Aaron Dabbaghzadeh, InwestCo Founder & CEO, reveals the surge in fine art expenditures by middle eastern investors.
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I believe the Middle East has witnessed a transformative cultural resurgence in recent years, marked by its growing role in the fine art market. In the first quarter of 2023, there was a “wave of temporary art exhibitions, talent, and investors convening in the region,” according to Forbes Middle East.
My company is a family office with a presence in the Middle East, particularly the United Arab Emirates, and I have observed firsthand a growing trend toward investments in alternative assets, notably fine art, within the region. As an avid art enthusiast myself, and having assisted several investors in the Middle East with acquiring fine art pieces, I’ve learned valuable lessons on navigating the space as an investor and how family offices can set up their clients for success.
Understanding Diversification
As the region diversifies beyond oil and gas, some investors might be looking for ways to diversify their portfolios beyond oil-based products. An investor’s diversification strategy could span various sectors, such as real estate, technology, healthcare, renewable energy, the art market and more. Diversification reduces an investor’s dependency on a single sector, which can help them enhance their financial resilience and adapt to changing market dynamics.
Fine Art Investment Trends
A prominent example of a fine art investment in the Middle East is the acquisition of Leonardo da Vinci’s masterpiece “Salvator Mundi.” Saudi Arabia’s Crown Prince Mohammed bin Salman was identified as the buyer in 2017, according to the Wall Street Journal. To me, this underscores a conscious shift away from conventional assets and emphasizes the growing importance of fine art in the region’s financial landscape.
The region’s growing influence in the art market is reflected in major auction houses as well. For example, in 2022, Sotheby’s Middle Eastern Art department set records for three Egyptian artists in the March 20th Century Art/Middle East sale, according to Sotheby’s website. These included Seif Wanly’s “Untitled” oil panel, Abdel Badie Abdel Hay’s sculpture “Mobaghata” and Hamed Abdalla’s self-taught oil painting “Ville Arab.”
Furthermore, major museums and cultural institutions have been established in the Middle East, such as the Louvre Abu Dhabi, which I believe underscores the transformative power of art in establishing global bridges and cross-cultural dialogue.
What This Means For Family Offices
I anticipate increased fine art expenditures to persist. Increased fine art spending can be a strategic decision for investors and business leaders, with potential benefits beyond aesthetic enjoyment, such as financial opportunities and cultural enrichment. Additionally, through investing in artworks, investors can actively contribute to an artist’s influence and endorse cultural accomplishments that embody the essence of their time.
However, careful consideration is required to optimize the value of such expenditures. For family offices helping investors navigate the fine art space, educating them on the risks and rewards of these investments, conducting comprehensive due diligence and advocating for market transparency are all critical elements.
Challenges such as extended liquidation times require thoughtful consideration for investors seeking quick access to funds. Furthermore, subjective valuation, transaction costs, market volatility and preservation expenses underscore the significance of meticulous research and strategic planning when navigating the landscape of art investment.
I’ve found it’s also important to educate clients on some of the elements that can affect the value of artwork, such as scarcity. If an artist has rare pieces in high demand, that may raise the price. In my experience, the scarcity of artworks may be attributed to several elements, such as the rarity of editions or unique works, low artist production output, limited availability of historical or vintage artworks, infrequent market appearances, exclusivity in gallery and museum exhibitions, posthumous effects, shifts in art market trends and the uniqueness of an artist’s style. Economic prosperity is also worth explaining, as heightened demand during economic booms may increase competition and values. Additionally, integrating artisanal craftsmanship and employing rare materials, such as precious metals or scarce stones, could affect the intrinsic value of artworks.
When instructing clients on fine art investment, I’ve learned that employing a thorough strategy that integrates theoretical knowledge with hands-on practice is crucial. Consider holding workshops or seminars, coordinating curated gallery tours, sharing real-life case studies and potential investment returns, providing updates on market trends, helping them examine legal and tax matters, and providing ongoing support and guidance throughout the investment process.
Ultimately, the expansive canvas of opportunity for fine art investments in the Middle East reflects a harmonious blend of tradition, innovation and visionary financial decision-making. While investing in art may provide fulfillment and returns, helping clients take a prudent approach is imperative. To echo the wisdom of my father, “Invest in assets that endure, and keep them right in front of your eyes.”
The information provided here is not investment, tax, or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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