New Art Fund With with a Twist

Kelly Crow writing for the Wall Street Journal has a good piece on Wall Street financier, art collector and art investor Asher Edelman.  Edelman has started a new art financing fund called Art Assured Ltd. Edelman plans on not only financing art, but to funding a step further and stake money on art in upcoming auctions in the form of guarantees. This financial arrangement is similar to the auction house guarantee or perhaps a third party guarantee on auction lots where a minimum price is guaranteed to the consignor, If the piece sells for above the guarantee there is an agreed upon split of the additional profits. If the sale does not meet the guaranteed price, the fund is obligated to purchase at that level. Christie's and Sotheby's were both active in guarantees and then were financially hurt by them and have all but stopped the process, although there is a rumor that there will be some select guarantees by the major houses during 2010. The reduction in guarantees over the past year to 18 months resulted in fewer high quality consignments.

Edlemen also hopes to use the fund to guarantee lower level works of art as well. A very interesting article to read, and perhaps a new way for the art market to grow and hopefully prosper.

Mr. Edelman plans to step into that void. When a seller consigns a work to auction, Mr. Edelman's firm, Art Assure, will pledge to buy the piece if it doesn't sell for an agreed-upon minimum price. In exchange, the seller will pay the firm a fee of about 5% to 10% of the work's guaranteed price.

Unlike the auction houses, Mr. Edelman says he is also willing to stake a vast array of lower-priced objects—a $55,000 Modernist work on paper, say. Auction houses have traditionally focused on guaranteeing their sales' big-ticket lots, which are most likely to be bid up. Mr. Edelman says that smaller-ticket items represent an untapped market—opening up many more potential clients to him—and he expects to profit from the greater volume of works.

Some in the art world say the plan has the potential to lubricate the entire market by convincing more collectors to funnel art into auctions without fear that their pieces will go unsold and lose value. "Businesses like Asher's could be tapping into a new leverage business based on a potential collateral pool worth tens of billions," says Marc Porter, Christie's chairman.

The plan is also creating some controversy in the art world. Auction houses disclose in their catalogs when they've provided a guarantee for a particular work, because they have a stake in its sale—in a sense, they are partial owners. One of the cardinal rules of the auction process is that sellers aren't allowed to bid on their own work, because they could bid up the sale price.

But there is no disclosure process for a work that has been privately guaranteed, and Mr. Edelman says he wouldn't rule out bidding on a work he had guaranteed if a client other than the seller asked him to buy it. Collectors could wind up bidding against him, not realizing that he stands to profit from the piece selling well. Mr. Edelman says that he wouldn't bid up a work simply to inflate the sale price.

Rival lenders say Mr. Edelman should disclose which works he may be staking and also bidding on. Disclosure would help to "keep the playing field even," says Andrew Rose, president of Art Finance Partners, so that collectors know when a rival bidder is also a seller with a vested interest.

Mr. Edelman says his idea is legal, doesn't require any public disclosure and could benefit the entire market by convincing more collectors to trade works.

To read the full WSJ article click HERE.