The Art Market and Hedge Fund Managers

The Wall Street Journal takes a look at the impact hedge fund managers have on the art market. The article looks at collecting activities of Loeb, Cohen, Howard, and Griffin to name a few. The hedge fund manager/art collector group is growing, and the article notes they are bringing a new attitude to buying and collecting art.

The WSJ reports

Hedge-fund managers, who play a vital but disruptive role in the broader financial markets, are increasingly throwing their weight around the art market: They are paying record sums to drive up values for their favorite artists, dumping artists who don't pay off and offsetting their heavy wagers on untested contemporary art by buying the reliable antiquity or two. Aggressive, efficient and armed with up-to-the-minute market intelligence supplied by well-paid art advisers, these collectors are shaking up the way business gets done in the genteel art world.

Sotheby's has called Mr. Loeb's campaign "baseless," but since he's amassed a 9.3% stake in the company last fall, the house has replaced several top executives, and has said it would release a capital allocation review in the next few weeks that could offer more ideas to wring value for shareholders. Mr. Loeb declined to comment on the status of his investment in Sotheby's.

All of this represents a major shift from a decade ago when only a handful of Wall Street investors such as Mr. Loeb and SAC Capital Advisors' Steven Cohen were even going to auctions, much less buying art. Now, dozens of hedge-fund managers are joining the fray, including newcomer Alan Howard, whose burgeoning collection includes a $43 million Monet. Nearly all are applying their day-job tactics to their art shopping, dealers say.

Corporate raiders a generation ago typically held their art purchases for at least a decade. Today, the average holding period for contemporary art is two years, according to a former Sotheby's specialist. That is enough time to reap a tidy profit on a rising-star artist but hardly enough for art history to rule on the artist's lasting merits.

Differing tactics abound, but taken together this group of hedge-fund collectors arguably influence the prices and popularity of the world's top artists—from mainstays like Claude Monet to newer hits like Jean-Michel Basquiat—to an extent unmatched by all but emirs and oligarchs.

"The rest of us are just sitting on the sidelines," said Len Riggio, a longtime collector and founder of bookseller Barnes & Noble. "I go to auctions now and feel like a witness—I watch, shake my head, and go home."

Hedge-fund managers collect broadly—some collect stamps, others collect original drafts of Bob Dylan lyrics. But Stephane Connery, a private dealer who once ran Sotheby's private-sales department, said many have started veering toward postwar and contemporary art, particularly since the recession. One reason is that the art being made and traded in the contemporary segment is still so new that values for its artists remain in flux. Price spikes can often be stoked by a handful of big bidders competing for an artist's early examples at auction.

A recent jump in Basquiat's prices indicates he might be in play. Until a few years ago, the going rate for one of the artist's frenetic 1980s portraits or graffitilike street scenes was $5.5 million. But eight of his top prices have been achieved in the past two years, led by a $48.8 million double portrait from 1982, "Dustheads," that Christie's sold last May. Dealer Jose Mugrabi, who is known for buying Basquiats, credits hedge-fund collectors for the run-up: Mr. Loeb owns a Basquiat painting of a boxer throwing a punch.

Source: The Wall Street Journal