Alchemy: Turning Art Into Liquid Gold

Tech Savvy Services Promise Quick Seamless Sales

Marc Quinn's Golden Kate Moss
Marc Quinn’s Golden Kate Moss

Art has forever been a notoriously illiquid asset, proving expensive, time-consuming, and frustrating in its resistance to quick and timely sales. But now, with an increasing acknowledgement that there is a swiftly growing demand for liquidity from serious collectors who wish to diversify or update their collections, and from portfolio builders who need to react to the market with time sensitive purchases and sales, there are now a growing number services that are promising a quick, seamless, and stigma-free turnaround.

Fear of Bubbles

Starting with the 90’s economic recovery and onward through the early ought’s, art began to be viewed (in stealth— and only by the very well-heeled, mind you) as a “dream equity,” a tool that could be traded, bought and sold like stock for growing capital.

There was a bit of enthusiasm for the sport of it until the stock market crashed and burned again in 2008. Then the players recoiled, the serious collectors grew wary, and savvy marketers and collectors started to second-guess their formerly enthusiastic comparisons to the stock market.

These days, though, art is being discussed once again as a portfolio asset with increasing candor because the strategic enterprise of using it as such has matured. Fine art is currently considered a low risk, high ROI long-term, safer than gold, though less liquid. Most advisors still lean toward long-term gains. This view has its naysayers, of course, but take a look at any art advisory’s catalog and you’ll find the “safer-than-gold, wealth preserving, portfolio-balancing” philosophy holding strong.

Alchemy: Turning Art into Gold

Gradually, though, as a fear of bubbles resides, and technology advances there are many new services that is challenge the old view that art is a lifetime investment that cannot be used for short term gains.

Say ‘disintermediation’ and presto!

As it turns out, the key to making art into an asset that can be purchased and sold at will rests, largely, in a giant word that is showing up all over the internet these days: disintermediation. The word is a veritable alchemical chant that can turn stubborn leaden assets into gold by erasing the traditional art market intermediaries—the brokers, advisors, auction houses, and big galleries —which make a large part of their profit by controlling who can sell what, when, and to whom.

The chart below outlines the usual barriers to liquidity and the solutions provided by the latest services:

PROBLEMS

SOLUTIONS

Stigma

 The art market has been held in thrall to a tenacious old gentleman-art-collector ethic, which intimates that art is not something one leverages for financial gain. 

It is a view which prospers, in large part, due to the rules which governed the old-timey brick and mortar dealers, the philanthropists and museum chairs, the auction houses and other market intermediaries (advisories, consultants, curators) who needed to control the careers and legacies of their artists — in part to harnes control as mentors and patrons, and in part insure that their role as experts and taste makers would remain unquestioned.

Their haughty, and sometimes punishing, attitude toward fast, frequent or high volume sellers provides a stigma, to this day, that is surprisingly efficient at blocking progress toward the liquid dream.

According to this ethic, we are forced to imagine a world of dedicated art aficionados who collect and do not sell unless they die, or get divorced, or fall into some hapless pecuniary conundrum. The collections of such individuals are built on pure aesthetic passion and maintained for the love of culture —and a healthy concern for their beneficiaries.

So it is that art advisories follow suit, even to this day, courting those collectors who would aspire to (or at least pretend to admire) this ideal — the lover of art, the philanthropic protector of culture, etc. Discussions of “art portfolios” therefore, often have an air of high-school sex ed class. They know you’re going to do it, but they don’t want to appear eager to encourage it. They take a sober and sage approach and have forever been couched in terms of “long term investments” which, once wisely made, virtually guaranteed that your heirs and beneficiaries would achieve good returns.

Masks, Mavericks, & Charities

Privacy, as a general aspect of service to collectors, has always been acknowledged as crucial.  If no one knows you’re selling, they can’t judge your reasons. This is why the current spate of online sales platforms— EBay, Collectrium, Artplode and even the storage facility Uovo (see details below), are erasing stigma through good old-fashioned discretion, while others are treating stalwart conservatives to other methods of warfare such as scorn and defiance.

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Stefan Simchowitz, a wheeling dealing, fast-talking dreamer/madman took his network of wealthy friends and introduced them to a new walless art space: the social network. He placed his bets on Instagram and private communiques and seems to be doing well. His is a world that thumbs its nose at all the old finger-waggers. Stigma be damned.

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ArtRank’s Carlos Rivera
started out in that legit world we are taught to respect. He raised money for art funds and ran a gallery of his own for a while. Then he used the algorithm, which won his art funds so much money and opened it up to the public. He beat controversy by confounding us all with mystery, rolling out the charts first, the details and explanations later — after we all thought he was either joking or selling his soul to Satan.

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Paddle8, a sort of online pop-up auction service, is invisible to stigma because of its work with charities. Most of the online auction platform’s work is done in conjunction with charities and non-profits garnering a large chunk of proceeds.

The Valuation Process

Assessing the value of artworks, especially older ones, can involve costly intermediary experts. What is more, the valuation process can take months depending on the provenance of the piece, whether or not it is signed, and what sorts of records have been kept. Both the costs and the time involved can be frustrating to sellers, discouraging strategic trade.

What is more, the process can be complicated if you own a work by one of those artists whose estates are closely protected by authentication boards — although these are folding and fading in importance.

 

Built-in
Services, or Small Fee Favors

Collectrium, is, for the savvy user, a disintermediation tool par none: a subscription-based service that allows the company’s 25 thousand+ collectors to view, manage, value track, and move their collections globally from their desktops. The myriad services that Collectrium’s would seem to make them the ideal combination of online store, art advisory, valuation service, and bank.

Although Christie’s acquired the company as a subsidiary in mid-February, it continues to operate independently of the auction giant. Boris Pevzner, Founder and CEO of Collectrium says that the platform can sift through valuation info, allowing their market savvy customers to assess the value of their own collections without
contacting a specialist.

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Artplode a brand new art sales and trading site where buyers and sellers of art deal direct with each other avoiding the commissions charged by auction houses” provides a great way to strike out intermediaries entirely. And for or a fee, Artplode will also help you value and price your art.

Auction Schedules

Waiting for the auction houses to accept, document, and schedule your work for the next suitable sale can throw off your equally important strategy to sell off that Alex Israel triptych before prices plummet.

Dodging the auction houses

As the number and variety of online art purchasing and selling platforms has multiplied, the anxiety associated with buying low to mid-priced artworks (read that, under $50,000) online has diminished.

What is more, many of the young people who are making their money these days through tech-start ups and other online endeavors are more likely to find their way to the art market through online platforms. Those sellers (who may be professional art dealers, collectors or the artists themselves) who wish to sell art through personal websites, through Instagram networks, or via platforms like Saatchi, Artplode, EBay, or even Etsy will be charged little to no fees at all and will be able to sell in a more timely manner.

Taxes

There’s nothing like a capital gains tax to throw a wet blanket over your plans to diversify. 

Tamoikin Art Fund (TAF)

Now here’s the real gem among all of these new services! TAF will, for a fee, teach you, and guide you through, every step it takes to start your own art fund.

What does this have to do with taxes? Well, once you’ve nailed down your
personal art fund, you can then leverage the Internal Revenue Code, Section 1031 which, though often used by real estate investors, is often overlooked by art collectors. 

§1031 states that the sale of unwanted works belonging to the fund will not be gains taxed so long as the sales profits go toward the purchase of “like-kind” artworks. This allows a collector to pivot — diversify, modify, or upgrade without incurring a capital gains tax.


Storage Retrieval and Shipping

It goes without saying that in the olden warehouse days, having scads of art in storage meant taking lots of time and incurring significant costs to locate, dig out, pack and ship items away to new owners.And if this were not discouraging enough, keeping track of your stored inventory was oft times a tedious, secretarial duty or else a task shunted off to the storage facilities.

So it was that many of our most lauded cultural treasures were packed away in dubious crates and housed in the dark, sometimes forgotten until disaster should strike.

 

The Digital One Stop Shops

Collectrium, as discussed above allows collectors to show, track and move their collections globally privately and securely.

Collectruim boasts the added anti-stigma feature of allowing a collector to show works which are in storage, even displaying them in frames on a wall or television.

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Uovo, meantime, a storage facility and
shipping platform provides some similar services to Collectriium’s including art handling, collections management, packing, transport, documentation, and a digital inventory system — all allowing discreet data management, sales and shipping

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