Bloomberg News

Billionaires at Basel Bet Art Better Investment Than Cash

June 20, 2014

Sterling Ruby

A 2014 diptych by Los Angeles-based artist Sterling Ruby, "SP278 (1) SP278 (2)'' sold for $900,000 at Xavier Hufkens gallery at Art Basel. Photographer: Katya Kazakina/Bloomberg

The main thing that’s driving the growth of the art market is the demand for a good investment for the very rich, art adviser Todd Levin said.

Levin, standing outside the convention center in Basel, Switzerland, was referring to the brisk sales inside at Art Basel, the world’s largest modern-and contemporary-art fair. A self-portrait by Andy Warhol sold for $32 million within 15 minutes of the fair’s start on June 17. Other numbers were impressive: $4 million for a David Hockney landscape; $3 million for a Fernand Leger painting; $250,000 for a towering sculpture by Thomas Houseago.

“It’s about the need of high-net worth investors to park their excess capital,” said Levin, director of Levin Art Group in New York. “They don’t want to keep it in cash in the bank. They can’t put it in a mattress. Art has historically provided the greatest intergenerational return of any asset class.”

The Artnet C50 Index, which combines performance data from 50 top contemporary and postwar artists, advanced 434 percent from the start of 2003 through last year, beating asset classes including gold, fine wine and stocks.

Art sales increased 8 percent from 2012 to 2013 to 47.4 billion euros ($65.9 billion), nearing the high reached in 2007, according to an annual report published by the European Fine Art Foundation in Maastricht, Netherlands. Auction houses in New York sold a record $2.2 billion of modern, Impressionist, postwar and contemporary art last month.

Step Ahead

Wealthy art collectors may be a step ahead of other investors. Multimillionaires have a high allocation to cash, according to a survey released today from U.S. Trust, a unit of Bank of America Corp. (BAC:US) Sixty percent of respondents, who had at least $3 million in investable assets, said they had at least 10 percent of their money in cash. Last year, 56 percent of those surveyed said they had a large amount in cash.

These investors may have taken notice that their parked cash isn’t earning much as central banks globally push down interest rates. About 17 percent of millionaires said they plan to move some money out of cash in the next 12 months, the survey said.

In Basel this week, bearish outlooks were a rarity as dealers reported strong sales and broad international attendance. First time visitors from China, India and the Middle East are among the 86,000 people expected to attend through the fair’s end on June 22, organizers said. About 284 galleries from 34 countries offered as much as $4 billion worth of art, according to an estimate by insurer AXA Art, a sponsor of the fair’s 45th edition.

Rising Values

Alberto Mugrabi, whose family owns one of the largest Warhol collections in private hands, routinely buys and sells art, and he wants values to rise.

“The same way an investment banker analyzes a company, we analyze a work of art,” he said. “When you are paying money like that, you have to think about it as an investment.”

During the first two days of Art Basel, Mugrabi stayed away from purchasing Warhol, instead going for a 1981 drawing by Willem de Kooning for $450,000 at Matthew Marks and a 1960s painting by Joan Mitchell for $1.5 million at Cheim & Read.

“You see prices of the young guys today and de Kooning looks cheap by comparison,” he said, taking a break on a bench by Gagosian Gallery’s booth, where Warhol’s painting of 10 skulls was still available for $22 million. “For $450,000 I can buy a de Kooning drawing or a Mark Grotjahn drawing. It’s a no-brainer.”

‘Young Guys’

He hasn’t brushed off the “young guys.” He collects emerging artists with blazing speculative markets including Joe Bradley, Alex Israel and Lucien Smith. In November, Mugrabi paid $389,000 for Smith’s painting inspired by Winnie the Pooh and made while he was in college. The price was a record for the 24-year-old artist.

Philip Hoffman, chief executive officer of The Fine Art Fund Group in London, also shied away from Warhol.

“It’s a waste of our time,” he said. “We don’t make money buying what everyone else is buying.”

The firm manages $300 million of art assets and expects to reach $500 million by the end of the year, he said.

Walking through the fair on opening day, Hoffman said he was alerted that another buyer was interested in an artwork the fund had agreed to purchase earlier that morning. By the end of the day Hoffman resold the work to the new buyer.

Ten Percent

“We made 10 percent on the deal,” he said, declining to name the artist or reveal the price. “We never paid for the work. We just netted the profit.”

Hoffman, who started the company in 2001, said he consigned several works to dealers at Art Basel, selling almost $5 million worth of art and averaging compound gains of 10 percent to 20 percent.

Most of the art the fund acquires is valued at $1 million to $10 million, Hoffman said. He looks to buy works by artists whose prices are on the rise.

Christopher Wool was in that category five years ago, Hoffman said. In 2007, the fund bought a Wool painting for clients for $800,000. In November, the artist’s text-based painting sold for $26.5 million at auction. But like the financial markets, there are ups and downs in art investing.

In 2009, Hoffman told his clients that the value of the work dropped 50 percent to $400,000.

“If I had to sell it then, it would have been a major loss,” he said. The fund held on until last year, when it sold the work for $2 million.

“Now these investors are happy people,” he said.

To contact the reporter on this story: Katya Kazakina in New York at kkazakina@bloomberg.net

To contact the editors responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net Mary Romano, Pierre Paulden


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