The $4 million habit (from the NYT):

The Spending Habits of Hedgies November 9, 2006, 6:09 am

As the art market boils over this year — Wednesday night, Christie’s oversaw a record-setting $491 million sale that included works by Gauguin and Klimt — it is fair to say that hedge fund managers are adding some of the heat. Consider SAC Capital’s Steven A. Cohen, who recently agreed to drop $63.5 million for a Willem de Kooning painting owned by the entertainment mogul David Geffen. Kenneth Griffin, who leads hedge fund Citadel Investment Group, snapped up another painting from Mr. Geffen for $80 million inflatable pool slides.

A new survey of hedge fund professionals, who are a generally secretive group, suggests they are juicing not just the art market, but those for other goods as well. For his book Fortune’s Fortress: A Primer on Wealth Preservation for Hedge Fund Professionals, Russ Alan Prince of the consulting firm Prince & Associates, working in conjunction with trade publisher MARHedge, polled the buying habits of 294 managers with a median net worth of $61.7 million.

The book is not out yet, but MARHedge shared some of the survey’s findings with DealBook. The average respondent reported spending nearly $4 million on fine art last year, which means that among the survey participants alone, more than $1.1 billion of hedge-fund money poured into the art market.

Given the reputation of many hedge-fund professionals as big technology fans, it may be suprising that electronics were so low on the hedgie shopping list. In fact, facials seem to have outranked plasma TV’s, as average spending on “traditional spa services” was higher than the “electronics” category.

The survey’s findings for their 2005 personal average spending:

Fine art: $3.99 million
Yacht charters: $429,700
Jewelry: $376,400
Hotels & resorts: $304,900
Watches: $271,300
Fashion and accessories: $204,200
Traditional spa services: $124,000
Electronics: $99,300
Entertaining friends: $76,700
Wine & spirits for the home: $48,900

What’s driving the spending? Says Mindy Rosenthal, MARHedge’s conference editorial director: “It’s no surprise that hedge fund managers shop the same way they work — without restraint.”

4 thoughts on “The $4 million habit (from the NYT):”

  1. I come back to my original question: is there evidence of significant shifts in buying habits (and thus market valuations) with successive waves of new money? Hedge Fund Managers, most based in and around NY, are surrounded by informed potential advisors. What about buyers from Shanghai or Bombay? What do they buy and why? And does this only affect markets at the margin? Or does it also have an impact on markets as a whole?

  2. And with the sums being made in Asia continuing to grow there seems to be no shortage of funds even after the hedge fund managers are sated. But are any of these people really collectors?

    I remember Great Collectors starting collections from passion and personal interest. Starting young and small, gaining knowledge and understanding and developing their own tastes. New Collectors (note the caps) start quick with advisors and buying teams and walls to fill at speed. But what is their ‘hold cycle’? Great Collectors could build over 40 or even 50 years, before items came on to the market. Sometimes more if collections built (rarely) over more than one generation. But how long did NC Saatchi hold his collections? 15 years for the Warhol-Twombly-Judd-Koons? 10 years for the YBAs? How long will the hedge fund managers hold?

    In China I see tens of millions of US Dollars (per item) being spent on traditional Chinese collectables (porcelain, jade, some painting) and these will stay in the families for a while (unless the buyer goes bankrupt) because there is a long tradition of appreciating such Art and, like old masters, no disputing their relative value. What tradition encourages long hold cycles for contemporary Art?

  3. The only evidence I know is anecdotal. New money goes safe, i.e. figurative painting – ergo the Leipzig school and the nine-figure Picasso/Pollocks etc. As for Shangahi and Bombay – my sense is that these buyers are still just getting their feet wet when it comes to buying outside their home market. No major collector like Eugenio Lopez, CI Kim or Dakis Joannou has emerged from those places yet, and it’s not for lack of time. And minor collectors don’t move markets so much, I think, because they don’t have the confidence to buy outside of the mainstream market’s favorites.

  4. If the hedge fund managers buy about a billion dollars of art a year (there were some 250 in the survey, spending $4 million on average) is that infusion of spending power roughly comparable to the 80s Japanese demand?I agree with Ian that in NYC hedge fund money is pretty smart money. I think it’s also worth considering who the buyers are. Not only are they close to the action, they are sophisticated investors already in the business of investing across a wide spectrum of asset classes — it’s what hedge funds do. That differs from the Japanese buyers, many of whom were real estate speculators and CEOs of things like pharmaceutical companies. InI NYC we’re dealing with sophisticated investors who get sophisticated advice in a market that’s more informed than ever. My guess is they are the most educated class of buyers in history, with Ivy League degrees and unprecedented amounts of data etc. at their disposal.

    Will that prevent a crash? Of course not. When the billion bucks go, the prices will collapse. But at this rate — Wall Street bonuses are expected to break records again — we may be in for another couple of incredible years.

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