Discerning investors train sights on post-1945 art

ZURICH Fri Jul 31, 2009 4:17am EDT

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ZURICH (Reuters) - Investors battered by a credit crisis could look beyond equities and bonds in their quest for returns: those with a keen eye are beginning to see bargains in contemporary art.

Prices of works by artists born after 1945 have fallen nearly a third since a late-2007 peak, according to widely used market data compiler Artprice, and analysts say this could be a great time to get in.

"It is a very good time indeed to buy contemporary art. You find interesting and high quality works at reasonable prices without the hype of the last years," said Sydney-based gallery owner Dominik Mersch.

Artprice data shows turnover of contemporary works selling at auction fell to 11 percent of the total in the first half of 2009, from 19 percent over the whole of 2008.

But the odd high-profile sale has underlined the category's potential: a David Hockney portrait of Betty Freedman sold for $8 million in May, a world record for the artist -- and still tipped as a sound investment.

"Whoever bought that work got an absolute total bargain," said Simon de Pury, chairman of auction house Phillips de Pury & Company, who believes Hockney's works will follow the pattern set by fellow British painter Francis Bacon, whose prices rocketed after an initial struggle.

Nevertheless, it could still be up to two years before a significant turn in art markets, which tend to recover later than the wider economy, said Patrick Gruhn, owner of Switzerland-based Art Invest.

"Contemporary means it's up and coming, it's more fashion than value. It's not confirmed value, while the bigger names have a certain stability," said Gruhn.

"The contemporary market is slumping a bit at the moment. It's a good opportunity to get in."

All-time favorites like Monet, van Gogh or Rembrandt have proved a safe bet through the downturn, while the traditional category as a whole -- defined as work by artists born before 1945 -- lost a quarter of its value since late 2007.

LOOKING UP?

Investors' appetite for art has prompted private banks around the world -- including UBS (UBSN.VX), Citi (C.N) and Deutsche Bank (DBKGn.DE) -- to offer ancillary art advisory services to their wealthy clients in the run up to the art boom.

But the global financial crisis has forced wealth managers to focus on their core investment management business.

There are early indications that the art market may be past the worst.

This week, the Artprice Art Market Confidence Index, a daily poll by the widely used industry pricing organization where a reading above zero indicates optimism, was at plus 27 points, having rebounded from a low of minus 26 at the end of 2008.

Art prices took a hit in 2008 and the Mei Moses All Art Index -- collated from data from auction sales -- fell almost 4.5 percent after five years of annual growth averaging almost 20 percent.

According to Mei Moses, art outperformed equities last year but fared less well than bonds, bills and gold. The most recent five- and ten-year compound annual returns for art impress, though, with only gold performing better.

That was underlined by the sale of fashion designer Yves Saint Laurent's art collection earlier this year for more than 370 million euros ($528 million), a world record for the most valuable private collection sold at auction.

A 1911 painting of a vase of cowslips on a blue tablecloth broke the record for a work by French painter Henri Matisse as it sold for nearly 36 million euros, and a 1922 abstract work by Dutch painter Piet Mondrian netted 21.5 million euros.

Some observers point out that as prices are relatively high and stable in traditional segments and few of the highest quality works are available, buyers wanting to build important collections will look to art from the past 25 years and hence drive up prices.

"If we look back now, at the start of the 21st century, to the art of the 80s and 90s, we can buy the best of any of the art that was created at that time without any restrictions," said de Pury.

Buyers have to do their own research and pick out promising artists who have not yet become well known, said Art Invest's Gruhn.

"Prices are so flexible, you can really negotiate," he said. "Bottom line is you should buy what you like. Then at the end of the day, you still have something you like to look at."

(Editing by Sitaraman Shankar)

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