Bloomberg takes a closer look at the relationship between hedge fund manager (or former hedge fund owner) and art collector Steve Cohen and investment bank Goldman Sachs. You may know, Cohen and his hedge fund have been battling with the SEC and Cohen has sold some of his large collection of fine art.
So what does this have to do with appraisers? Well, Goldman Sachs has just advanced Cohen a personal loan with his art collection being used as collateral. According to the Bloomberg article, Goldman Sachs joins Citigroup, Bank of America, and JP Morgan Chase who have loaned Cohen money using the art collection as collateral.
The benefits to Cohen are huge, and the cost not so great, the article states loans using art as collateral for ultra wealthy individuals can charge approximately 2.5% interest while the art stays with the owner.
In addition to art loans, the Bloomberg piece also touches upon family offices, and private banking. All topics appraisers should be aware of and looking to for business. For example, the article states Golman Sachs "other" consumer loans, the loan category where art is used as collateral has more than doubled in the past year, now totaling over $1 billion.
Bloomberg reports
Source: BloombergGoldman Sachs Group Inc. (GS), which stood by Steven A. Cohen last year as his SAC Capital Advisors LP bore the brunt of a massive insider trading probe, has come to the billionaire’s aid again.
The top prime broker to the former hedge-fund firm, Goldman Sachs is making a personal loan to Cohen for the first time, according to a regulatory filing, joining the list of banks that have provided SAC’s founder with credit lines backed by his $1 billion art collection. Like Citigroup Inc. (C), JPMorgan Chase & Co. and Bank of America Corp., New York-based Goldman Sachs is making the loan through its private bank as part of an effort to expand its business catering to ultra-wealthy individuals.
Goldman Sachs’s Chief Executive Officer Lloyd Blankfein and President Gary Cohn expressed support for Cohen, 57, after SAC was indicted in July by federal regulators for insider trading, and continued to do business with the firm after it agreed to pay $1.8 billion in November to settle the charges. Goldman Sachs stepped in after Cohen had been seeking an art loan for months, having paid off and terminated his personal credit line from Deutsche Bank AG (DBK), said two people familiar with the matter, who asked not to be identified because the matter is private.
Reinvesting Loans
Goldman Sachs Bank USA, parent to the firm’s private bank for the very rich, filed a notice with the Connecticut Secretary of the State reporting that Cohen had pledged “certain items of fine art” under a security agreement dated Feb. 28, which didn’t specify how much money was borrowed. The February filing is the first to show Cohen receiving an art loan from Goldman Sachs. Michael DuVally, a spokesman for Goldman Sachs, declined to comment on the amount of the loan, as did Jonathan Gasthalter, a spokesman for Cohen at Sard Verbinnen & Co.
Private-banking clients such as Cohen prize art loans because they can keep the paintings in their homes while borrowing at rates as low as 2.5 percent. Some managers reinvest the loans in their own funds, taking advantage of the difference between their borrowing rate and the fund’s rate of return, according to Michael Plummer, the co-founder of New York-based consultant Artvest Partners LLC and the former chief operating officer at Christie’s Financial Services.
Cohen’s Fortune
“A number of hedge fund guys who manage their money wisely, they look to put their art collections to work,” Plummer said in a telephone interview. “If you can get liquidity out of your collection and pay only 250 basis points,” Plummer said, “it just makes sense.” A basis point equals a hundredth of a percentage point.
Cohen, who has a fortune of about $11 billion, according to the Bloomberg Billionaires Index, is known as a major collector of Impressionist, modern and contemporary art. Cohen’s art collection ranges from works by Vincent Van Gogh and Pablo Picasso to postwar masterpieces by Andy Warhol, Jackson Pollock and Jasper Johns.
For Goldman Sachs, which like rivals has struggled to return profitability to levels achieved before the 2008 crisis, the art loan is an opportunity to cement ties to Cohen and Point72 Asset Management LP, the family office that succeeded SAC after the hedge fund returned the money it managed for outside investors.
Family Office
The family office could still be a rich source of business for Goldman Sachs and other Wall Street firms. Cohen’s firm managed about $11.9 billion in assets as of Feb. 1, according to regulatory filings. Executives at SAC, which had $15 billion at the start of 2013, had expected the firm to start this year with about $9 billion once capital was given back to investors.
In its heyday, SAC managed as much as $16.5 billion, thanks in part to average annual returns of 30 percent that the firm has produced since Cohen founded it in 1992. Goldman Sachs was a prime broker to roughly 25 SAC funds and affiliates, more than any of the nine other banks that previously provided such services to the firm, according to its 2013 investment adviser registration. The next closest was Morgan Stanley, which SAC listed as a prime broker to about 13 entities.
SAC paid banks $1 billion in annual commissions and other fees in recent years, the Wall Street Journal reported in December. Prime brokerage services range from trading and margin loans to securities lending, clearing, settlement and custody.
Great Counterparty
Goldman Sachs’s Cohn described SAC as a “great counterparty” last year on CNBC, after the hedge-fund firm was indicted by prosecutors. Blankfein in a September interview with the news channel made the distinction that Cohen’s firm had been indicted, not convicted, and added that the government “wouldn’t want us to withdraw” financing provided to SAC.
Other SAC prime brokers had previously provided Cohen with art loans through their private-banking units. Citigroup made such a loan at least as far back as 2003, according to public records, while Bank of America provided similar financing in 2008, followed by Deutsche Bank Trust Company Americas and JPMorgan Chase Bank NA in 2009 and 2012 respectively, the records show.
Amid the government investigation and indictment, there had been several changes to Cohen’s prior borrowing agreements. A Citigroup credit line that Cohen initially took out in 1994, secured by his stake in SAC Capital Management LP, was allowed to expire in October 2012, regulatory filings show. The bank filed new documents that December on an art loan provided to Cohen, according to the filings.
Natalie Marin, a Citigroup spokeswoman, declined to comment.
Repaying Deutsche
Cohen last year repaid his art loan from Deutsche Bank, one of several SAC prime brokers that at the time were said to be weighing the reputational and financial risks of continuing to do business with the hedge-fund manager. The credit line was not renewed, according to a November filing with New York State and one of the people.
That month the hedge fund manager sold seven pieces of artwork that tallied at least $77 million through Sotheby’s. The priciest was Gerhard Richter’s 1986 abstract painting “A.B. Courbet,” which sold for $26.5 million, followed by Andy Warhol’s 1963 “Liz #1 (Early Colored Liz),” which sold for $20.3 million.
Cohen’s Collection
Cohen’s collection includes art valued at about $1 billion, according to estimates by a lender who requested anonymity because the information is confidential. In March 2013, Cohen bought Pablo Picasso’s “Le Reve” from casino owner Steve Wynn for a reported $155 million, which at the time was the highest price ever paid by a U.S. collector for artwork.
He gained art-world fame about a decade ago by paying $8 million to purchase Damien Hirst’s sculpture of a shark preserved in formaldehyde, and in 2012 spent some $120 million on four bronze sculptures of a woman’s back by the artist Henri Matisse, according to the New York Times.
Like units at many big investment banks, Goldman Sachs’s GS Private Bank provides cash-management services to clients and also offers “tailored lending capabilities to enhance client liquidity and flexibility,” according to its website. The financing provided to clients ranges from unsecured personal loans and residential mortgages to loans backed by securities, stakes in private equity and hedge funds, commercial real estate, private jets, yachts, vineyards, ranches, and art collections, according to the website.
Private Bank
Goldman Sachs’s private bank falls within the wealth management services offered to rich clients, ranging from trading and investing in funds run by the firm to financial planning and trust and estate administration. The firm’s private wealth management business dates back to 1906, when Goldman Sachs helped underwrite the initial public sale of Sears, Roebuck & Co. (SHLD) and followed up by offering personal wealth advisory services to the retailer’s founders and executives.
In 2007, Goldman Sachs bought a majority stake in a $24 million loan that Art Capital made to celebrity photographer Annie Leibovitz that was backed by her entire photo archive, as well as other artwork and real estate. While the firm originated its first art loan in September 2008, it has had a smaller presence in this market than private banks run by the likes of JPMorgan, Citigroup and Bank of America.
Art Loans
“In my experience, Goldman is not one of the usual sources for art loans,” said Thomas C. Danziger, a New York attorney lawyer who represents financial institutions that are making art loans. “It’s not their bread and butter.”
That may be changing. Goldman Sachs Bank’s other consumer loans, a category that includes borrowings backed by art and excludes auto and student loans, more than doubled to $980 million at the end of 2013 from $464 million a year earlier, even as total assets shrank. As of March 31, Goldman Sachs’s other consumer loans had increased to $1.07 billion.
“Its sort of the last non-transparent business and non-regulated business, which of course Goldman has thrived on in all these years,” said Asher Edelman, a former corporate raider who now runs ArtAssure Ltd., a New York-based financing firm, said of the art-lending field. “That is where they have always done the best.”
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