7/28/2019 Forbes: Six Risks to the Global Art Market in 2014
(5/30/13)
1/2
What would it take to spook the
global art market? (Image credit:
Getty Images via @daylife)
What are the biggest risks to the art market in
2014? What is the very worst thing that could
happen and would that send art prices
plummeting?
These issues were discussed last week at a
panel in New York organized by the Art
Investment Council, founded by the folks at
Artvest. The discussion focused on unexpected
events that can and do shake the art market,
such as a fire or a natural disaster, terrorism,
fraud or other criminal activity.
As Jonathan Crystal, principal of insurance
advisers Crystal & Company, put it, If you
accept the premise, and many people even in
this room do not, that art is an asset classthen you should
accept the broader premise of
applying disciplines that are actively used in the investment
world. One of
those disciplines is stress-testing.
A few of the most interesting points that came up:
1) A fire or other disaster somewhere with a big concentration
of
art, such as the Geneva or Singapore freeport, could destroy up
to
$100 billion of art in one go. Ron Fiamma, global head of
private
collections for AIGs Private Client Group, estimated that is the
value of art
currently stored in Genevas freeport, although as he said, no
one really
knows. He did say, though, that it was enough for reinsurers to
want to avoid
it. Most wont insure anything going into these facilities
anymore because theaggregation values are so high. Any one of these
facilities presents a
tremendous amount of risk.
2) A dramatic event that affected art prices in one part of the
world
could affect prices everywhere. Stuart Feld, president of New
Yorks
Hirschl & Adler gallery, said that the global breadth of the
market should give
collectors some protection against an implosion. Thats not to
say there wont
be some kind of price correction, but I dont think it should be
a disaster. But
Michael Plummer, co-founder of Artvest, pointed out that the art
market is
based on confidence and is easily spooked. In 1990, you saw it
collapse
INVESTING | 5/30/2013 @ 6:31PM | 1,740 views
Six Risks To The Global ArtMarket in 2014
Kathryn Tully, Contributor
I write about art and investing
Risks To The Global Art Market in 2014 - Forbes
http://www.forbes.com/sites/kathryntully/2013/05/30/six-risks-
f 2 7/15/13 11
7/28/2019 Forbes: Six Risks to the Global Art Market in 2014
(5/30/13)
2/2
virtually overnight. The same happened again in the fall of
2008.
3) There is a very small group of collectors propping up the top
end
of several parts of the art market. For American Art, I would
say that
there are really three very high-end players, said Feld. If any
one of the
three is interested in a work, that work can bring an
unprecedented price. If
none of the three is interested, the price fetched is completely
different. And
according to Plummer, the family of Helly Nahmad, currently
under
investigation about his alleged connection with a money
laundering and
gambling ring, has single-handedly supported the Impressionist
and Modern
market through all the market downturns of the last 30
years.
4) In some areas of the market, the withdrawal of one
heavyweight
collector could have a devastating impact. If the Nahmad case
goes to
trial and he has to pay large fine, that could affect his
ability to buy, which
could have a very deleterious impact on the Impressionist and
Modern
market, said Plummer. The contemporary market has a much larger
base of
buyers right now, so I dont think that if any one buyer withdrew
there it
would have the same impact.
5) Recent allegations ofmoney laundering and fraud in the
art
world may be just the tip of the iceberg, given the secrecy of
themarket. Outside the auction market, a lot of private
transactions take place
that are never known about, said Jeremy Kroll, president and CEO
of K2
Intelligence, an investigative and risk analytics consulting
firm. People dont
want to admit they have handled stolen or fake art, but picking
through
remains after a fire, for example, at a major freeport, you
would start to peel
back the layers of the onion. People could be using freeports to
minimize tax
or launder money, you just dont know.
6) Given the risk of buying fakes or stolen works in the art
market,
buyers need to do a lot more due diligence on the background
of
the work and who is selling it. Thats particularly true now that
many
artist foundations have stopped authenticating art because of
the massive
amounts of money and huge liabilities involved. Otherwise, more
people willjust sit on the sidelines, says Plummer. If theres a
high concentration of
buyers that are driving the market, what happens if they step
back?
Which is a very good question. And if its the case that stress
testing the top
end of the art market reveals that it is prone to fraud and
money laundering,
illiquid, opaque and easily spooked, and in some cases, propped
up by just a
few collectors, is this really an asset class at all?
Follow me on Twitteror find me onFacebook.
This article is available online at:
http://www.forbes.com/sites/kathryntully/2013/05/30/six-risks-to-the-global-art-market-
in-2014/
Risks To The Global Art Market in 2014 - Forbes
http://www.forbes.com/sites/kathryntully/2013/05/30/six-risks-
f 2 7/15/13 11
