Growing your Investment Portfolio through art as a passion investment

13 February 2018Tim Mertens, Sovereign Group
Tim Mertens, Chairman of Sovereign Trust.

Tim Mertens, Chairman of Sovereign Trust.

Art has become an increasingly popular asset class when it comes to designing an investment portfolio, but remains a fairly un-chartered territory for many South African investors.

According to Fine Art wealth management, investing in art will be a natural by-product to newly minted millionaires and ultra-high net worth individuals in 2018. The US Trust report further mentions that, one-in-five of the wealthy is a collector of fine art. The wealthier one becomes the more they are inclined to invest in art and this trend is expected to continue as younger generations are handed the reigns and begin to form their own collections.

Over the past decade, the art industry has seen a growth rate of 212% and is quickly becoming an asset class to be reckoned with.

A report by Deloitte and Art Tactic estimates that $1.62 trillion in art and collectible wealth was held in 2016 by UHNW individuals and there will be an estimated $2.7 trillion by 2026. How these collections will be managed in tax and estate planning will have tremendous implications for collectors and their families as the greatest transfer of wealth takes place in history.

According to Tim Mertens, Chairman of Sovereign Trust SA, “With the search for higher returns on investments, and the need to diversify investment portfolios in times of market uncertainty, investors are considering alternative investment avenues, of which art is a class of growing interest. In addition, this is an investment that one can enjoy as it appreciates in value and attracts no taxes.”

“Of course, collecting art is not for everyone, but those who are in the know or have an appreciation for art in whatever form could do worse than many of the other alternative investment classes out there such as private equity or hedge funds. Art is tangible and has more in common with the likes of property investment,” adds Mertens.
A considerable advantage would be that If you invest in art and want to pass on a significant inheritance to your children, one does not have to pay capital gains tax (CGT) on the sale of works of art, provided that they have been purchased for personal use.

This means that you can leave the art to your children and they can sell them without having to pay CGT, says Mertens.

With many art lovers set to attend the Cape Town Art Fair being held in Cape Town in February 2018, to drive the reputation and sales of contemporary African art, Mertens mentions “Art is a big business all over the world – and although investing in art is not easy and can involve a high level of risk, what makes art fairs so attractive is that they provide collectors with a single point of access to a wide range of galleries that have the credentials and experience to profile artists with investment potential.”

The Cape Town Art Fair will be held from 16 to 18 February 2018 at the Cape Town International Convention Centre.

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