UHNWs are investing heavily in art but experts say it’s dangerous territory

If you’ve ever wondered how the world’s wealthiest people invest their millions, there’s one area that’s gained a lot of traction recently. According to The Wealth Report 2023, published by Knight Frank, art was a top investment performer in 2022. The report, which surveyed over 500 private bankers, wealth advisors, and family offices, revealed that the super-rich weren’t only investing in art because they were following a passion, but they were also making good profits from it.

So why has art become such a worthwhile investment? Last year we saw technology stocks dwindling, ailing blue-chip stocks and crypto plummeting. The art market, however, was alive and kicking. 

Annual returns received from UHNWs art investments in 2022 were at 29 per cent and the top item purchased by UHNIs in 2022 was an Andy Warhol painting named Shot Sage Blue Marilyn, for $195 million (£171 million) in a Christie’s auction.

‘The proprietary Knight Frank Luxury Investment Index (KFLII), which tracks the value of ten investments of passion, has increased by a healthy 16 per cent during 2022, comfortably outpacing global inflation rate whilst outperforming the majority of mainstream investment classes, including equities and gold,’ said the report.

‘The very upper end of the art market appeared to flourish during the credit crunch’,  Sarah Barker, Partner at Withers’ Business Division, tells Tatler.  ‘Valuable artworks were said to be an alternative asset class where money might be safely invested when it was not safe elsewhere. Since 2008, the top end of the art market has generally appeared to thrive,’ Barker added. 

Baker says the success stories are a big driver. ‘If you had purchased certain established but undervalued female artists in the last five years, such as Rose Wylie RA, who is now with David Zwirner Gallery, you might currently be feeling like art is a great investment.’ 

However, this is a volatile market and tastes change, warns Barker. ‘Your grandfather’s prize collection of Victorian watercolours that were once earmarked for paying the school fees, are now unlikely to pay for the school run. If you had purchased a ‘Jackson Pollock’ from the prestigious Knoedler Gallery in New York during the early noughties, you might be writing that significant acquisition down to zero, after the gallery was famously found to be a hotbed for the sale of forged artworks.’