The last thing most collectors think about when adding to their collections is, “What will I do with this work of art in 10 years.” But maybe maximizing your financial return on an art collection should one of a collector’s first thoughts. Art collectors could benefit from thinking more like successful entrepreneurs when it comes to managing their art collections.
Why you should think about maximizing your financial return on an art collection
Entrepreneurs often devise an exit strategy when they first invest in a start up. Why think exit strategy? An exit strategy is a well conceived plan aimed at achieving a desired rate of return after investing both time and money into a growing business. For many entrepreneurs who have invested large sums of money, an exit strategy helps the owner to thoughtfully transition ownership of his or her assets at an appropriate point in time. Like the entrepreneur, the active collector grows a collection with the hopes of realizing both the emotional joys of owning great art and the benefits of owning art that has increased in value over time.
Why you might need to divest your art collection
Now it may seem contradictory to talk about divesting what you’ve spent a life time building. Isn’t building an art collection what you do when you have achieved success, and have both the means and the time to finally enjoy your “passion projects?” Perhaps.
Many gather their art collections over the course of their lives. They amass a range of art assets that they have to find a home for at some future point. It’s trite, but true — you can’t take it with you. A collector might downsize, moving to a smaller house after retirement. Or perhaps she is in a financial position where it makes sense to donate to a charity given the size of her taxable estate. Maybe it’s as simple as wanting to give assets to the children or grandchildren to fulfill a family legacy, while avoiding the drama that can accompany gifting to family members.
Developing an art-ful exit strategy
Entrepreneurs and collectors see a similar range of options for a graceful exit. They decide between liquidation, gift or donation; public sale or private. Planning for the ultimate disposition of a company gives the business owner control over the finer points of the negotiation. Like managing return on investment or the impact of potential taxes on the ultimate estate. Art collectors can assure a similar result as well. An exit strategy helps determine ways to monetize illiquid holdings. In addition, a well thought-out plan guides the family, allowing them to focus on ensuring their family legacy.