Trends Collectors United Kingdom

What crisis? Super rich are still buying

The financial turmoil has been an incentive rather than a barrier for the wealthy to buy art

The BRIC-effect: Russian billionaire collectors such as Roman Abramovich (far left) and Leonid Mikhelson (far right) aren’t feeling the pinch

On the day the endgame of the euro area began, only hours after Italian debt markets came under heavy attack, and at the very moment that the New York Stock Exchange was plummeting more than 3%, Sotheby’s evening sale of contemporary art on 9 November totalled an impressive $315.8m: 17% above its high estimate, and close to the peak for contemporary art, which was reached just before the financial crisis of 2008. While the New York auction weeks had a bad start with Christie’s evening sale of impressionist and modern art on 1 November, where more than one third of the lots failed to find a buyer, in general they showed no signs that the debt crisis is having an impact on the art market.

What explains the art market conundrum? Let’s first of all note that, historically, financial or economic turmoil has never prevented the art market from reaching its highs. Van Gogh’s Irises set a record price of $54m in November 1987, a couple of weeks after Black Monday, when almost a quarter of the Dow Jones’ value was erased. The famous sale of the New York taxi tycoon Robert Scull’s collection, which set a record for many contemporary artists in 1973, came in the middle of a long, steady decline of the stock market, and only a day after the Opec countries frightened the West by agreeing to their oil embargo. In 1931, banking panics in the US and the decline of the gold standard did not prevent Andrew Mellon, who was at the time the US Secretary of the Treasury, buying Raphael’s Alba Madonna, around 1510 (now in the National Gallery of Art in Washington, DC), from the Hermitage in St Petersburg (formerly Leningrad) for a then record of almost $1.2m.

What held for these historical precedents holds for the current art market conundrum as well: economic and financial crises go only so far in depleting the cash of wealthy collectors. According to Forbes’s rich list, there are 1,210 billionaires—200 more than last year. Their combined net worth is $4.5 trillion (up from $3.6 trillion). If only a tiny fraction of this wealth is used to pursue status goods like art, the price of conspicuous consumption will be driven up.

For art collectors like Arnault, Abramovich or Pinault, who according to Forbes each have more than $10bn, $10m for a painting by Richter or a sculpture by Koons is in the end no more than 0.1% of their net worth. For an American citizen, whose mean net worth is $96,000 according to data from the Federal Reserve, the equivalent would be paying no more than $96 for a work of art.

So how come there is still so much wealth around? First of all, while the stock markets may have performed poorly this autumn, they have actually done very well since the aftermath of the financial crisis’s first stage. The Dow Jones index has risen more than 70% since its low in early 2009.

Secondly, the majority of the world’s major art collectors are not that dependent on financial markets to begin with. During the market’s boom years (say 2004-08) it became commonplace to point at hedge funds and Wall Street as the art market’s new engine. But the fact is that of the world’s top 200 collectors ranked annually by Artnews magazine, only seven operate hedge funds, while another 13 earn their income in finance or finance-related industries.

Thirdly, while Europe (surely) and the US (maybe) will have to face their second recession in three years, the rest of the world economy is still going strong. In fact, the majority of the world’s new billionaires now come from Brazil, Russia, India and China (BRIC). It is therefore likely that the November auctions have profited from a BRIC-effect. While few buyers have been identified at the auctions, it is telling that the undisputed auction star was Gerhard Richter, whose eight paintings at Sotheby’s evening sale on 9 November totalled $74.3m. According to The Economist, Russian and Chinese collectors have been the main buyers of his work at recent auctions. Among the new Richter aficionados are the Russian energy tsars Roman Abramovich and Leonid Mikhelson.

A final explanation for the art market conundrum is that investment opportunities are currently few. Stock markets are down because of the latest crisis, rates on savings accounts are low because of central bankers’ efforts to avoid a recession. No need to say that government bonds are no longer an option. Gold has always been a safe haven, but of late the market has become a new province of risk takers. In fact, the recent volatility of gold prices has left market analysts wondering if the metal is about to lose its traditional role as a store of value. While the art markets are not deep and liquid enough to take over this role, it seems safe to say that the financial turmoil has been an incentive rather than a barrier for the wealthy to buy art.

Illustrating this point is a dialogue between Sotheby’s chair of contemporary art, Europe, Cheyenne Westphal, and an unnamed American collector as reported in the Wall Street Journal in June 2010: “I phoned him up and told him: ‘Do you realise that in the present market we can get you $50m for your Rothko?’ There was a very long silence at the other end of the phone. Eventually he replied: ‘Well, Ms Westphal, that sure is tremendous news. But what the hell would I do with $50m in the bank?’”

The writer is an associate professor in the department of sociology and anthropology at the University of Amsterdam

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Comments

1 May 13
15:9 CET

RUSSELL LEE HANSEN, KEARNEY

When I heard there were thousands of artists out there I wondered where all the talent came from...but alas. A talent to create an excellent masterpiece is not what is needed in these times. There are artists, and there are skilled artists. The skilled artist number is much smaller than the "modern" or abstract artist. The bottom line is..if you create something that a gallery owner is convinced they can sell you are on your way, regardless of what it is. If you are young and pretty there is the complete package..sell the artist..sell the art. This might be why so many models and very good looking people are slathering paint all over a big canvas with their blindfolds on while listening to some zen induced alternative band on their smart phone and sipping green holistic tea. It's good to put the beautiful artist up in front of your black clothed, thin boned art parasites at the big wine and cheese gallery opening. Burp! All are art experts, just ask them!

3 Oct 12
14:40 CET

GERMILES BRIGGS, LOS ANGELES

Neo-Cubist Symbolism is indeed the NEW Art-WORLD ORDER. some of the BEST art works in Los Angeles, more less the world. Should be highly considered. the shrewd, tactful and savvy art collector would do them selves justist to invest time and money to incounter this unique art form.

25 Sep 12
15:10 CET

NINA, NINA

I love the rich

4 Jun 12
15:51 CET

FARON KEE, LONDON

I think it helps to have good taste. Gerhard has been a huge inspiration to me.

31 Dec 11
18:20 CET

JAMES, ASHEVILLE

Too many good artists and too few individuals with the money to buy. There are not enough middle class people with the resources to spend on art. The galleries are focusing only on their stables of artists and not open to, or unable to, take on new artists. This is a dismal time for talented artists who are not established even though their work is more accomplished than the artists who are selling well.

20 Dec 11
14:43 CET

SCOTT CAMERON, WILMINGTON, DE.

The real problem with the art market is that both galleries, and auction markets play the brand name game. Emerging, and established older artists are too often forgotten about or dismissed before they can gain any mojo at all. The reason that SoHo and Chelsea worked in the years prior to now, is that they were willing to show 'alternative' artists. Curiously, many went on to yield record prices and making a good many careers in the gallery and museum circles. Together with the absence of accessibility is the lack of wide ranging art reporting and lack luster criticism. Come on people, it ain't always about Koons, or Tombly or Richter—its about the art of making art, the good, the bad and the ugly...only call it like you see it don't sugar coat it with social, or commercial considerations. Show us the raw meat, build a better window to what's on point. A painter.

16 Dec 11
19:25 CET

R GLANCE, NEW YORK

this should answer any questions one might have about why Occupy Wall Street?

15 Dec 11
15:3 CET

CRAIG MATTOLI, GUANGZHOU, CHINA

To me, this is simply more of the cheerleading articles that has hit the press, in the last 6 months, trying to convince us that the art market is really great and is disconnected from the rest of the investment world. First, the Sotheby's sale, when analyzed in more detail, shows that over half was the sale was Stills and Richter works, once in a lifetime opportunities, only reason it outshined estimates was that estimates were dropped after the poor sales at Christies. The 1987 era was the Japoanese with too much money, within a few years it crashed big. In 2008, the art index was up big, and crashed by 70% w/i a year, and the DJIA is up 70% but still not as high as it was before its recent crash. Art markets are connected to others: they just lag. This article is a simple example of lying with statistics, in my opinion. While we're at it, lets add in the peak sale of Chinese art, a vase, which was never paid for, over a year later.

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