I’ve been meaning for a long time to write about the way in which the artworld talks about collectors who made their money from hedge funds. In fact, I’d rough-drafted a post two months ago, but newsier topics (and my hectic life) interceded. A comment posted by Olav Velthuis in response to Ian’s “Contemporary: what real value?” post prodded me to pick up that draft again. Because I often wonder if artworld insiders haven’t started to treat hedge-fund buyers as their handy whipping boys, blaming them for everything that makes people uneasy about the art market as it progresses into uncharted territory. Let’s start with the case against hedge-funders. [UPDATE: Olav says I misread the above. See comment #1 below. ] Olav wrote:
The new players on the market are hedge fund managers who have on the one hand an enormous reputation deficit (they are considered the parasites of the financial system, much more so than the Wall Street traders that flocked the art market in the 1980s) and on the other hand an enormous surplus of capital (again, much more so than Wall Street in the 1980s or, for that matter nowadays).
In April – when I wrote that rough draft – two pieces published in the same week likewise touched on hedge-funders in the current art market. Both pieces noted the wariness with which many regard those collectors (albeit while happily taking their money). In the New York Sun piece, “Art Market Shifts With Players” Marion Maneker wrote: “Many in the art world [are] nervous that their market is beginning to resemble the volatile financial markets. The presence of many hedge-fund managers — the puppet masters of the herky-jerky stock market — among the new breed of art collector has many dealers on edge.” Likewise in an item I contributed to a small part of New York Magazine’s blowout package on “hedgies,” I quoted a dealer saying: “The big fear is that if the market turns, they’ll get out of art just as fast as they came in.”
The fundamental notion here is what the French call deformation professionelle – the syndrome where the modus operandi of your professional life shapes how you handle things in your private life. In this case, that means that the people buying art with hedge-fund money are allegedly treating the artworld as yet another market to be gamed. By extension, observers predict that the hedge fund guys (and they always seem to be guys) will ruthlessly bail on the art market as soon as they feel like it’s “topped.”
Granted, many of the hedge-fund guys seem to be using the same strategies that they would in playing markets – quantitative analysis, portfolio diversification, trading on insider information, trying to corner markets, and playing many potential buyers (individuals, or auction houses, or both at the same time) off against each other to maximize return when they do decide to sell.
That seems very un-connoisseur, totally alien to the notion of collecting art as a form or cultural patronage. But is it fair to tar only the hedge-funders with this brush? Because as the prices have gone stratospheric, a lot of so-called “real” collectors have suddenly started cashing out at auction. And the artworld has become a generally harder place, governed more and more by financial clout than by ideas and aesthetics. There are certainly a lot more lawsuits flying around, and many handshake agreements are suddenly evaporating when a higher price for the piece manifests itself. (I even heard of one collector who feigned amnesia to get out of a deal recently.)
Thus, the knee-jerk attacks on hedge-fund guys remind me of a political psychology theory I learned in college (the only idea I seem to have retained from that entire semester of study): That groups use a common enemy to create cohesion amongst themselves, and that this enemy commonly mirrors precisely those aspects that the group most fears lurk within itself.
So let’s be fair here. The motivations of those much criticized hedge-funders are not truly different than those of the private dealers and speculative collectors that preceded them into the art market. And it’s not a missing link in their moral DNA that has made those newer collectors into the new masters of an old game, but rather their huge appetite for risk and the razor-sharp analysis that they deploy.