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Speculators angering dealers over collecting without passion for art

Young financiers want to build a diversified portfolio

From the standpoint of a gallery, the fundamental purpose of a fair is to generate new collectors. Yet not all new collectors are equal: disposable income matters very much, obviously, but the attitude toward art buying can also vary enormously, and at the moment there is a sharp financial focus to the buying at high end.

“I’ve never seen so many people who are clearly speculating,” says one LA dealer showing at Art Basel/Miami Beach. “Whenever the name of one of my artists starts arousing some buzz, collectors begin calling me up and demanding anything available. It doesn’t really matter what the work itself is.”

The phenomenon is fueled by the market track-records of artists relatively unknown a few years ago. New York collector Michael Hort, for example, was reportedly offered a half-million dollars for a painting by Kai Althoff that he bought at $10,000 several years ago. Similarly market-stoking, Marcel Dzama, Wilhelm Sasnal and Tal R drew strong bidding at New York’s November auctions. Sasnal in particular soared—estimated at $20,000-30,000—one painting reached $62,000 at Philips de Pury, reflecting the near impossibility of securing his work on the primary market. For his recent show at Zurich’s Hauser & Wirth, comprised of seven paintings and three sculptures, the gallery had more than 100 offers from eager clients.

Mr Wirth uses a simple test to do the initial triage: “When collectors ask about the artist by name without discussing the piece itself, that’s a reason to stop talking,” he explains. “Those are not real collectors; they’re private dealers building up inventory.”

Many of those seeking the next Althoff or Sasnal in Miami headed off to the Ice Palace Studios, home of the New Art Dealers Alliance (NADA) fair. Especially at booths offering work by anointed stars such as Assume Vivid Astro Focus, Christian Holstad, Dana Schutz, Robyn O’Neil and Hernan Bas, collectors were jostling each other to get work and scurrying from booth to booth, making the scene reminiscent of some of the notoriously competitive action at the Barney’s sample sales in New York. “One collector explained to me that he sees the works of art in NADA as high-risk investments,” says Marisa Newman of Suite 106 gallery in New York, sounding mildly shocked at the bluntness. “But he said if you buy 10 of these artists, one will take off.”

Similarly, the action at Art Positions, aka the beach-front containers anchored at Collins Park, has been hot and heavy, especially at the booth of Peres Projects, home to Assume Vivid Astro Focus and Matthew Greene, two of the market’s newest shining stars. And newness is a critical attribute.

Anders Petterson, founder of London’s Art Tactic art-market specialists, whose offerings includes analyst-report-style evaluations of the market for various artists, says, “There is a sense of market euphoria, where everything labelled “young art” seems to be selling, regardless of the risks attached.”

Not surprisingly, many of the people approaching the artworld from a return-on-investment perspective hail from the halls of high finance.

“These new market players you see running around the fairs are usually in their early to mid-30s, with buckets of money from venture-capitalism deals or Wall Street bonuses,” says one prominent advisor. “They want to build a diversified portfolio but they don’t have any sort of art knowledge.”

Another advisor, equally prominent, says the speculative frenzy has queered things for the more serious collectors he services. “It means they have to do a lot more work in building their collections,” he explains. “There’s much more hysteria about access and suddenly people are being forced to make instant decisions about whether particular works fit their collection, because they’re competing with speculators who just want anything with the right name. The galleries and consultants are getting stuck in the middle between real collectors and these hedge-fund guys.”

Often, such old-school collectors regard the new arrivals with a certain disdain. “These people are not of the same ilk as collectors like me,” says Miami’s Martin Margulies. “They’re only interested in money and it’s not a healthy thing for the art world, but they’re not really competition for me. They have no idea who Ugo Schmolz or Adolf Lozzi are.” (Nor does this Art Newspaper writer, but assuming they actually exist, their market value jumped the moment the preceding sentence was printed.)

“When you go around to booths, you hear these guys asking how soon a work will appreciate by 30%, says veteran US collector Mickey Cartin. “Often an investment advisor is telling them to put 10 percent of their portfolio into art.”

Yet Mr Petersen thinks it facile to blame it all on the finance types: “It’s wrong to think that financial speculators are some kind of ‘external’ force that has suddenly arrived. This speculative behavior is also fuelled by the art dealers themselves.” And to the extent that dealers are encouraging such speculation, by implying that particular artists will offer profits down the road, they may be slowly slicing their own throats. “Art may be treated as a kind of currency,” points out Mr. “But it’s not like gold or Swiss franks, and the first people to exit the market will be those in it for the wrong reasons.”

Fearing the financial exposure such an exit would trigger, many galleries fight back against speculation by engaging in a sort of cooperative intelligence service. “We keep a list of people who buy with “other motives, which we pull together by talking with other galleries to figure out which collectors resell work and how they handle it,” says Zach Feuer of New York’s Zach Feuer/LFL, whose artist Schutz, among others, has been seen as a prime target for speculators.

While such frenzies give dealers the opportunity to be highly selective in the placement of the pieces and to resist deep-discounting demands, they sometimes also create an unwelcome, ephemeral buzz. “Many of the really interesting collectors are scared off by hype,” explains Mr Wirth, “I have to convince them that Sasnal’s a serious artist despite the hype.”

Things get even trickier for the dealer when the artist’s market has not taken off. Sometimes, dealers just grit their teeth while selling to known speculators, anticipating having to clean-up secondary-market messes down the road as works get flipped. “When you’re a small business, it’s noble to turn down that money,” observes Oliver Kamm of 5BE Gallery. “But you can’t always afford to prioritise long-term over short-term issues like paying rent. What you can never do is let one of those guys have five works at same time; it just gives them too much leverage.”

Originally appeared in The Art Newspaper as 'Speculators enter the scene again'