Down market strategies

I wonder if anyone is getting guarantees out of the auction houses these days? In a financial market turning south it is a common strategy to buy “put options” before everyone else notices; i.e. contracts to lock in now, a right to sell something in the future, to someone else at a price fixed now, when you think the market as a whole is falling. An Art market equivalent would be to agree with an auction house now to sell a collection later in the year, on condition of sale price guarantees, set now, at current pricing. Always a risk for the auction house (ask Phillips de Pury), in a real down market it can be a disaster. The smart auction houses understand this, of course. If they are nervous about market values, they stop giving guarantees. Perhaps only in some markets. Perhaps in all.

So I repeat my question: does anyone know if auction houses are still offering sales guarantees this year?

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.” Continue reading “The hedge-funders: Barbarians or bogeymen?”

Contemporary: what real value?

In the context of a discussion this week, on this site and his own blog, about the appropriateness of different subjects for contemporay Art, Ed Winkleman said

The truth about the current art market is in fact so complicated it’s beyond the grasp of many of the world’s best economists.

Hmmm. That is either a disservice to Economists or an overly apologetic way of describing the nonsense of current pricing.

On bloomberg.com on Friday we had a quote from collector (and former hedge fund manager) Michael Steinhardt saying that new moneyed collectors buy contemporary art as a form of “personal aggrandizement”. He added:-

There are limited assets that have cachet. If you buy the fanciest Cadillac today, or a Mercedes, its a yawn. The world is so wealthy.

he continued:-

The decline [of Art Prices] will be associated with declines in stocks and real estate. A lot of markets are near new highs.

Rothko__72.84m.jpgClearly the records at both Sotheby’s and Christie’s last week reflect a combination of the intrinsic value of the works sold AND a premium associated with the wallets of those bidding against each other. For this not-disinterested collector/observer, it will be interesting to see where prices settle after the impending market correction. In other words: to see what the underlying value of a work might be, after the premium associated with the irrational exuberance of super-moneyed buyers is removed from the marketplace.

Pinault beats Guggenheim – on a TKO? Weird.

Punta_della_Dogana.jpgAccording to François Pinault remporte la “bataille de Venise” contre Guggenheim, just posted on Le Monde’s site, the French tycoon has won the mano-a-mano battle to take over the 50,000-square-foot-plus Punta della Dogana museum, a prized location in Venice for which he had been battling the Guggenheim since last fall.

This story has taken some weird turns. First, the Guggenheim butted in after it had looked like Pinault would simply be accorded the site by local allies. After Pinault marshalled starchitect Tadao Andao to his side, the Guggenheim riposted with Zaha Hadid. Then things got a little biblical. Echoing the tale of King Solomon and the disputed baby Venetian officials, after reviewing extensive proposals, decided the two collections had equally good ideas and proposed they share the space. Guggenheim leader Thomas Krens seemed amenable, but Pinault’s camp nixed the idea as “impractical.” Now the Venetians have suddenly discovered that the Guggenheim overlooked a key aspect of the proposal. My rough-and-ready-at-1AM translation from Le Monde:

The director for cultural patrimony in Venice, Luigi Bassetto, justified the decision in favor of Francois Pinault: “The project for the Guggenheim foundation did not specify which pieces would be permanently displayed in the museum. Yet that was one of the indispensable conditions in the call for proposals. The commission [charged with designating the best project] considers the Guggenheim to have excluded themselves from the running.”

Um, yeah. And a month ago, no one had noticed that this CRUCIAL requirement had been overlooked by one of only two candidates? By the time we hit Venice, much more Machiavellian explanations should be flowing freely. Apparently, the Guggenheim’s bid was backed by Italy’s political right, whose power waned after the fall of Silvio Berlusconi. Then again, it might be something far more local. Theories, anyone?

The Hedge Fund King effect

Sometimes you start writing an article with an assumption that rapidly collapses. That happened with this Artnet Magazine article on the Steve Wynn vs Lloyds Lawsuit, over Picasso’s “Le Reve.” To recap, Wynn is suing Lloyds for $54 million, the difference between $139 million, (the sum that hedge-fund king Steve Cohen agreed to pay for it September 19) and $85 million (what Wynn says it’s worth after he put his elbow through it 24 hours later, despite a $90,500 restoration.)

Usually such cases hinge on both sides debating the damaged piece’s value both before and after the accident. So I assumed that Lloyd’s would contest the $139M, because that was arguably not Le Reve’s “fair market value’ at the time of the accident, just what Cohen had agreed to pay. So I was hoping this case would start a courtroom battle (and an artworld discussion) on the distortional market effect of Continue reading “The Hedge Fund King effect”

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. Continue reading “The $4 million habit (from the NYT):”