Art & Finance Newsletter #16
If you were in Hong Kong this past week you were most likely attending the STEP Asia Conference. Unless of course you work in the art world, in which case you were attending one of the various gallery openings or auction house previews. Hong Kong and Shanghai have been a hotbed of art and business activity this past month.
It's been great to catch up with contacts of mine while they are visiting Asia. Most interesting is to hear about the various strategies and plans for gaining a foothold in China and other markets in Asia and to share my insight with them.
The micro-trend I spotted over the past month - the sophisticated of the strategies were focused on using Hong Kong or Singapore as a launching point to Indonesia, Vietnam & Philippines. The reasoning tended to be the same - China as large and bountiful as it may be is proving difficult and unreliable to interact with.
That said, an economist buddy called me up recently to say the quarterly import data released by the China powers-that-be stated that fine art imports are up 300%.
Let us not forget that the current Vice Premier of China, when he was Party Secretary of Liaoning province, once told the US Ambassador that he "cannot rely on the GDP numbers from his province". Instead he used three other indicators: the railway cargo volume, electricity consumption and loans disbursed by banks.
In China it's better to find information in-between the lines and learn to evaluate that. Interesting place indeed.
On to the art market...
Mega-Sale: David Hockney 'Pool with Two Figures'
The story of one of the 20th century’s most widely recognised and loved works, Portrait of an Artist (Pool with Two Figures), which realised $90.3 million on 15 November to become the most expensive work of art by a living artist sold at auction - the image above is the original source material that served as the basis of the painting.
One of the most iconic images in the artist’s oeuvre, David Hockney’s Portrait of an Artist (Pool with Two Figures) is a story of two compositions. The first, started in 1971, was inspired by the serendipitous juxtaposition of two photographs on the artist’s studio floor. ‘One was of a figure swimming underwater and therefore quite distorted… the other was a boy gazing at something on the ground,’ Hockney would later recall. ‘The idea of painting two figures in different styles appealed so much that I began the painting immediately.’
The initial work was ultimately destroyed by the artist after months of working and reworking — as documented in Jack Hazan’s film A Bigger Splash — but in April 1972 Hockney decided to return to the concept ahead of a planned exhibition at New York’s André Emmerich Gallery, which was due to open just four weeks later.
Armed with his Pentax camera, Hockney travelled to a villa outside Saint-Tropez, where he staged hundreds of photographs following his original composition using an assistant in an idyllic pool setting.
Christies - David Hockney 'Pool with Two Figures Sale
Bill Cosby Using Art Secured Financing
Disgraced comedian Bill Cosby, who is currently serving a three-to-10 year prison sentence for sexual assault, has been leveraging some of the top works in his art collection, presumably to shore up his finances after a bruising criminal defense trial.
Thomas Hart Benton‘s Going West (1926), formerly owned by Bill Cosby, was on display at a Massachusetts art gallery earlier this year, while his wife, Camille, used yet another Benton painting, The Instruction (aka The Bible Lesson), (1940), as collateral for a loan from Asher Edelman’s art finance firm, Art Assure, according to a regulatory filing.
The financing statement, known as a Uniform Commercial Code (UCC) filing, documents ownership in real property. It was filed on September 19, about a week before the court handed down Cosby’s sentence. The amount of the loan was not disclosed and Edelman declined to comment, citing client confidentiality.
Artnet - Bill Cosby and the Use of His Art Collection
Third-Party Guarantees at Auction Houses
How do Third-Party Guarantees work: they ensure that a work is pre-sold at a minimum amount, either backed by the auction house itself (house guarantee) or by a third party, who receives some of the upside should the work sell for more (typically 20%-30% of the overage above the guarantee, although this can be as low as 10% or as high as 50%). The more risk a third party takes on, the higher the potential reward.
Third-party guarantees at auction—the art market’s hybrid of a risk hedge and a speculative gamble—are on track to hit an all-time high of around $2.5bn in 2018. On the face of it, guarantees offer a high level of certainty: the auction house secures a consignment and the seller receives a minimum price, whatever the outcome of the sale. But after the 2008 financial crisis, when sales tumbled and in-house guarantees forced auction houses to pay out large sums to consignors, they all but disappeared between 2008 and 2010.
Since then, auction houses have increasingly sought to offset this risk to third-party guarantors—individuals or consortiums that often have vested interests. Such deals are now the norm for high-value Impressionist, Modern and contemporary works. But experts warn that third-party guarantees, if misused, may precipitate a crisis.
“Guarantees have the potential to be the next big art-market scandal, if they are not carefully managed,” says Harry Smith, the executive chairman and managing director of the London-based art advisory firm Gurr Johns. “We seem to have one every 20 years, so maybe we’re due for another. And most crises come out of conflicts of interest.” Smith believes that third-party guarantees should come from a financial source without a “vested interest in the art market”, rather than being “passed around between a small club of guarantors, many of them with a direct interest”. The members of this club, he adds, are “often an auction house’s prime clients”, so the auction house is effectively negotiating a deal between two clients.
The Art Newspaper - Guarantees: Next Art Market Scandal
China Now event in Mayfair, London in early 2019
I'm partnering with David Bell of Private Client Dining Club on a event located in Mayfair, London next January 2019. This event aims to connect Private Wealth advisors (Banking, Tax, Legal, Fiduciary, Insurance) with strong Asian interests to a one day course.
I will be inviting two colleagues of mine who have each been in Mainland China for over a decade and working in the capital markets and finance. We'll be leading the afternoon round table session discussing our "on the ground" experiences in Mainland China.
If you are interested in learning more about the Mayfair event be in touch.
Until next time,
Blake