Unstructured Finance

Sotheby’s and a tale of two hedge fund managers

October 15, 2013

Hedge fund manager Steve Cohen’s reported plan to sell a number of valuable artworks may not only deliver a nice chunk of change for the Wall Street mogul, it may also provide gains for another rival manager.

Cohen is selling several high-profile artworks from his art collection, according to a story Monday in the New York Times, and he has given the task of selling the works to Sotheby’s – the 269-year-old auction house currently in the firing line of activist Daniel Loeb.

Loeb’s hedge fund owns 9.3 percent of Sotheby’s, making his New York-based Third Point the majority shareholder. Loeb wants the company to revamp and overhaul many of its operations and has demanded the resignation of the current CEO William Ruprecht. Sotheby’s has called Loeb’s actions “incendiary and baseless.”

Among other things one of Loeb’s major criticisms of the company is its approach to the contemporary and modern art market. In his early October missive to Ruprecht he wrote:

In particular, we are troubled by the Company’s chronically weak operating margins and deteriorating competitive position relative to Christie’s, as evidenced by each of the Contemporary and Modern art evening sales over the last several years.

It is apparent to us from our meeting that you do not fully grasp the central importance of Contemporary and Modern art to the Company‚Äôs growth strategy, which is highly problematic since these are the categories expanding most rapidly among new collectors…¬† Sotheby‚Äôs success will be defined in large part by its ability to generate sales and profits in Contemporary and Modern art, as this is where the greatest growth potential lies.

In addition to a painting by Gerard Richter, Cohen is putting two Andy Warhol paintings on the chopping block, the New York Times report said.¬† Those works will be offered for sale in November as part of one of its major contemporary art sales, according to a Sotheby’s press release. The Sotheby’s release highlights the two Warhol paintings said to be owned by Cohen: “Liz #1 (Early Colored Liz)” and “5 Deaths on Turquoise (Turquoise Disaster)”, worth an estimated $20-30 million and $7-10 million, respectively.

Another Warhol – “Silver Car Crash (Double Disaster)” – with an estimate in excess of $60 million is also for sale at the auction, as are other major works by Willem De Kooning (estimated to fetch $25-30 million), Jean-Michael Basquiat ($15-20 million) and Barnett Newman ($18-25 million).¬† As for the Richter painting Cohen is reported to be offloading, there are two featured in next month’s sale, including a 1986 work estimated to fetch $15-20 million.

Since the stock of auction houses like Sotheby’s can trade up or down on auction success, according to Kristine Koerber, an analyst at Discern, Cohen is not the only hedge fund manager that stands to make a gain if his pieces sell for a high price. If the auction has a whole ends up being a great success, that could result in at least a short-term gain for Loeb and his investors.

In the past Cohen has used Sotheby’s rivals Christie’s and Phillips de Pury to dispose of his art.

Third Point and SAC had no comment. Sotheby’s would not comment on the identity of the sellers.

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