Latest Citadel art price index: Cobus Venter – director, Econex

‘Art – you can look at it, but it doesn’t put money in your pocket,’ says Wayne McCurrie.


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ALEC HOGG: Now for something completely different. Wealth management group Citadel has commissioned a new measure for South African art prices. I asked the compiler, Econex’s

Cobus Venter, whether the index can be used as a guide for the rest of us on when to buy or sell pieces of South Africa art.
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COBUS VENTER: Art is very, very subjective. The South African art market is relatively small as well, so one must be very careful of using a mechanistic approach towards an investment decision, which is highly subjective in our case.

ALEC HOGG: Is it an investment? I ask that because trading in art is so expensive, and the galleries charge, well, certainly double-digit commissions.

COBUS VENTER: The galleries were not included in our sample. We only use auction results which are transparent and publicly available, simply because you don’t always know exactly what the final price was through the galleries – it’s not published.
    Art as an alternative asset class certainly seems to reflect a reasonable alternative to some of the other asset classes, and what was interesting is that the trend within the art index is very similar to that of something like the JSE, but with a significant lag. So it’s almost similar to the house prices in South Africa that showed very strong growth through the consumer boom times of 2004 to 2007, and lagged a little bit before correcting. So the JSE corrected very, very quickly in 2008 and into 2009 and the art prices are lagging that because they are closely correlated to disposable income and the wealth effect.

ALEC HOGG: Going through the detail of the research that you’ve done – and perhaps I was reading the numbers incorrectly – but it did suggest that art has been in a falling market, South African art anyway, for the last four years.

COBUS VENTER: Yes, but that is similar to what we were expecting. We would expect it to turn around now. One of the things that one mustn’t underestimate is the impact of the foreign sales; obviously we include Christie’s and Bonhams in London, and obviously the exchange rate conversion there has some impact on it as well.   

ALEC HOGG: But I remember seeing an Irma Stern somewhere that had sold for R24m, R25m recently. That would surely have helped the index a little?

COBUS VENTER: Not really, we allow for those kinds of [laughing] suborbital prices. In a way, where the index is weighted according to volume of transactions rather than absolute price levels, we don’t include absolute price levels anyway, really.
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ALEC HOGG: Have you got any Irma Sterns hanging around in your…

WAYNE McCURRIE: No, no, I’ve got none of that. Look, with certain selected artists you can make a lot of money out it. But personally, I don’t know how to value anything that hasn’t got a cash flow.

ALEC HOGG: What does that mean?

WAYNE McCURRIE: Like gold – how do you value it, what is gold worth? It’s only worth what someone offers and is going to pay you for it.

ALEC HOGG: But you can fondle it, you can polish it…

WAYNE McCURRIE: It doesn’t put money in your pocket. Art – you can look at it, but it doesn’t put money in your pocket. So I don’t know how to value something that hasn’t got a cash flow or is like a start-up mine, potential cash flow at some stage into the future. So I just don’t know.

ALEC HOGG: I just mentioned that because Warren Buffett in his latest annual letter to shareholders is talking about how you can fondle gold, and polish it, and look at it – but if you took all the gold that has ever been mined and you translated that, you could have bought all the farmland in the United States, plus 10 Exxon Mobils and had quite a few billion of what he calls “walk-around” money. So, to get back to your point, if you are going to invest in something, you should be able to have also a positive underlying return.

WAYNE McCURRIE: You should have, ja. But I think it’s good that there’s an index – something that you can at least judge and make a decision on. But I don’t like investing in things that haven’t got a cash flow.

ALEC HOGG: Well, art is in the eye of the beholder. I met an artist once in Paris who sells his art for hundreds of thousands of dollars, each piece, and I asked him why people would want it. He’s quite a big man, and he said that once the guys who buy it have got their yachts and they’ve got their motor cars and their flats in London and Paris and New York, they want to have a piece of his art. And I guess that’s a lucky place to be.

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Friday, March 30th, 2012 EN

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