Comments on: Art funds return A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: NYC123 Thu, 17 Feb 2011 13:17:07 +0000 I have been in the financial markets and the art business for 25 years. I have seen stock markets crash and art markets crash. The only difference between the two is that the Stock market is regulated and has a secondary market for liquidation. The Art market has No regulation, No secondary market and is an illiquid asset, which makes it very difficult to get your money back if the financial markets crash. Having said that, making the case for The Regulation of the Art Business/Market would be a good idea for everyone except for a handful of big auction houses, galleries, collectors, dealers, and museums. If a work of art can be valued and sold for $100,000,000.00 dollars (case in point: Giacometti’s “L’homme qui marche I” which sold for $104.4 million at Sotheby’s in February 2010 and Picasso’s “Nude, Green Leaves and Bust” which fetched a record $106.5 million at Christie’s in May), then that art product/financial instrument is a Commodity. Therefore art should be sold and regulated as a Commodity.

In fact, all Art Funds should be regulated with the (SEC) Securities Exchange Commission so that investors can see what art is being sold and who is selling it, who is buying the art and at what price. Full disclosure should be made also of the mysterious phone and Internet buyers, with whom an auction house can claim to be negotiating a private sale for an undisclosed amount. This type of Chandelier bidding and smoke and mirrors method of dealing should be illegal. By regulating Art as Stock, you would need a secondary Art Exchange to trade the original oil paintings, sculptures, silkscreen prints and giclées. This Art Exchange would bring more transparency to the art business and would regulate what is already manipulated by a handful of big collectors, dealers, museums auction houses, and galleries, even by some art critics who can influence and help decide to push a single artist to increase the “value” of a painting by 50-1000% in a single transaction. The collusion and back room deals that go on in this business are criminal by Wall Street standards.

The history of Art as Stock was originated back in 1994 by an American Artist, Robert Cenedella. Cenedella was the first artist to come up with the idea to sell Art as Stock – Stock as Art as laid out in “The Art of the Deal”, an article written in the New York Times Style Section, by Bryan Miller, on Sunday, March 20, 1994. Cenedella was calling then for regulating the art market. Here we are 20 years later and we are still trying to do the same thing but with more technology and transparency. The idea was 20 years ahead of its time. In the NYT’s article, Leo Castelli was quoted as saying that he compared the 1980’s art boom to junk bonds and that Cenedella’s idea was a “conceptual work of art” when it was really an investment in Art as Stock. Nobody really understood the concept then.

Cenedella’s idea made more sense already then than all the current ideas. The Regulation D Private Placement was registered with the (SEC) Securities Exchange Commission. The offering was 200 Shares of a Deluxe Limited Stock Edition. The concept was similar to an (IPO) Initial Public Offering. The company issued 200 shares of stock valued at $1,000.00 a piece for a total of $200,000.00. With each share of stock the buyers received a bank note certificate indicating part ownership in the oil painting as well as a large serigraph (a high quality silkscreen) of the original oil painting. This assured buyers full disclosure about what they were buying under SEC rules. The silkscreen picture “2001 A Stock Odyssey” was of the inside of the New York Stock Exchange. Each investor would share in the profit above the original cost of the painting priced at $50,000.00. So if the sale price should exceed $50,000.00 the profits would be distributed to the shareholders and the serigraphs would also go up in value. If you bought 100 shares you would own 50% of the original oil painting and 100 serigraphs, which the investor could also sell separately while still retaining ownership in the original oil painting. With each investment, buyers came away with a tangible piece of artwork, the silkscreen that they could hang on their wall.

This brings us back full circle and the question is does the art market continue business as usual or does Wall Street and the Art business both figure out how to regulate the investments in the art market so that there is full disclosure and transparency.

I can tell you right now that I would rather own a Picasso, a Thomas Hart Benton or a Cenedella than a share of Lehman Brothers, Bear Sterns or Enron. This may also one day be the same case for allot of the Contemporary Junk Art market.

The art market needs to be regulated because the way it is doing business now is just a crime.

By: LeonaCraig Tue, 18 Jan 2011 04:15:25 +0000 I have been collecting art of various forms for over 50 years because I like artistic things. I began a career on Wall Street as an arbitrageur 30 years ago. I lived in Chelsea, in the ’70’s and Soho, in the ’80’s. I created an art in 20 years ago, and this decade, I have a gallery of contemporary Chinese art, in China.

Although I have always focused on the art, I have found that it has paid a good return. However, I have also observed that when any market becomes the focus of both the press and inexperienced investors, it is not a good thing. That happened in my original business, merger arbitrage, which, in the 1970’s and 1980’s, was shunned by institutional investors, but by the end of the 1990’s became part of the class of “absolute return”, and returns absolutely diminished to practically nothing, as the market became crowded with people attracted to the name: hedge funds, while having no idea what hedging truly meant. Then, it happened with stock markets, like the NASDAQ, in the 1990’s as discount on-line brokers made every electrician and plumber believe that they could trade stocks like any professional. It more recently happened with the Chinese stock market, and the market for art, in China, is littered with dealers and auctioneers whose focus is only on money, not on art.
As someone who has been in the investment business for so many years, I already know that most of the investment business focuses on marketing and design to lure investors into certain areas. That is what caused many a financial crisis, including the latest one. My reaction to art funds is not positive. As more people who lack real experience come into a market and promote it as an absolute money maker, the worse off it always become. I can only hope that this newest one will die a quick and natural death.

By: Jboy609 Fri, 14 Jan 2011 16:09:07 +0000 For all gold’s questionability as an investment, it’s a fungible commodity that is very actively traded, so you at least have a functioning market pricing it. Art works nothing like this, especially recent art. Speculation in art is basically taking a wild stab at what a few market makers (a handful of big collectors, dealers, museums) will decide to push. A single player can decide to increase the “value” of a painting by 40% in a single transaction.

Creating shares in the works is an interesting experiment in trying to create more of a functioning market, I guess, but as has been pointed out, you can’t really create shares of the primary value of the painting, which is as an art object to be viewed and enjoyed.

By: SFC Thu, 13 Jan 2011 08:04:37 +0000 @iflydaplanes,i’d like to keep on believing that gold is worth close to 1400 because it’s maleable,good conductor of electricity and resists corrosion…What you write it’s true, but let’s face it,today it’s mostly about speculation…and if i have to play the morally questionable game the financial system often plays (i.e wild speculation), at the end of the day I would personally prefer to have in exchange a Brueghel’s “Hunters in the Snow” rather than a gold bar…it’s a matter of tastes!…
…than, nor the painting neither the goldbar give you a hug when you go back home, but that’s a different story :)

By: iflydaplanes Wed, 12 Jan 2011 21:17:09 +0000 @SFC, I would have to argue that people might choose to invest in gold and not art because it is useful beyong it’s use as currency. Aside from it being it pretty, shiny, and rare, it can be used in tecnological applications due to it’s characterics (i.e. maleable, good conductor of electricity, resists corrosion, etc.) That makes it desirable. Art has no practical value, it’s only function is to be looked at. It’s value relies soley on someones opinion of it. If I look at a piece of art and feel “Eh, it’s crap” that piece of art is absolutely worthless to me. And if my opinion should hold any weight it becomes worthless to a lot of other people as well simply through influence. The practical applications of gold are not opinions, they are fact. So to say art is “gold with a soul” might not be a good description.

By: dWj Wed, 12 Jan 2011 18:58:51 +0000 Is there any market for leasing out this art, or is it sitting in a warehouse somewhere? If there is such a market, I would think this could be positive carry, unless it’s simply the case that nobody actually buys this art because they like having it on their walls, and that this art is all owned (almost) exclusively for the purpose of someone being able to say, “I own this!” In which case, as you indicate, the art exchange could be a very good idea, though it is facilitating consumption and not investment.

By: SFC Wed, 12 Jan 2011 16:13:01 +0000 I would try to be more open minded towards art as an alternative investment. Art funds fails because there’s too little awareness, few interest and plenty of disbelief. I don’t get it, people invest in gold but not in works of art, it doesn’t make sense, works of art are nothing but “gold with a soul”..
I’m sure that if somebody will be able to attract investors in the proper way, it will become a good idea and the art world will benefit from that (in terms of efficiency of the art market and because it will draw a broader attention on ART)


By: MRLAMF Tue, 11 Jan 2011 20:36:16 +0000 Felix—

Just because you don’t see the value in a certain investment doesn’t mean it is a horrible idea. You can’t blame the funds for trying to bring liquidity to market where there is none.

As for having positive carrying-cost and relying on a greater fool, see GLD and how successful it has been since 2005. Same idea—investors pay a consumption dividend as well, just like I imagine they do in the art world.

By: hsvkitty Tue, 11 Jan 2011 18:34:56 +0000 Well you certainly got feedback!

There is really nothing like the appreciation of art by rich business folk! Especailly when they kindly allow a few people in to view it in the vaults!)

“One investor familiar with the Russian market said that the investments could appeal to a rising class of political oligarchs looking to keep money out of banks, where it can be seized should they run afoul of powerful friends.”

Nah, you think? Sounds like another artful way to money launder.

By: SkatePress1 Tue, 11 Jan 2011 18:01:02 +0000 Felix, you made me register on the site, great job! I should say that the most insightful thing in Heidi’s article was to quote Bill Browder. While I am very surprised Heidi contacted him for the comment and I know this story made quite a few people unhappy in Moscow, I nevertheless accept that was a brilliant quote to get, it brings a very important and unfortunately relevant perspective to reasons for surge in Russian (and Chinese) art fund industry. Felix, just watch what is going to happen with art funds in those markets. And please forget about the French thing, it has limited growth potential indeed, but that was not what Heidi’s story was about. Happy New Year! Sergey Skaterschikov