The Armory Show, March 2016

On 3 March 2016, Vanessa Curry and Katy Munn attended a talk entitled “How to optimise the unpredictable art market” held at the Armory Show in New York. Here is a summary of the key points:

Speakers:
Andrea Danese, CEO Athena Art Finance
Jeffery Deitch, Art adviser and curator
Steve Schindler, Founding Partner, Schindler, Cohen & Hochmann LLP
Moderator:
Georgina Adam, Art market columnist, Financial Times

Key comments made by Andreas Danese:

Andreas noted some key trends about the rising art market: that in the last 10 years, the art market has grown by 212% and that the use of the Geneva Freeport (a tax-free Swiss storage facility used primarily for the storage of art and other collectables) is booming. The market itself is much more interesting than many people think. However, it is important to bring discipline to the market too.

Information gathering is key for a company like Athena Art Finance. This helps him decide when to look at art and when it would be sensible to take a risk against it. There is a notorious lack of transparency in the art market and this means that sometimes money can be made on art – if dealing with people who don’t understand its value. But this same lack of transparency can also scare some investors out of the art market altogether. Since Athena are, to all intents and purposes, ‘the bank’ when it comes to buying art – this means that there is inevitably increased scrutiny before an artwork is purchased with their assistance. In just the same way as people wouldn’t buy a house without conducting due diligence on it beforehand, so the same should be true of buying a piece of art.
As for Andreas’s personal acquisitions, he says that he buys something simply because he likes it. He doesn’t consider what he might be able to sell it on for or whether or not it will increase in value. For every 50 pieces he might buy, one might increase in value. He advised not to invest in art just because you think you will have a meaningful rate of return on your investment.

Key comments made by Jeffrey Deitch:

40 years ago, the contemporary art market was more of a community. Nowadays, it is part of an art industry which is very broad in its scope. It has become one of the main components of the culture industry, or art economy, which also includes music and fashion. Entire sections of cities thrive because of art.

There has been an unprecedented art market boom since 2010, which can be regarded as similar to the Japanese bubble in 1998. Jeffery suggested that this rising market might be slowing, because he noted that the best environment for serious art collecting is a market like this [i.e. today’s market], where prices do not automatically go up. In recent years we have seen a lot of extremes and excesses. However, Jeffery remains very enthusiastic about today’s market – and sees it producing a lot of good opportunities.

Jeffery was asked to comment on what it took to build a great art collection. His response was that it was not easy, even though he found that a lot of people thought it was. He thought that the best collections were those based on personality of the collector. It would be a simple enough matter to build a collection based on a ‘best seller’ list – but all this would do would create a brand name collection. The great collections, however, are formed by people with great personalities.
Having understood a buyer’s personality, the next essential element is information. So much information in the art world is freely available, but very few people take advantage of it. Curators and critics would love to be asked their opinion about a piece of art. Prospective buyers should take advantage of the information that is often readily available to them.

Jeffery encouraged art collectors to collect ‘their way’ – not necessarily the way everyone else is doing it. He frequently finds that collectors are focussed on same artists, often on the ‘current’ names. This means that there are many areas where great artists have been passed over. Rather than competing to buy a particular type of, for example, Andy Warhol’s work collectors should realise that there are parts of his work which are ‘sleepy’ in the market. In Jeffery’s view, this tendency for the majority of collectors to home in on similar pieces stems from way auctions work. If an auction house’s evening sale contains 50 lots, it tends to cover 5 decades and 10 artists per decade. The risk is that’s all some people look at. Jeffery was therefore encouraging people to look beyond this when building their collections.

Jeffery concurred that authenticity is a big challenge in the art market today. He used the example of the recent ‘rash’ of fake Basquiats and explained that he was on committee created with the task of cleaning this up. A few years ago, this committee gave an opinion that a particular piece was a fake Basquiat. The disgruntled applicant sued us because he wouldn’t accept his work had been declared to be fake. Jeffery spent $100,000 himself trying to answer this law suit (as it turned out, Bergantinos, arrested as head of an art forgery ring in 2014, seems to have been the source of that fake Basquiat). It was incidents such as this which caused the committee to be disbanded. The equivalent Warhol committee has also been disbanded. This tendency towards litigiousness makes the aim of transparency very difficult to achieve.
In Jeffery’s view, today’s collector is generally very concerned about ‘getting their money out’, and seems to take undue interest in the auction record for a particular artist. When a friend visits their house and tells them to sell a particular piece, they believe they have done something wrong if they have bought something that won’t have a sustained secondary market. This attitude has damaged the value of collecting in the emerging market.

A relationship with someone at an auction house is worth cultivating. Collectors should place great value on the expertise of people who’ve seen every work of art in their field for 30 years. It may be a relationship that starts with a junior person in a gallery, whom the owner hardly notices, but in whom the collector sees something. There are usually some key great relationships of this sort which help someone’s collection to become what it is.

Art is truly an asset class because of the ability to borrow against it. During the 1970s, the British Rail pension fund started buying art. At the time, people were very critical. Nowadays, people make the Forbes 400 list based on their art collections alone. Art has shown itself to be a truly viable asset class.

Key comments made by Steve Schindler:

As a lawyer to the art industry for many decades, Steve has seen a rise in the business of financing art collections but also some notorious instances of fraud and money laundering.

Steve underlined the need for the industry to promote transparency. He suggested that some people think that the fact the market is opaque makes it ‘idiosyncratic’ and ‘interesting’. However, financing institutions find this unacceptable. Lawyers are asking themselves how they ensure they are not walking their clients into another forgery scandal. There is a tendency for an incredible lack of carefulness or record keeping, which inevitably hinders transactions. Clients might say, “I ‘sort of’ own it” or “it’s not completely owned by me”. We need to address how we bring transparency to the industry.

Admittedly, the case did have very sophisticated players and yet they were helped by collectors who wanted to believe that what they were buying was genuine. For example, one of the fake Pollocks was forged with an incorrect signature. How was that overlooked?

In Steve’s view, the best solution is to protect yourself with due diligence beforehand. Make sure you get a contract in place. You should normally expect seller to give a warranty for 4 years. Consider whether or not a buyer is ignoring red flags. There are often a couple of decisions which require buyers to do further due diligence. How far do they have to go? Do they need to have the work tested forensically? How much do you know about your counterparty? If you walk into an art fair and find yourself talking to people you don’t know, take care.

Steve suggested buyers should exercise caution when it came to authentication. The fact that “David has seen the work” and didn’t say it was a fake, doesn’t mean it can be assumed not to be. The US is introducing bill which, if passed, would mean the losing party would have to pay authenticators legal fees (the Warhol committee ended up paying around $9mn in legal fees defending its decisions before it wound itself up).

In current political climate in the US means that it is difficult to imagine a new regulatory regime coming into being. The political will to regulate another aspect of our lives seems to be remote. Not everyone cares as much as we do about the state of the art market.