Art Funds

In the last couple of months Business Week has started to poke its nose into our business, particularly the fine art end of it. This is bad news for all of us.

But first some facts. Investment bankers are poised to move into the art market in a big way. Ariel Salama, the Global Head of Private Banks at ABN-AMRO, predicted in April that $30 billion of private equity would move into art funds in the next ten years. Three billion a year? Is there really that much art sold each year? And if there is, how much will be left over for public museums and collectors after the three billion-worth has been sucked up into the investment machine? Business Week tells me that there are plans to launch six new art investment funds in the first half of 2005.

How do these funds work? The Fine Art Fund, the first to get started, plans to spend $350 million on 500 paintings in the categories of Old Masters, Impressionists, Modern and Contemporary art. The Fund will hold the art for ten years and predicts an annual return of up to 15%. The minimum investment is $250,000. This means that people who couldn’t give a hill of beans for art are going to cream off the top of the market and use it to make a whole bunch of money. Most will never actually see the paintings that they buy.

Why is this happening in art and not antiques? Why does a painting by Van Gogh fetch more than a desk by Goddard? I’m going to give you a biased answer to this, because I deal in antiques, not fine art, and I would far prefer to own a Goddard than a Van Gogh. But I’m obviously nuts, so take my explanation with a large pinch of salt.

The Economy of Snobbery

A Goddard desk has a functional value, an aesthetic value and a financial value. A Van Gogh has only an aesthetic value and a financial value. In western societies, the fact that a painting has no function, the fact that it is useless, increases both its aesthetic value and its financial value. This is both stupid and true.

In the eighteenth century, when most great art collections were founded, possessing something that was very expensive and utterly useless was an irrefutable statement of surplus wealth. A collection of useless paintings was a socially desirable way of flaunting wealth in public. Furniture, by contrast, however beautiful and expensive it may have been to buy, always had a use, and was thus not pure luxury. In this economy of aesthetic snobbery (which is what we are describing) the fact that a piece of furniture was useful actually reduced its value.

The nineteenth century took this snob’s economy even further – it spiritualized it! Imagine a painting of a bowl of fruit. If it was so well painted that it made you salivate and want to eat it, it was bad art. It was bad art because it appealed to the senses of the body. If, however, it was painted in a way that made you think only of its forms and colors, and not at all of its fruitiness, it appealed to the spirit, not the body, and thus was great art.

Only the finest and most refined people had the spirituality to appreciate great art (and not think of fruit). The rest of the seething masses were merely sensuous, thought only of bodily pleasures, and thus were only capable of enjoying debased art. Now for some unfathomable reason all these refined, spiritual people happened to be members of the wealthy classes, so we can see why they rushed to spend vast sums on useless art: possessing it not only distinguished them from the great unwashed, but also proved that they were more spiritual, and therefore finer examples of the human race. Members of the refined upper classes vied with each other to own more, and more expensive, art to demonstrate their refinement. They therefore wanted prices to be high, and got precisely what they wanted.

The uselessness of art became the necessary basis for its appeal to the human spirit: anything useful catered to the body and its needs, and thus could not be great art. And to this day we confine antiques to the lesser category of ‘decorative arts’, not ‘fine art.’ A Van Gogh has a higher financial value than a Goddard only because of this economy of spiritualized snobbery.

Investment and Illusion

Investment bankers want to get into the art market, not because of its spirituality, but because the economy of artistic snobbery still functions as though it were a real economy. It isn’t, it’s an illusionary market, but the participants create and believe their own illusion. So, when these investment funds compete with each other for the limited number of investment-grade paintings, the prices will sky rocket, but the value will be created only by their own behavior. So when they’re looking to sell, not buy, the competition may not be there, and they’ll either lose scads of money, or be stuck with unrealizable assets. Hooray!

Treating art as an alternative asset class (which was the title of a symposium held at Christie’s in April) will sever completely any links between the top of the market and the rest. The top will have different buyers, different sellers, different pictures, and different prices. There will be no trickle down effect, and activity at the top will no longer stimulate activity in the middle. The separation of the top from the middle is already happening (in the antiques market as well) and the rush of investment funds will complete the process.

The top auctioneers will benefit – Christie’s International and Sotheby’s Holdings are deeply involved in these art funds. Dealers will be shut out of the top of the market. Collectors and public museums will also be shut out. Art can continue to make profits for the investment class only if it is confined to that class, because others buyers don’t have that sort of money available.

Antiques, Fortunately, Are Not Fine Art

I pray that the long history of being regarded as an inferior art, decorative rather than fine, will protect antiques from Wall Street and keep them on Main Street. But I’m not optimistic: this February, Sotheby’s sold an Elizabethan stool for $73,348, they had sold it previously (in August 2002), for $29,395. Its functional value as an uncomfortable seat played no part in that. One of the ugliest pieces of furniture I have ever seen sold at Christie’s last December for $36.6 million – the highest price ever paid for a non-pictorial cultural object. Known as the Badminton Cabinet it was commissioned in 1726 by the new Duke of Beaufort who was a young man of incredible wealth. I can only assume that this huge, decorated-to-death hunker was a young man’s attempt to outdo his elders and betters – a perfect example of the economy of snobbery. Which is why, today, somebody thought it was worth $36 million. Numbers like these are bound to attract the attention of the Wall Street sharks, particularly when the sharks find that there is not enough fine art to feed all of them.

My best hope is that the Art Fund bubble will burst early and drive the sharks elsewhere. The antiques market will survive best when it serves only those who love antiques, who want to live with them and enjoy them, and who want a decent return on their investment. Antiques are an appropriate asset for people who appreciate them – as I’ve punned before, antiques are the only asset that appreciates while being appreciated. If antiques remain a valued part of our everyday life, and not merely a valued asset in our portfolio, then the antiques market will not become another trendy bubble. The economy of everyday life is much better grounded than the economy of snobbery.