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This morning the Wall Street Journal caught everyone’s attention wih the statistic that algorithmic quant-fund trading dwarves hedge funds and is approaching the same volume as individual investors. With the equity market becoming machine driven, more savvy players are turning toward art viewing it as an asset to trade.
In response, if last week is anything to go by, the auction houses have begun to take on personalities that echo the very different types of firms that buy, trade and manage investments. As anyone who follows the financial pages knows, Wall Street is a varied world with firms that develop distinct cultures. Bulge-bracket banks are different from boutique advisory firms which differ from hedge funds and so on.
The art market used to be dominated by two firms that were mirror images of each other. Or, as the old joke has it, “Sotheby’s were businessmen pretending to be gentlemen; Christie’s were gentlemen pretending to businessmen.”
A 21st Century update of that might be that Sotheby’s were Americans pretending to be sophisticated Europeans; Christie’s were Europeans pretending to be aggressive Americans.”
Be even those caricatures no longer seem to apply. Now there are three auction houses that can put up serious works for sale. With the recent shuffling of staff and leadership, each auction house has taken on a distinct culture and personality.
Those distinct characters also map somewhat too neatly at this moment to different types of Wall Street institutions. The banking world is anything but a monolith. There are many ways to make money from financial assets. Increasingly, it would seem the same is true of cultural or tangible assets.
With that in mind, let’s try a thought experiment and connect the auction houses to their financial world doppelgangers. This is obviously presented as humor but there is a serious side to it as well. The management of tangible cultural assets is just in its infancy right now. The auction houses may not remain at the center of that growing industry but they will be the training ground for many of the individuals who develop and populate it in the future.
Let’s start with Phillips. Wall Street is driven by the search for profitable niches. A number of firms have sprung up around a few talented deal-makers who don’t try to offer a full panoply of services but focus on the places in the market where value presents itself. Many of these firms are staffed with former stars at major banks who migrate to the firms that provide them the freedom to exploit their area of expertise with a minimum of management pressure and internal politics. Moelis, Lazard and Evercore come to mind. Phillips too has approached the art market in positively opportunistic way.
When first formed at the end of the 20th Century, the original Phillips, de Pury & Luxembourg hoped to do away with the many departments at traditional auction house felt obliged to maintain in a bid for efficiency and profitability. That search eventually led to a long sojourn making markets in emerging artists. The latest iteration of the firm splits the difference by emphasizing the staff, its experience and competence, over the categories. So far, it’s seems to be working.
On the opposite extreme is Christie’s, a firm where the institution takes precedence over the individual. Christie’s certainly has its stars and has notoriously had problems imposing anything that might be considered discipline among its fractious, bumptious specialists. But when those stars depart, the luxury liner that is Christie’s sails on placidly.
Loic Gouzer and Guillaume Cerutti made that explicit with their post-sale press conference emphasis on the health of Christie’s and its ability to perform with a young staff following on the departure of a veteran who might have been fond of the limelight.
Among the big banks, Goldman Sachs is most famous for a culture that demands the ambitious staff cooperate for the greater profits of the firm. The private equity firm Carlyle, once it grew into its role as centerpiece of the new financial establishment, instituted a policy it called ‘One Carlyle’ that enforced a similar ethos where the firm’s needs took precedence. Perhaps that’s one reason Christie’s has bred a number of private dealers who moved on while still relatively young (another hallmark of Goldman.)
Where do those who outgrow the big banks go? In the last decade, traders with an appetite for greater risk and higher returns left the big banks to start their own hedge funds. Some of those funds have become such big players that they dwarf the more traditional institutions.
Sotheby’s, with its stock now owned by several different hedge funds (at one time or another) including periodic positions held by collector and pop-culture embodiment of the image of the aggressive trader Steven Cohen, has become more like a massive hedge fund. Over the last two seasons, the house has made big contrarian bets with its own capital (then hedged those with bets with Irrevocable Bids) that have paid off beyond the industry’s expectations.
Last week’s massive score with the Wilks Basquiat had echoes of one of the most famous hedge fund trades, George Soros’s billion-dollar bet against the British pound. But the real question about the future of Sotheby’s is whether it can keep generating scores that are big enough to move the needle on the firm’s profits. As the trading model grew in popularity, hedge funds have had a harder and harder time posting alpha.