The unanswered question surrounding Jho Low’s adventure in the art market is what he was hoping to accomplish with his art and real estate purposes. The assumption is that he was hoping to make quick gains by investing in art and real estate using borrowed money from 1MDB and multiplying that with leverage from other sources. But most of Low’s purchases were made at the top end of the market. In that range, Low was behaving more like a trophy or status buyer than a speculator.
Was this a result of naiveté about asset prices (you’ll see below that Sotheby’s Financial Services offered a very conservative 30% loan-to-value ratio on the collateral) or because Low had other motives in acquiring the art, including simply enjoying the status and perceived exclusivity of participating in the UHNW asset market? If it was the latter, where did Low plan to find the cash flow to service these loans?
The Wall Street Journal’s Kelly Crow illustrates the layers of lending which originate with 1MDB bond sales and cascade through other loans. (You can see the works mentioned below in the Justice department’s slide deck embedded above.)
In April 2014, he leveraged his good will—and a collection he valued by that time at around $350 million—to take out a $107 million loan from Sotheby’s Financial Services. Instead of his own name, he used a Cayman Island entity he owned, Triple Eight Ltd., the filing said. Two months later, he was back in the art hunt, paying Sotheby’s around $57.5 million for a Monet “Waterlilies” pondscape. […]
As of May, Sotheby’s told investigators that Mr. Low had repaid his $107 million loan, the filing said. Prosecutors in the complaint said they are particularly eager to seize a trio of paintings they believe Mr. Low still owns, including the $35 million Monet he bought from SNS, the $57.5 million Monet water lily scene and a $5.5 million Vincent van Gogh drawing. All three paintings were being housed at Sotheby’s as recently as June 7, the filing said.