kong Chinese or mainland Chinese with a global outlook — often overseas educated. London is an obvious choice for expansion because the city, much like Hong Kong, is a trading centre with an appetite for contemporary Chinese art. “In the last year alone we have realised $515,000 for a Zhang Xiaogang and $515,000 for a major painting by Yue Minjun,” says Ralph Taylor of Bonhams London.
A number of galleries have also sprung up specialising in the form. Among them is the Hua Gallery, founded by Hong Kong-born, Cambridge-educated Shanyan Koder in 2010, with a mission of promoting contemporary Chinese art in the West. It has works ranging in price from a few thousand pounds to more than £1m, and showcases a wide range of artists in varying styles, from abstract to political via pop and conceptual. Dagmar Carnevali Lavezzoli is a contemporary Chinese art specialist who champions a wide range of Chinese artists, having been involved in the field for the last 8 years (dagmarcarnevalelavezzoli.com).
For her, the idea of buying art purely as an investment vehicle jars. “I often say, don’t buy just for a financial return, buy for a life-quality return”, she explains. “Having said that, I do believe that its value is still growing and if you follow the right advice you can get some outstanding artworks.”
AFG champions over 1,000 artists but maintains a primary focus on a regular roster of 44 who have a proven track record for high returns. For the London operation, the company has a bonded warehouse so that each client will be able to physically view their prospective work prior to approval.
“These are truly beautiful works of art,” says Kasler, who highlights two he particularly likes: Shen Jingdong, who is noted for his paintings and sculpture of Chinese iconography (works start from £40,000) and Pan Dehai, whose work focuses on social and political scenes during the Mao era and beyond, with prices starting at £29,500. “Every business today has an eye on China. This is a safe and tangible way of accessing the Chinese boom which, in the worst case scenario, leaves you with something beautiful to enjoy.”