Art is new gold for world’s richest

Show-off investors choose the more ‘elegant’ option

EMERGING-market billionaires, driven by vanity, easy money from the world’s central banks and a quest for safe investments, are taking the contemporary art market to new heights.

Art collectors made news for a second straight night on Wednesday as Sotheby’s held the biggest auction in its history, led by the record-setting $105-million (about R1-billion) paid for work by Andy Warhol.

On Tuesday, hedge fund managers, oil princes and oligarchs were bidding by phone at Christie’s when the auction house sold Francis Bacon’s Three Studies of Lucian Freud for a record $142.4-million, in what was seen as a test of the global art market’s health.

It passed. One of the reasons, art consultants and hedge fund managers said, was the rise of a class of superrich collectors, many of them from Asia, the Middle East and Russia — zones bolstered by years of booming commodities prices.

“While we are seeing big numbers for many lots, there is only a small number of buyers and it is not dominated by American financiers,” said Abigail Asher, a partner at art consultants Guggenheim Asher Associates.

Sotheby’s and Christie’s buzzed with energy, art industry insiders said, as people realised just how willing bidders were to pay staggering sums for the art on auction. “People are clearly not done emptying their pockets,” said Elizabeth Jacoby, who runs BSJ Fine Art.

Jeffrey Gundlach, CEO and chief investment officer at investment management firm DoubleLine and an avid art collector, said he had never seen a market like this one. He said the high-end art market was being driven by “a tiny fraction of the population in certain emerging economies” where people “don’t trust their currency and don’t trust the stability” of their economies.

“There is so much new wealth being created right now and it will only take a handful of new billionaires minted in China, for example, to significantly impact this market,” added one hedge fund manager who follows the art business closely but who asked not to be identified.

Emerging-market billionaires will have to fight old-world wealth. Super-rich art buyers in the West may have some of the same economic fears amid uncertainty over when central banks will unwind years of easy money policies imposed after the 2008 global financial crisis.

Although low inflation reigns in Europe and the US alongside lacklustre economic growth, many economists and others fear that years of quantitative easing by the US Federal Reserve, in which it has bought bonds to stimulate the economy, will eventually trigger rapid price rises. And, if not, the end of that easy money could trigger losses in conventional stock and bond markets.

The prices for paintings held steady during the Great Recession as demand from collectors kept coming from many corners of the world.

“Thanks to quantitative easing, there is a lot of liquidity floating around and we are seeing a trend where investors are moving out of some asset classes like bonds and into commercial real estate and art,” said Charles Gradante, managing principal at financial advisory firm the Hennessee Group.

For the world’s wealthiest, art is one of the more elegant in a small pool of safehaven investment options: it is tangible, transportable and resistant to inflation and conventional market turmoil.

Gradante said the appeal of art might even be taking some of the froth out of the market for the iconic safe haven, gold, “which has long been an inflation hedge, but it can’t be enjoyed by owners the way a painting can be”. Hedge fund managers have long had a love affair with the art world, in part, because it is fun to show off.

John Paulson’s office is decorated with works by Alexander Calder, Julian Robertson owns some Picassos, and Steven Cohen displays a Jeff Koons sculpture at his home — they are all American hedge fund managers.

Some investors who like art are going a step further — buying auction houses. Billionaire hedge fund manager Daniel Loeb’s Third Point LLC and Mick McGuire’s Marcato Capital Management have acquired stakes in Sotheby’s and have been pushing the centuries-old auction house to improve its balance sheet and operations by adapting to art buyers’ changing tastes and becoming more active in private sales.