Hedge fund losses may cut art prices

Billionaire Eli Broad, who'll help shore up Goldman Sachs Group Inc.'s Global Equity Opportunities Fund, said art prices will decline as a result of losses by hedge funds and other large contemporary art collectors.

"Many of the buyers of contemporary art have been hedge-fund managers and other investors who obviously are having a difficult time and have lost lots of money," the California collector said in an August 15 e-mail sent by a spokeswoman. "The art market will soften, and an adjustment in values will take place, but it may not happen for six months to a year."

Sellers are flocking to the auction houses after an 11-year quadrupling of contemporary art prices. The London jeweler and art collector Laurence Graff said he consigned 30 U.S. artworks to Christie's International, after getting guaranteed minimum prices.

"Whatever happens, we'll get our money," Graff said in a telephone interview this week. "It might be good timing. It won't be bad for sure." Works on the block didn't include his favorite Andy Warhols or any "masterpieces," he said.

Edward Dolman, chief executive officer of the world's largest auction house, said Christie's consignments of "several hundred million dollars" of artworks for New York's November auctions are running ahead of schedule.

Meanwhile, Damien Hirst's US$100 million diamond skull is taking longer to sell than the U.K. artist said he expected on June 2. At Christie's in July, buyers spurned 40 percent of an old master picture auction, and Charlie Chaplin's Bell & Howell Co. movie camera went unsold, at a top estimate of 90,000 pounds (US$178,119).

Broad said earlier this year that the art market may be heading for a crash resembling that of the 1990s, when values halved.

With a self-made fortune valued at US$6 billion by Forbes magazine, he'll join new investors putting US$1 billion into Goldman's fund after a 28 percent decline this month, the securities firm said on August 13. He is on ARTnews magazine's list of the world's top 10 art buyers, with a foundation that owns about 1,800 works, adding 50 a year.

The US$1.7 trillion hedge-fund industry, which includes top 10 art collectors Steven Cohen and Kenneth Griffin, has been roiled by declines in the credit and equities markets during the past two months. Investors from Europe to China and Taiwan have lost money on stakes in U.S. private equity and hedge funds or the U.S. mortgage investments that set off a credit crunch.

"Typically, when there are adjustments up or down in the art market, it follows what happens in the securities and real-estate market," Broad, a founder and former chief executive officer of the homebuilder KB Home and insurer SunAmerica Inc., said in the e-mail.

The arrival of new buyers from the U.S. to Russia and Asia has quadrupled prices for the most expensive contemporary art since 1996, including a 50 percent gain this year, according to index-maker Art Market Research. Mark Rothko and Warhol paintings sold for more than US$70 million apiece in May, and a pill cabinet made by Hirst fetched 9.7 million pounds in June.

"If housing prices at the upper end start going down, that might affect people's buying decisions, because that's personal," said California art dealer Patrick Painter. Meanwhile, the Rubells, Miami collectors, bought five paintings at his gallery last month and he recently sold eight pictures on the secondary market, Painter said in a telephone interview on August 15. "It doesn't seem to me like people are panicking."

After the 1990 art-market crash, even paintings by 20th-century masters such as Pablo Picasso halved in value over five years, according to Art Market Research. Young artists and galleries disappeared. Auction volumes, which hit a high of US$8.1 billion last year, were at US$3.4 billion in 2003, Moody's Investors Service, which rates Sotheby's debt, said this week.

"It's too early for us to tell what effects the destabilized markets are having, but we've seen record levels of consigning," Christie's Dolman said in a telephone interview. "We've spoken to people in the trade, and lots of deals are being done."