Thursday, September 29, 2005

Art as an Investment: Evidence of Corrections?

Disclaimer: I am NOT a financial adviser. Most of these thoughts represent only my opinions. Don't invest based on them.

Not so long ago the "art as investment" crowd was very excited. Things were looking up. Art funds were blossoming. A fund of art funds was even lauched by the Dutch bank ABN-AMRO. In fact, things were so rosy, Christies hosted a one-day symposium titled "Art: An Alternative Asset Class" on April 7, 2005, where reports suggest the attitude approached giddy (well, as "giddy" as financial types ever get). See's report

At that symposium, ABN-AMRO's Global Head of Private Banks Ariel Salama predicted that as much as $30 billion of private equity capital would move into art funds as an alternative investment over the next ten years. That may still prove to be true, but it won't happen through ABN's fund. As
Forbes (and others) have reported, ABN has pulled out of the art funds market. In fact, of the eight or so best known art funds, only one is reportedly actively buying art, the London-based Fine Art Fund:

"We are spending about $2 million a month, having started in July 2004," says Chief Executive Phillip Hoffman. "We have bought many million-dollar paintings and have sold some, most recently two works, which we bought privately and resold within 25 weeks, which gave us an 80% mark-up."
But they are the exception it seems. Other art funds, including the China Fund, the Fernwood Sector Allocation Fund, the Fernwood Opportunity Fund, the Artist Pension Trust's Art Dealers Fund, Graham Arader's fund, the Irvine Collection Fund, and the Art Collectors Fund, are all reportedly struggling to get the ball rolling, purchasing-wise at least. Of course, as some of these fall outside the jurisdiction of the Securities Exchange Commission, my guess is what anyone (including reporters) truly knows about them is not really up-to-the-minute.

But what does this really mean for the art market? Is it an indication that long-expected corrections are coming?

Not necessarily. It can take years for investment firms/groups to raise their target capital, so we may simply be witnessing the spurts of that naturally uneven process. On the other hand, institutions like ABN know this, so their decision to pull their fund of art funds suggests they don't think the market is ready for such a product. But that needn't spell doom: as the Forbes article suggests, the smaller "niche" funds are perhaps a better solution for the highly unregulated art market:
These smaller and more flexible funds are often set up by dealers and seek investors from a small group of friends and clients, an example is Daniella Luxembourg's Swiss-based ArtVest. By remaining informal, such funds avoid the straitjacket of financial regulations in the U.S. and the U.K.

One thing is sure though, if any of this scares off the more cynical figures within the art-as-investment crowd, I won't cry about it. As art adviser Thea Westreich noted, there are growing numbers of investors calling themselves collectors with the most vulgar of intentions to flip artwork solely for profit:

"Collectors/art investors are putting together small syndicates, and they increase in number daily. You see them at fairs; they're wearing baseball caps and sneakers; they act covertly, but dealers are starting to recognize them," she says, adding, "All these new financial ventures will ultimately skew the marketplace."
Those folks I'll encourage to invest in something else.


Blogger bill said...

there are growing numbers of investors calling themselves collectors with the most vulgar of intentions to flip artwork sole[l]y for profit

I'm not a very good economist, but this doesn't scare me terribly. Poor understanding of the market will lead to losses for these syndicates.

9/29/2005 03:01:00 PM  
Blogger Edward_ said...

thanks for the typo correction Bill, I really am just about the worst speller ever...

I think there's more at risk here than whether these syndicates get their due share of karma in losses though.

Galleries carefully manage an artist's prices for a whole range of reasons and goals. If those prices jump out ahead of that planning, it can seriously impact that artist's career. What these speculators do is artifically inflate those prices at auction (which the auction houses or sellers don't mind).

It's not easy for an artist to get their prices back on track after that and they can lose out big time.

9/29/2005 03:29:00 PM  
Blogger James W. Bailey said...


This discussion becomes really interesting with respect to collectors (primarily museums) of digital and/or electronic art - especially older digital and/or electronic art created on out of date software designed to be run or played on hardware that can no longer be repaired or replaced due to lack of parts.

Mark Vallen of Art for a Change recently posted the following

This coming November, LACMA intends to have Sotheby’s in New York sell off works by Max Beckmann, Pablo Picasso, Alberto Giacometti, Alfred Sisley and Amedeo Modigliani. It is estimated the auction will make some $14 million dollars - with the Modigliani painting expected to fetch up to $6 million. Though LACMA’s brilliant collection of more than 100,000 pieces could be considered a public treasure - naturally the public has no say in what is to be auctioned, or if there should be auctions at all. Personally, I can’t imagine selling off the aforementioned works, especially the Modigliani - so my vote would be to cancel the sale. Realizing LACMA may still be strapped for cash and therefore unable to acquire important new works, I propose they hold a junk sale.

The abovementioned paintings are crowd pleasers and also in very fine shape, unlike LACMA’s warehouse collection of late 1950s and early 1960s avant-garde "media art," which is literally falling apart before everyone’s eyes. Conservators simply don’t know what they can do to replace all of the obsolete and unavailable parts. The warehouse is filled with a mishmash of broken works that utilize outdated technologies; there are laser disks but no machines to play them on, disintegrating hard drives, decaying video tapes, burned-out bulbs and a multitude of moving parts that have become permanently immobile. Take for instance Video Flag Z, a wall of nearly 100 Quasar monitors that collectively displayed a flashing image of the American flag. The television screens have been dark for years because one by one the TV tubes died, and replacements couldn’t be found. The company that made the Quasar tube stopped making them in 1988. I have no idea what LACMA paid for artist Nam June Paik’s wall of now useless television sets, but in the 1980’s Paik’s works sold to collectors at prices that ranged from $50,000 to $500,000. My advice to LACMA… keep the beautiful paintings and sell the broken TVs.


It's an interesting market reality to contemplate that as the star for certain media artists may only to continue to rise in the future, the prices for their devolving non-functional discontinued line of products may collapse.

The question is, who's really footing the bill for those 501(c) 3 purchases of art works that no longer work?


9/29/2005 03:37:00 PM  
Blogger Edward_ said...

I see that mostly as a conservation issue, rather than a market issue, though, no James?

What am I missing?

Thanks for link on the Tate story, btw!


9/29/2005 04:09:00 PM  
Blogger James W. Bailey said...

You are absolutely right - I believe the Guggenheim recently held a panel on the very subject of the conservation of digital art.

A close friend of mine from New Orleans (currently in exile in Houston!), and who is a collector of rare films, purchased years ago for quite a sum an original 8mm hand painted film by Stan Brackage. The film already showed severe signs of distress when he bought it. He immediately had the original copied to DVD. It's long been a running joke between us as to what the future value of the original film will be. (As a side note, I spoke with my friend recently and he reported that his film collection is safely stored in a 4th floor bank vault in downtown New Orleans and survived Katrina.)

I'm fascinated by this area of art collecting because I don't think there's any other field of high art collecting that is filled with such risk. It's interesting to me to contemplate the fact that the newer digital/electronic works of art by a superstar artist may command astronomical prices, while that artist's earlier works may acutally lose value over time because there's no viable conservation option.

Where the issue probably becomes much more general is with respect to market value of digital photographs. There are some wide ranging and contentious points of view among rabid collectors of so-called traditional photographs on the subject of the future (and present) market value digital photographs.

Or maybe I've spent too much time hanging out with too many traditional film based photography collectors I know who converge on A Gallery of Fine Photography on Chartres Street in the French Quarter!

You post on this subject is very interesting and it elicited these thoughts.


9/29/2005 05:04:00 PM  
Anonymous ML said...

This boom, like the one in the '80s, will die. And new media art is like the parrot tulips so valued by the Dutch that they paid huge amounts for them, not realizing that the virus in the tulip bulb which made them develop such interesting traits, eventually destroyed the bulb. But I say let the rich buy art. It's always better than furs.

9/29/2005 08:48:00 PM  
Blogger bill said...


I've been trying to get a handle on the market and, although I really enjoyed the Rand report, I'm missing a good deal of very basic info.

So: will you explain this

It's not easy for an artist to get their prices back on track after that and they can lose out big time.

a little? Do you mean that once the market for an "inflated" artist comes back to earth, the collectors abandon him/her [because they're worried they'll get burned again, harbor sour feelings, whatever]?

9/30/2005 02:17:00 PM  
Blogger Edward_ said...

more or less that's it Bill...loss of faith (which is what a gallery is offering customers as a service for the artist) is the central issue.

9/30/2005 02:49:00 PM  

Post a Comment

Subscribe to Post Comments [Atom]

<< Home