By Dmitry Tamoikin | President of the Tamoikin Art Fund
The art market is one of the last utterly unregulated trade sectors on earth. There are very few effective laws in this business to make it a fair, free, and honest place to do business. At the same time, the amount of money circulating in the global art trade is astronomical, over $300 billion would be my guess, and that number is sure to grow. I would not be surprised if the global trade of art, antiques, and collectibles already surpassed the trillion-dollar benchmark, mainly because many transactions happen in the shadows, under the table. The bigger the deal is, the less likely it will be made public. The artworld is truly the Wild West, where chaos and disorder reign supreme. As a result of this lawlessness and lack of leadership, tens of millions of honest people are discouraged from participating in this very profitable trade, depriving the law-abiding section of the art market of substantial capital and clients.
Learn more about the dangers of a lawless art market in our groundbreaking report: Is Art Financing Terrorism
Corruption in The Art Market
So how can art dealers, galleries, and auctions make honest money selling arts, antiques, and collectibles in this chaotic environment? The answer is – many can’t and fall into the gray zone of unethical practices, most of which come down to manipulating the client into buying highly overpriced items of poor quality. These items obviously will not appreciate well over time and more likely than not become a financial burden to the new owner. This negative trend is evident in the modern art sector. Unprofessional, overly simplistic, and unprofessional artworks sell for astronomically high prices to high-net-worth individuals. They fall victim to well-connected promoters that have a lot of influence and experience in this business. When these mislead buyers eventually try to sell their alleged masterpieces, they quickly discover that no one wants their stuff because the market is full of similar art. Plus, the price they initially paid is two to twenty times, if not more, than the actual market value of their item. I write this from my experience. Our art fund constantly receives letters from such owners who ask us to help them sell their overpriced colored canvases. And we try to help, but in too many cases it’s impossible to recover even 50% of their intimal investment.
There are many more examples of corruption in the art world, from outright forgeries, falsifications, thefts and other serious crimes. If this subject interests you, follow our Crime category.
Discover The Power of Art Funds
Art funds come in to change all this. An art fund must hold onto its art, antiques, and collectibles until the optimal maturity date before selling. The intention of holding onto art and not rushing to make a sale as fast as possible is a game-changing practice. By holding onto art, antiques, or a collectible item, an art fund publicly demonstrates its confidence that the rarity it acquired is an appreciative asset that will grow in value over time. When the maturity date is due, the art fund must prove that their artwork is still liquid and valuable – by selling it at a reasonable profit.
This methodology is a much different approach to the art trade, adding credibility to the artwork and the seller. When holding art, even for a short period, a year or so, it provides the fund’s experts time to examine every aspect of the asset in their possession. Because art funds often hold rarities for much longer than that, they have ample time to perform the necessary research, analyses, and testing to ensure their artworks are authentic, rare, and financially profitable assets. Such in-depth examination not only increases the financial value of an item, but endorses cultural education, teaches history, and uncovers interesting facts about an item historians miss. Not many other organizations, other than state museums, have this capacity or goal. Art funds have the potential to not only become profitable businesses. But grow into research and education facilities, benefiting humanity. Furthermore, art funds are becoming the natural filters of the art world. They eliminate fakes, expose illiquid art, preserve valuable heritage tested by time, generate ethical wealth, and promote factual research.
Important to note that art funds are not the be-all and end-all solution to the vast amount of problems plaguing the art market. Truthfully, art funds themselves are not exempt from corruption. Like any other enterprise, they can take part in unethical practices or criminal activity. Not all art funds are a great place to invest money. Many funds fail—many invest in overpriced modern art and go bankrupt. Some conduct shady business. Others disguise themselves as art funds but are shell companies for laundering money. Do not forget every art market is unregulated in every country on earth. So trust your finances only to reputable organizations with a proven track record of preserving and growing wealth.
Transparent art funds that embrace technology, lawful conduct, and the scientific method to do business are what’s necessary. Clients expect to multiply their capital legally, timely, and responsibly, which is a much larger responsibility than just selling art to the highest bidder. Without a doubt, art funds are responsible for leading the market instead of just reacting to it. Reasonable, thought-through regulations helping all market participants generate wealth, create transparency, freedom, and accountability is what art funds should promote and endorse. Leaders of art funds must understand this process and hold themselves to a higher standard than everyone else.
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