Intelligencer — How Do You Define Value

Buy what you love, experts say, because the art market, like Wall Street, holds no guarantees.

"Tiger With Arrows" (2005), a gunpowder on paper work by Cai Guo-Qiag, is a promised gift of East West Bank to Museum of Contemporary Art, Los Angeles.

Courtesy Cai Guo-Qiang

Talk to serious art collectors and industry insiders and you’d swear you were discussing the real estate market. The language is the same; “market corrections, inflated values, and bubbles bursting” pepper the conversation.

“The overall climate of the art market is crazy today,” says Steve Pincus, managing director of the Fine Arts Practice at New Yorkbased DeWitt Stern Group, which insures private and corporate collections, fine art dealers, museums, auction houses, and other fine art-related companies. “Record [auction] prices have been set in all categories. Look at the sales of furniture, decorative arts, and photography over the last year. These price spikes make it difficult to protect our clients’ assets. Keeping appraisals current is a challenge in this kind of market.” Pincus points out a Damien Hirst that doubled in value within a year, a Warhol that went for $71 million, and a Cézanne watercolor that fetched $25 million.

The New York Times and The Wall Street Journal regularly report on buying art as they report on the stock market. Indexes that track artists and their ROI numbers like listings on the S&P and Dow Jones have become required reading for both investors and collectors. A recent issue of Art + Auction ranked 100 artists, awarding them points for each mention of their name or works in magazines. (Incidentally, two artists represented by galleries in Palm Desert were mentioned: Louise Nevelson (Buschlen Mowatt Galleries) ranked No. 36 and Jennifer Bartlett (Imago Galleries) ranked No. 62.

Market hype makes for a risky investment environment, says Steven Nash, executive director of Palm Springs Art Museum. “A major correction happened in the nineties. It will happen again; the questions are ‘When?’ and ‘How large?’”

This is why buying art simply because you love a piece makes the most sense today. Michael Smith, former managing director of Northern Trust and first vice president of the museum’s board of trustees, subscribes to the “buy-only-what-you-like philosophy.” He personally favors 19th century prints. “I’ve enjoyed them as they have accelerated in value over the last several years,” he says. Despite the lure of profit, Smith keeps his treasures. “I’m not a good seller. I find it hard to give up my art,” he says.

Art transaction attorney Steve Thomas of Irell & Manella — who handled more than $575 million in transactions last year, including the reported $135 million Gustav Klimt sale — remains skeptical that the art market will outperform Wall Street over the long term. “[P]eople buying for investment … should really consider that they will do better in the stock market unless they buy the right piece from the right artist at the right time.” Thomas discourages art funds as investment vehicles. “They’re supposed to help you diversify, but I haven’t found anyone who has the money to buy who is happy to own art when they don’t get to see it or enjoy it [in their own home or workplace].”

A solution: Buy now, enjoy, and donate later.

This describes the unusual agreement between East West Bank of Pasadena and the Museum of Contemporary Art in Los Angeles. East West recently purchased $2 million of Chinese contemporary art for MOCA. While MOCA curators selected the 11 paintings, drawings, sculpture, and photographs by six artists, the works will be on public display at the bank and will not become part of the museum’s permanent collection until 2026.

“I was not interested in getting these artworks for corporate decoration or pure appreciation,” says East West Chairman/ CEO Dominic Ng. “It’s important to provide exposure for Southern California residents who might not have the opportunity to see contemporary art from China.”

David Kaplan, a collector for more than 40 years and a Palm Springs Art Museum trustee, also buys for the long haul. “There is always value out there long term,” he says. “I have works from the sixties and seventies that I bought in the nineties and that are unaffordable right now.” But he concurs that when financial markets take a hit, fine art will eventually follow. “With these new [auction] records being set, you have people from Wall Street with big bonuses who can now own museum-quality pieces.” Kaplan’s 140-piece collection will eventually go to museums.

Can one still “discover” emerging artists at a realistic price? Palm Springs Art Museum trustee and Seattle Art Museum past president Faye Sarkowsky and her husband, Herman, have assembled a significant collection of emerging artists over the past 30 years. “When we started buying, it was a wonderful time,” she says. “I don’t know that we could put together the same type of collection in today’s market. Between the hedge funds and big buyers in there, you couldn’t even raise your paddle at recent auctions.”

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