Published March 11, 2011
Carlos Slim owns a lot of things. As the richest man on the planet, he can afford to. But while he may be best known for his massive holdings in several of the world’s largest companies, the Mexican business tycoon is also heavily invested in something else: art.
Indeed, in the same week that Forbes Magazine announced his name at the top of its annual list of billionaires, Slim was busy taking a group of visitors through his brand-new museum in Mexico City, which houses more than 60,000 pieces of art from his personal collection.
While Slim may be the richest business magnate enchanted by the art world, he’s certainly not the only one. Power executives such as casino developer Steve Wynn, hedge-fund manager Steven Cohen and music and film producer David Geffen are avid collectors and have even bought and sold from each other. (Two de Kooning works Geffen sold to Cohen in 2006 rank as some of the most expensive paintings ever sold, with Cohen paying a combined $201 million for them.)
That powerful people have a long-standing relationship with art is without question.
“This isn’t a new thing,” says Michael Plummer, principal at financial art advisory firm Artvest Partners. “You can go back to the Chinese emperors before the time of Christ who collected art as a sign of their power and wealth. In many ways, that hasn’t changed in the past 2,000 years.”
What is intriguing, though, is that it’s a relationship that continues to thrive at a time when the uber-wealthy have more ways than ever to spend and invest their millions. With almost any option at their fingertips, the real question is simply “Why art?”
Perhaps the most important thing to realize is that the business moguls who are involved in the art market are hardly ever just in it for the money. According to art dealer Alex Meyerovich, who owns the Meyerovich Gallery in San Francisco, encountering a buyer who sees art solely as an investment is as rare as the artwork he sells.
“Of course the investment aspect is important and the market value is important, but [seeing it] as a pure investment, that’s very rare,” he says.
Meyerovich, who has been in the business for 25 years, says the vision, smarts and creativity that tend to guide executives to professional success are the same qualities that guide them to the art world.
“They buy art because they’re very creative and inspired and would love to do something else that’s not about their companies. Many of them they acquire art because it brings something special to them,” he says.
Still, given the millions upon millions of dollars that the richest collectors spend on their passion, the investment aspect associated with collecting art is impossible to ignore.
The art market is as vibrant as any financial market, with certain properties falling in and out of favor as times and tastes change. According to Plummer, post-war artists and abstract expressionists are hot right now, commanding the highest prices mostly because they’re so uncommon.
“Their life on the market is often driven by the death of a collector. When they appear, it’s unique and special,” he says.
Art comes with its own unique set of challenges – one being that it’s not a very liquid asset and should therefore be purchased carefully. While there is no rule of thumb for determining what portion of one’s assets should reside in art (according to Plummer, legendary financier J.P. Morgan was found to have more than 30% of his assets tied up in art upon his death), buyers need to make wise choices about the art they invest in. In most cases, it’s necessary that they seek the advice of qualified art advisers before making purchases – regardless of whether or not they’re a well-known business dynamo.
“Just because people are very talented in another field doesn’t mean they’re going to understand the nuances of the art world,” Plummer says.
Some artists are safer to buy than others. The “blue chips” of the art world – if you equate safety with liquidity – are established names such as Pablo Picasso and Andy Warhol, says Jeff Rabin, Plummer’s partner at Artvest. Works by the two artists comprised the most transactions in 2010, with Warhol pieces being traded 31 times and Picasso pieces being traded 29 times, according to analysis by Skate’s Art Market Research.
Still, Rabin warns that not every piece by every blue-chip artist is a guaranteed win.
“Rothko is a blue-chip artist, but certain Rothko [paintings], if they’re dark and gloomy, won’t sell as well,” he says.
The riskiest bets are undoubtedly the ones involving artists who haven’t yet established themselves in the market. Rabin argues that the majority of the time, people who invest in new art in the primary market (meaning they buy art that is making its market debut) are going to lose money on their investment.
Still, it’s a risk that investors take if they’re set on finding the art world’s next big thing, Rabin says.
“People who are investing in that sector are looking for a home run – they’re looking for the next Picasso or Calder.”
While the value of a painting or sculpture might vary over time, the fact that the work physically exists – and as such, is at risk of being damaged – is another thing investors have to keep in mind. One of the most notable accidents occurred in 2006, when Steve Wynn punctured a hole in a Picasso that he’d been preparing to sell to Steven Cohen for $139 million. (Instead, he kept the painting and spent tens of thousands of dollars to restore it.)
Plummer acknowledges that this kind of event rarely happens, and when it does, it doesn’t mean the value of the work goes down to zero.
“An equity can go to zero. The value of art rarely goes to zero in established markets.”
But the art market and the stock market share one important commonality: When the stock market heads south, the art market is likely to follow.
So it’s no surprise that when the financial crisis took full form in 2008, art sales suffered a major blow – but they have since rebounded. As Meyerovich points out, Sotheby’s shares (BID), which can be treated as somewhat of an indicator for the art market, were trading below $10 a share in early 2009 but have resumed their pre-recession levels of about $50 a share.
Meyerovich, whose clients include a number of high-profile venture capitalists and Silicon Valley executives, says he personally has seen a marked improvement in acquisitions over the past few months. What he finds most encouraging, though, is that the “contagious” quality of art has endured, despite the challenges that come with buying and selling it.
“It’s just incredible how many people especially right now have a feeling, a connection, to art,” he says. “It's a beautiful market to be in. A beautiful, but difficult, market to be in.”