Collectors
Marion Maneker0January 24, 2014

‘Let’s Go Long On Rodin’ and Other Stories of Hedgies in the Art Market

2ED2-SB-WilberArtWorlds

An editor at the Wall Street Journal must have seen the stories about Daniel Loeb’s campaign to change Sotheby’s management and commissioned a story on hedge fund managers and how they’re changing the art world because today’s story reads like a grab bag of familiar faces, trends and fears. Since 2005 there has been persistent chatter about how hedgies would bring their aggressive trading style to the art market and, for the most part, financial players have proved to be ‘buy and hold’ players.

Nonetheless, the Journal has three interesting tidbits worth noting. The first is watching a true master talk his book as Jose Mugrabi stokes the flames on the Basquiat market where he’s heavily invested. Note that Mugrabi is neither a hedge fund manager nor new to the market but he’s doing all the things the Journal says financial players would do:

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.

Mr. Mugrabi said a hedge-fund manager recently asked him to track down a mural that Basquiat painted inside a New York nightclub called the Palladium. “The guy said, ‘I’m willing to pay $100 million, $200 million for it,'” he said. “He wants the art he loved and remembered seeing when he was young, and he can afford to pay anything to get it.” (Mr. Mugrabi said he agreed to look for the mural.)

Private dealer Stephane Connery is also happy to flatter his potential clients by praising their sedulous research and belief they can see value where others don’t. Notice Connery’s story doesn’t end with his collector selling his “position” in either artist:

Mr. Connery, the private dealer, said one of his hedge-fund clients found his collecting groove after he began researching blue-chip artists whose prices in 2002 still appeared “undervalued” compared with their peers. His roster turned up artists like Auguste Rodin, who was then selling for less than Alberto Giacometti, and Salvador Dalí, whose prices at the time lagged behind surrealist Rene Magritte. Within a couple of years, Mr. Connery said the collector amassed seven Dalí paintings and four Rodin bronzes.

“He said, ‘Let’s go long on Rodin,’ and look what’s happened—the markets for those artists have exploded,” Mr. Connery added. No one had paid more than $5 million at auction for Rodin a decade ago; today, the French sculptor’s auction record stands at $18.9 million. Dali has enjoyed a similar bump, his auction high bar climbing from $5.7 million four years ago to $21.7 million currently.

Finally, it is worth noting—though the article doesn’t—that 2013 has been a dismal year for hedge fund performance as managers chased return outside of the equity markets thus missing out on a broad, spectacular rise in the S&P 500. This particular fund manager has been more associated with losses in gold recently:

Hedge-fund collectors have a track record of taking creative financial positions in art. When John Paulson, who hangs Alexander Calder watercolors around his office at Paulson & Co., found out that New York gallery Berry-Hill was defaulting on $26 million in debt two years ago, he didn’t tsk-tsk like the rest of the art world. Instead, his fund swept in and took over the gallery debt —seeing potential upside in the gallery’s 18th-20th century inventory the same way he’s known for spying value in distressed companies. Mr. Paulson, through a spokesman, declined to comment.

Hedge-Fund Managers Playing Larger Influence in Art Market (WSJ)