The hedge-funders: Barbarians or bogeymen?

Andy Warhol, Dollar Sign, 1981 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.

6 thoughts on “The hedge-funders: Barbarians or bogeymen?”

  1. I intended the exact opposite with my comment on the hedge fund managers: I think most of them are not entering the art market for financial reasons (why would they do that with the extraordinary returns their funds are generating?) but because the art market can provide them with something their funds cannot: social status. So paradoxically there is no reason to worry that they are looking for a quick profit on the art market – certainly not in the case of the most well known and biggest spenders among them, Stephen Cohen of SAC Capital and Kenneth Griffin of Citadel. They seem to be genuinely interested in building long term collections. The prices they pay to do so (e.g. Griffin: 80 million for Jasper John’s False start; Cohen: 63 million for Willem De Kooning’s Police Gazette) do not seem to reasonable from an investment perspective.

    By the way, the NYT late last year wrote about a survey on the spending habits among 297 hedge fund managers. Their spending on fine art in 2005 was 4 million on average, so almost 1,2 billion for the entire group. Fine art was by far the most important spending category (yacht charters ranked second, a bit less than half a million).

    If this hedge fund money is withdrawn from the art market, it is not because the returns on art are so handsome, but because the returns on their funds may turn so poor that the managers will need their cash back.

  2. It reads like a missing chapter from Joseph Duveen’s biography, all this. Hedge fund managers are the new masters of industry who’ve bought everything they possibly can with their money already (how many yachts do you want really?), except immortality. Along comes Duveen or [insert contemporary dealer here] who suggests they can buy that as well, via an art collection.

    Perhaps, at this point, this tale doesn’t even require the role of the mephistophelean dealer. Perhaps it’s been fixed in the collective consciousness that art is indeed the closest mankind comes to immortality and it’s now entirely obvious to anyone who’s sought it in other ways but always found them lacking.

    None of this makes them the bogeyman, however. Simply human.

  3. Okay, I guess Friday was Ambiguous Readings Day here at ArtWorld Salon. First I misread Olav, and then Ed seems to have misunderstood my headline.

    The point about bogeymen is that they do not exist. When I wrote “bogeymen,” I was referring to the idea that the hedge funders are being demonized and blown up out of all proportion to be a bigger, nastier threat than they are in reality, incarnating all the artworld’s anxieties.

  4. Collector Catherine Henry emailed us this:

    I have often felt the palpable disdain of the art community whenever I mention I work in finance. Whats the issue? Of course there will always be investment bankers buying Warhols, but given the supply of work on the market, there’s something for everyone, non? And if, instead, they buy a Hirschhorn installation shouldn’t we be delighted that they “get it”? Or are we just jealous they have the space for a whole big crazy installation?

    In the 80’s-90’s the enemies were the wealthy Japanese, buying every Monet and Van Gogh on the planet. Did that really spoil anything? And, looking back, shouldn’t we thank them?

    Purchasers are the sine qua non of any market, from spices in Marrakesh to Art at Basel, so why all the romanticism? And whats the alternative: do gallerists and artists want to give all the art away? Or do we wish that art be placed solely in the static realm of institutions? If this is indeed a market, somebody has to buy (hence validate) the work and thus raise the prices for the market to thrive. Thats good for artists and gallerists. So bring on the barons — whomever they are.

  5. I would echo Catherine’s feeling of art world snobbery to a degree; I’ve always gotten the sense that some people who have made the decision to live and work in the art world–dealers, writer/curators, artists–view professionals in other fields as interlopers, dilettantes, or tourists whose commitment to art is only their ‘disposable’ income and ‘free’ time, not everything they’ve got.

    [That said, the most vicious artworld snobbery I’ve ever heard was from a table of European dealers at Basel mocking some well-known LatAm collectors. As Edw. points out, twas ever thus, &c.]

    If hedge fund managers are any different than the private equity investors, the I-bankers, the mutual fund managers, the traders, or any other flavor of finance folks, it’s could be their conveniently correlative arrival with the current market; their exponentially larger incomes; and the similarities–clubby, unregulated, opaque, arguably manipulable–between hedge funds and the art market.

    If dealers like Marc’s sound a bit paranoid and simplistic, maybe it’s because they see their own info/expertise/insider-based advantages eroding as the market expands and as people with more intensely honed expertise enter the field.

  6. New York City writer and curator Steven Kaplan emailed us this:

    Greg is right to cite a habitual snobbery within the art world, where credentials and reputations are always being vetted and reassessed, where collectors are secretly mocked by the very dealers who rely on their continuing purchases. Biting the hand that feeds you is great sport, and delivers a certain elitist frisson, a smile in public belied by a dis in private. The art world often feels like high school – cliquey, with all the vagaries of pecking order in full play. Who is inside? Who is outside? Who are the adepts and who are the philistines?

    It has always been thus. But collecting requires capital, and capital often derives from mundane and ostensibly vulgar sources, sources that have nothing to do with exalted activities like art making or art appreciation. Many renowned collections of modern and contemporary art from the last century (even before the market became hotly debated on art blogs) were founded on money made in beauty products or taxi fleets, in real estate and investment banking. The idea, then and now, is that collecting can lead to sophistication, that connoisseurship can grow with continued exposure and education. It is a form of intellectual money laundering, with art the great healer, conferring purity by involving the collector in something larger than himself: a quasi-religious elevation. Art cleanses the filthy lucre of commerce and soothes the savage entrepreneur.

    The hedge fund collector is emblematic of our elevated bull market in art. He has more money, more recently acquired, and takes much bigger bites, much riskier and more ostentatious bites, especially in the secondary market. What worries the art establishment is not the scale of the hedgie’s appetite — which is fine for dealers or auction houses who broker these bigger bites — nor his potential vulgarity, which is reassuringly familiar from past models. It is not snobbery but fear which motivates hedgie bashing. The fear that these newly minted masters of the marketplace might be able to outflank the current art establishment. That while they certainly do not know more about art, they do know more about judging, leveraging and manipulating markets. And that they will not treat art as a special investment, but will bail the moment market considerations so dictate. That they represent a new class of art investors who can play the money game better than the dealers.

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