Katya Kazakina quotes permabear Jim Chanos on the New York art sales. Remember that Chanos views the art market as cyclical and its height as indicative of a bubble. This despite strong evidence of some dramatic and important structural changes in the world economy over the last 15 years.

But what’s most interesting here is that Chanos makes reference to a comment buried deep inside the Delaware court decision over Sotheby’s poison pill.  There, Bill Ruprecht, CEO of Sotheby’s, is quoted in an email making this hopeful statement about Sotheby’s strategy:

I do not have an appetite for significantly leveraging this business, our progress has been hard won, and our ability to operate and invest in deals, and potentially an art fund principal business has never been more exciting

The phrasing is vague and difficult to parse correctly without knowing the context. Nonetheless, Sotheby’s appears to be considering using their position in the flow of art sales to build an art fund. This is not a new idea. It was explored in an earlier era but never came to fruition. But it does point to a further “financialization” of art as an asset.

Chanos, justifiably, is skeptical. He even sees this as market tell:

“We’re at the top of the cycle,” Jim Chanos, the hedge-fund manager known for betting against companies and markets, said in an interview at the SkyBridge Alternatives Conference in Las Vegas today.

The head of Kynikos Associates LP said the market is being inflated in part because of “hot money” from Chinese buyers.

“Everytime the market gets very bubbly, people who remain bullish say ‘Its different this time. We’re going to turn Sotheby’s into an art fund,’” he said. “The whole thing is bizarre to me.”

Perhaps Chanos is more familiar with the details than the rest of us. But there’s one way to view an art fund that makes some sense in transforming the auction house model. When an auction house guarantees work and that work does not sell, it holds the art for a period of time and then sells it. The assumption from observers is that the work is burned and sold at a loss. But this is not always the case. It might not even be often the case. One would have to see the auction house’s ledgers to know.

In a rising, expanding art market, the auction house as art fund may simply be a grander version of syndicating guarantees and expanding holding periods. Sotheby’s might raise a pool of capital to buy works that it hopes to sell over a three to five year period. Syndicating the guarantees would lower Sotheby’s risk, increase its “optionality” for when or where to sell a work and allow the firm to capture more of the auction “upside.”

This may not be what Ruprecht is referring to. After all, he’s making a statement in response to the idea that Daniel Loeb will want the firm to “leverage up” the business by taking on more debt. But the idea is not prima facie “bizarre.”

Warhol’s Wig, Newman’s ‘Fire’ Fuel $2 Billion N.Y. Sales  (Bloomberg)