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Insights

09 July 2018

Taking risk with art

Whilst suspicion and intrigue surrounds  the Art world, with colourful characters, disputed claims by heirs and successors, and well researched media stories, the issues around ownership and contracts, financial loss and reputation damage, and fraud, are not unique to Art.

Likewise, the impact of technology, global politics, and changing lifestyles, on Art are not unique to Art. But, for an owner, buyer, or investor in Art, or for a creative or individual whose livelihood or role is in the Art world, the risks differ – they are very much greater. This is a complex unregulated opaque market where powerful companies, dominant personalities and unknown players hold the cards, and the people you deal with and who influence your decisions, may well have interests which conflict with yours. And, without knowledge and advice from people on your side only, the likelihood is that the risks are stacked high for you…

Clients talk to us about their Art. Many buy Art and are happy with what they have, and what they want from it, and don’t see Art as a risk at all, but even in these cases it is rare for clients to be happy if what they have is not what it was thought to be. The conversation then quickly turns to what was said, what was agreed, what was mistaken, and then "what can be done". Others feel they have been successful beyond all expectations when a plausible expert comes along with a compelling story of high valuations, and eagerly part with a long held piece – and then have been stunned when the money does not come through, despite the eminent corporate name on the sales catalogue. 

And, the conversation turns to "what can be done" and "how quickly",  given the mystery around the buyer, the chain of people involved, with different types of agreements, and, then typically, "we don't want anyone to know". As usual privacy matters. We handle that too.

For some, Art is a strategic cost to secure a specific aim...

Our clients have held Art for generations. Sometimes families see Art and gold as flight assets if their lives are disrupted, as they have been before, and build up their collection, holding Art as an asset which is subject to the same scrutiny and risk process as any other investment, and with more rigour, given their understanding of what can go wrong. 

They challenge our legal expertise, and international experience, and enquire fully to test our knowledge and connections, until they feel reassured that what they have is safely held, with absolute privacy, and the pieces can move freely around the world. 

Some families though want to tell the world about the Art they collect, and send a message about who they are and what they stand for, and are careful what they collect is in line with new thinking and global sentiment. 

They come to us to ensure they meet regulations and conditions around acquiring and moving certain pieces from countries where the piece or artist may be protected, and to access our expertise around media messaging, data protection and image rights.

With clients across the world with modern international lifestyles we often see the sensitive relationship situations that threaten family wealth and it is generally accepted that nothing dilutes family wealth more than family acrimony. When the Matriarch of a widely dispersed business family shared her concerns on the different lifestyles of her grandchildren and her wish for them to share experiences to encourage friendship and future harmony, she revealed her plan: Art was the way to do it.

 

She wanted to re-arrange her investments to provide a capital sum for family travel to see great Art, to build up interest together and move on to collect Art as a growing family. The noisy family group at the auction, or crowding out the gallery, may not be this one, but they might have a similar aim. She was rigorous in wanting to know all the right bits of paper were in place, before the monies were released for each purchase.


 

When the wealth of a European family was suddenly threatened by an ugly supply chain employment issue which turned their quick to market family fashion business into a tarnished brand overnight, the business on which they depended, with enviable growth and respected ownership was suddenly worth very little, and the family reputation shredded. The family grouped all their advisers and took action. They quickly influenced the employment practices, hired new designers and resolved to build an Art collection to reflect the craft work the business was once known for. As I was drawn into the discussions, it was clear that very much more would be necessary to restore the business, but the Art would be part of it. The Art collection is now a growing part of the value of the "living heritage” business,  and includes commissions to young artists  where the supply issues arose, and Ancient Art from that country.

Hearing what has gone wrong before...

Knowing of my interest in Art, clients have shared with me their collections, and discoveries, and we have discussed longer term ambitions where the collection should be housed or gifted, and getting the right consents. How to hire the curators and how to manage the obstacles that might  impede this. Visa issues and personal relationship matters, are all part of our discussion. Clients would also ask to be connected to the people who could find certain pieces, sometimes because things had gone wrong before. The conversation usually began with “I did all the right things” and “I thought you can never go wrong if you buy” or “I thought there will always be an interest”.

Always buy the best...

One client bought an Old Master, a true museum piece, with a view to selling when he moved back to South America. He believed “you could never go wrong if you bought the best” and took independent counsel on authentication and provenance, and reviewed all the market  implications. As I connected him to the relevant people to do this, I had been thinking all clients should be as rigorous in doing “all the right things”. When a personal relationship suddenly soured and instigated the wish to suddenly sell, the museums were facing funding issues, and the known likely private buyer un-graciously said he already had one, and his was better, whilst the specialist dealer needed a two to three year sales period. I knew that borrowing against one picture was tricky and especially this one, a collection of fashionable names is much more possible, whilst the fees and guarantee charges from private funders were likely to wipe out the feasibility completely. He was left with little choice and had to take losses from his investments. The picture remains unsold and hangs unloved in his study.

There will always be an interest...

It may seem like this at the time, but fashions change and clients’ interests move on, often in line with everyone else’s, and suddenly the picture has no value at all. Some clients realise this might happen, and  buy the more decorative scenes, or the more colourful pieces, so theirs would be more likely to sell if interest began to wane, feeling it's worthwhile to take the risk in paying more for an easier sale in the future. As an international legal firm, with many clients who have settled outside their home country coming to us to discuss their situation and the impact on their assets, I have been curious about the Art – and found it often connects to their heritage and sometimes there is an expectation there will always be an interest in this Art within their own communities where heritage, rather than fashion, matters, and certain artists will always command interest… unless of course it later transpires the artist was a collaborator with the regime they fled from, and then the search starts for the expert who can validate this or not. 

Others have felt there would always be an interest amongst specific groups, like sportspeople. One client,  a major dealer in sporting memorabilia, bought a golfing picture for an international player who several years later was alerted to the likelihood that the golfers had been recently painted in. The clothes, the clubs, the frame, the markings, and the overall scene made sense, just not the paints. The client took the picture back, to protect his business reputation, and after a hard fight,  a significant settlement from the original auction house was secured, as the business had still suffered materially. 

The picture now hangs in his office reminding his clients of his responsible business practices, and the risks of dealing through unscrupulous dealers.  

 

Follow the money and interest will come...

 

Advising entrepreneurs and sharing what I see coming next and where there might be opportunities, I see clients investing in businesses with growth potential on the back of new wealth from new fast growth economies. One client, also saw potential in that national Art,  and feeling that there would also be a growing demand in line with the expected new wealth, came to discuss how best to hold that Art, if he wanted to sell, or if he wanted to move it around the world to different homes. He could live with one or two pieces, but not all of them, all the time, and sought safe storage. As we reviewed the agreements, spotting the traps and the risks our client was expected to take, an “international event” happened. Suddenly the wealth of that community dwindled and for this Art, there was suddenly no interest at all.

 

Fortunately he was at the early stages of investing in the national Art, and the business dependant on the new national wealth.

The growing opportunities...

As Art becomes part of a business or cultural strategy with a living heritage brand, or a lifestyle business, or the centre of the business strategy to turn a desolate land site into a valuable shared place, we face new and different legal challenges in getting things done in the way each client wants and which takes a long term view. Artist and image rights, governance and regulatory compliance, and data protection are just some of the matters surrounding digital art, video art, mixed media installations, Art processes, and immersive Art experiences. Some of these might be short term opportunities, but the risks may not be. 

Whether you are a private individual, a family, have a business or commercial interest, or have a role or livelihood that depends on Art, whatever its type, or age, or purpose, our interests, international connections and experiences bring us together, so we learn your situation better, spot the risks earlier, and move your ambitions forward. This is what we do, and have done for clients for over a hundred years.

And, Art has always been there.


This article was written by Heather Maizels. If you would like to know more please get in touch via heather.maizels@crsblaw.com or +44 (0)20 7438 2139.

 

 

 

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