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Securtizing Contemporary Art: An Omen For The Market

There’s a truism in the investment world which says that when an opportunity is opened to the little guy, it’s time to look for the exits. Not necessarily to cut and run,  but rather to devise an exit strategy. 

That’s what ran through my mind when I read an article in this week’s Bloomberg Business Week headlined Short Jackson Pollock! Go Long on Damien Hirst!  It describes a vehicle for investing in art under development by a suburban St. Louis company called Liquid Rarity Exchange, which intends to securitize art works and thus open “the exclusive club of art speculation to the investing public.”

As the article says:

The Clayton, Mo., company says it has patented a technique for banks to take individual works or groups of works public, with the first offerings still 12 to 18 months away. Its argument is that by making paintings—as well as vintage cars, rare books, musical instruments, and other appraised goods—more liquid and subject to SEC regulation, the market will be fairer and priced more accurately. Also, museums would have a new way to raise funds by selling stakes in their collections while continuing to display the work of art.

This fund would mimic the private investment vehicles owning art that have been around for a couple of decades in various permutations, the LRE execs say.

They didn’t explain their vehicle very well in what is a very slim story. What’s weird and somewhat shocking is that while some anonymous Wall-Streeters pooh-poohed the idea, some art world players did not. Here’s collector/hedge-funder Adam Sender:

Any time you bring more liquidity to a market and it’s done properly, it’s a good thing, not a bad thing…The more liquidity you bring to a market, the more confidence you bring to it, and the more money flows in.

And here’s Jennifer Zatorski, a senior vice president at Christie’s:

This is a sign of a healthy global market.

No it isn’t. Those quotes are signs that maybe the art market is nearing the limit on new buyers (for the moment at least), but those with inventory want to make sure it hasn’t.  As Sender hints, keeping this party going requires an inflow of more money.

Photo Credit: Courtesy of the Daily Telegraph

 

Comments

  1. Just look at what is in the portrait back ground – – check your wallet pocket
    and to quote an auction house representative is to acknowledge one who knows the price of everything and the value of nothing . Talk about barbarians at the gates ………..

  2. Jim VanKirk says:

    Well, now I agree with you. I’ve been decrying the death of post-post since the millenium as far as I’m concerned
    the entire market has simply been a construct to protect the value of collections.

  3. Barbarians, eh? Hmmm… can’t we all just work together to elevate culture? Objects with uncertain cultural value can have a price near zero, and end up in a dumpster because they can’t bear the cost of storage. Objects with great cultural value have high prices, and great financial value to mobilize. When museums insist on taking the inevitable financial returns on their collections as capital appreciation rather than capital income, they run short of cash for the storage costs, exhibitions and research that can validate their curators’ cultural judgements and the conservation projects that let history ultimately decide. When art finance innovations let collections generously fund operations and acquisitions, letting museums better fultill their missions, you would think art historians would celebrate the funding, rather than insult the source. Artworks can fund the arts as a store of value for investors and collectors, and art historians will still interact with the lay public to determine the cultural values that underpin the financial values that generate the cash that funds the museums more generously than ever.

    The rise of this new specialty doesn’t mean art historians will have to parse the difference between liquidity and cash inflows or integrate financial models into their historical assessments. It just means the cultural sectors — arts, sciences and humanities — can finally have financial resources much more commensurate with the financial value they create. Open the gates not to barbarians, but to friendly experts with technologies that can add to your resources. Find the best tools, and apply them wisely to your collections so your museums can thrive rather than struggle and close.

  4. The final step in the commodimization of art.

  5. Well said Mark, well said!

  6. Thanks, Sarah. At least two art finance innovations have emerged as proposals to fund museum endowments with in-situ museum collections, as opposed to more or less traditional methods that involve shorter or longer — or permanent — absences for pieces. The different innovations have their plusses and minuses, as do the traditional methods, and other innovations may emerge with more applied research and inventiveness, so an art history profession that seeks to keep collections together and museums open in these difficult times might want to look more closely at its options to mobilize collection values. Genteel poverty is indeed genteel, but it isn’t necessarily the best way to accomplish museum missions.

  7. thanks.

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