UK: ARTFUL WAYS OF INVESTING.

UK: ARTFUL WAYS OF INVESTING. - Dabbling in art can be pleasurable - and highly unprofitable.

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Last Updated: 31 Aug 2010

Dabbling in art can be pleasurable - and highly unprofitable.

Why should any company - unless art is its business - collect pictures and sculptures? To satisfy the chairman's whim? For prestige, and in order to impress clients? As a sound investment? By accident? The answer, in every case, seems to be 'yes'. But is it wise to use shareholders' funds in this way?

A few older businesses have inherited collections from generations back. Individual works still, occasionally, pass to a company from one of its directors. Sometimes they hang in the boardroom, alongside specially commissioned portraits of former chairmen. Other businesses are luckier. Guinness inherited numbers of pictures from the family and via the acquisition of United Distillers. The best known of these, Landseer's Monarch of the Glen, is insured for £5 million and has in the past proved its commercial worth by advertising Scotch whisky.

After Lord Macfarlane became chairman of UD in 1987, The Monarch and other Scottish scenes were moved from the boardroom to the entrance hall of Distillers' House, Edinburgh, where they are accessible to the public. UD has adopted a more positive approach, acquiring works by contemporary artists, too, and sponsoring events such as the Royal Academy's summer exhibition. Pictures are frequently lent out to galleries in Scotland or join a travelling exhibition. 'It's part of our heritage,' explains Macfarlane. 'It strengthens links between the company and the community.' Robert Fleming, the merchant bank, also has a distinguished Scottish collection, possibly the finest in the City of London. Around the atrium hang works by Scottish colourists and 'more challenging contemporary artists' which are there, says their keeper Bill Smith, 'to make our people react'. The paintings circulate around Robert Fleming's European offices where, according to Smith, they are in great demand. Dunedin investment group is another collector of Scottish art - and for very similar reasons. 'They add to the pleasure of working in a fairly basic modern building and generate a lot of interest from visitors,' says deputy chief executive Alan Kemp.

Being a multinational, British Petroleum evidently feels obliged to cast its net more widely. The oil giant has a whole string of national collections: thus BP N.V. is strong on Belgian art, Deutsche BP on German art, etc. The UK company is less active as a collector than it was, since 'this would not seem justified at a time of retrenchment and redundancies'. Other businesses look for a direct link between their art and their products. BMW's UK subsidiary, for example, has a collection of car pictures - BMWs painted by Robert Rauschenberg, Andy Warhol and others - which have also been used in adverts.

Some companies have done well out of dabbling in art. Over many years the art market provided a useful hedge against inflation, comfortably outperforming the stock market. British Rail Pension Trustee Co is one long-term investor which profited handsomely by selling when prices peaked in the late '80s. But other investors have had their fingers badly burned. Hill Samuel, at the time it was acquired by TSB Group in 1987, had not only built up a large corporate collection but had lent heavily to Cork Street art dealers against the value of their stock, the loans being used to buy yet more pictures. When prices dived in the early '90s some dealers went to the wall.

Some say that now is the time to move back into the market. But the latest DT Art 100 Index shows average values down 17-18% in 1994. Auction prices of both French impressionists and established contemporary artists are reaching less than a third of the 1989-90 figures, and the outlook remains uncertain. Anyone now thinking of buying art as an investment - rather than for any other reason - should bear in mind the age-old rule: caveat emptor. Those who get it wrong may find it hard to explain the losses to shareholders.

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