Art & investing: private banks are offering would-be art collectors advice on what to buy and what it may be worth in the future

South Florida CEO, March, 2005 by Barbara Perkins

Banks are hardly the first place a person thinks of going for advice on purchasing artwork. But, while uncommon there are a handful of financial institutions advising wealthy clients on how artwork can be a component of a diversified investment portfolio.

Citigroup's private banking group claims one of the more active art advisory services in the nation. Its advisors handle everything from helping a client create an investment-based art collection to helping physically move that collection to a new home.

Senior art advisor Jon Bourassa of Citigroup's Private Bank Art Advisory service, for instance, has handled everything from arranging for shipping and storage of major art collections to analyzing markets to determining the best times to sell a work.

"Often, some of the most challenging trips or projects we make for clients occur when a residence is sold and major art collections have to be quickly removed," says Bourassa, a 22-year bank veteran whose specialty is Asian art. He says the collections can often be massive and the moves required to be completed in days.

Art as an investment is growing in tandem with the appeal of collecting artwork and the lackluster returns of more traditional investments such as stocks. Michael Moses and Jianping Mei, associate professors of finance at New York University's Stern School of Business, compile data for the Mei/Moses Fine Art Index, which tracks the sale of art auctioned in New York since 1875. They found that between 1999 and 2004 the index showed a 7.27 percent return compared to a 2.4 percent loss for the S&P 500 stock index during the same period.

"The art market is booming while the other financial markets have been weak," says Mary Hoeveler, a former Christie's auction house executive who joined the Citi-group unit in 2002 as managing director. "It's very fashionable; it represents a lifestyle to [collectors]. They get to know the artists, they go to art fairs--it's very event-driven."

Moving services aside, the art advisory group primarily is responsible for amassing collections of art for its private banking clients. The people running the show "come from auction houses, museums, galleries. We're not bankers," Hoeveler says.

She and her nine employees spend most of their time traveling worldwide to galleries, dealers, private collectors and auction houses in search of artworks. They are typically involved at every stage of an acquisition from verifying authenticity and ownership, to value assessment and the close of the deal. "Most of our clients are very entrepreneurial and are extremely busy," Hoeveler says, so her team steps in as a surrogate.

"We give opinionated advice on what we think is important and worthy of their collection," she says. Nevertheless, "clients don't always buy what we love."

As with any investment, timing and pricing a purchase or sale are key components of the job. "A client might want to buy a particular artist and it might not be a good time," Hoeveler says. For example, tracking market cycles and taste trends gives her team the knowledge to caution a client about buying a hot artist whose works may be demanding a high price, or advise them to hold off on a sale of work by an artist who is temporarily out of fashion and fetching lower prices.

The intangible extras that make private banking appealing to the wealthy also translate to this art service: the bankers assist with minute details such as framing and conservation as well as how the works fit into overall estate planning or how the artwork may be used as collateral for a loan.

"We show them works, take them to auctions, art fairs, museums, galleries," Hoeveler says. She recounts dragging one neophyte art collector to Marfa, Texas--five hours outside El Paso--to meet renowned sculptor Donald Judd. "It was like a pilgrimage to get there," she says. "We introduced him to minimalist sculpture there. He has since bought works by that artist for his estate."

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Offering art advisory services remains an anomaly in the private banking sector. Citigroup and Swiss wealth management firm UBS AG both launched art-banking departments in 1979 and 1998, respectively.

The 10-person UBS unit includes art advisers as well as bankers, says UBS spokesperson Sabine Woessner, "We act as a facilitator. Sometimes we help clients find a buyer; sometimes they just need an analysis of the market or information on an artist," Woessner says. The Basel, Switzerland-based unit does not offer loans against the value of the artwork, she says.

Citigroup's Hoeveler says she prefers to define her team's services as a consultancy to collectors with a passion for art rather than those looking for a good investment. But she concedes that serious collectors can do quite well if they "buy well."

"The people who will do well," she says, "are the people who truly love art, are prepared to do their homework and have the courage to buy what they love."