Hedge Fund Hearsay and Art Market Madness
You have probably seen hedge funds mentioned frequently in the media because of the enormous amount of money that have been invested in them and the huge returns being achieved. What you may not realise is that many of the mega wealthy individuals that have money invested in hedge funds are spending their profits on blue chip art and are making waves in the market in the process. For those of you who don’t know, hedge funds are basically highly speculative private investment ventures that involve high levels of risk in pursuit of higher returns that are open only to a limited range of investors (most hedge funds only open to accredited investors (must have a net worth of at least one million US dollars or have made at least $200,000 each year for the last two years ($300,000 with his or her spouse if married) and have the expectation to make the same amount this year) which makes most hedge funds exempt from the normal regulations imposed on investment funds.
Finance traders, hedge fund managers and other risk addicts who are looking for a new challenge are turning to the art market to satisfy their trading urges and as a ticket into the socially prestigious circles of wealthy art collectors and investors. The enormous wealth being generated by hedge fund managers and investors has allowed them to purchase the most desirable works on the market thus increasing the demand for, and value of the very top end works.
One of the most high profile hedge fund managers Steve Cohen, who runs SAC capital, has spent more than $300 million building his art collection. The New York Times has reported that Cohen’s purchases, including a Pollock for $52 million and a Warhol for $25 million, has dealers and collectors buzzing about the prices paid. According to Manhattan art dealer Perry Rubenstein “Psychologically, his (Cohen’s) purchases inform a whole subcategory of collectors that there is significant, substantial money being spent,”. Cohen reportedly earned $350 million in 2003 and more last year. Forbes magazine estimates his net worth at $2 billion.
The hedgers have so much money to spend that eight figure price tags have little affect on their bank balance which means that many of these hedgers will pay well above the estimate at auction for an artwork just because they can. Dabbling in the art market is little more than a game for many of these uber rich risk takers, the affects of which have yet to be seen.
**Nicholas Forrest is an art market analyst, art critic and journalist based in Sydney, Australia. He is the founder of artmarketblog.com, writes the art column for the magazine Antiques and Collectables for Pleasure and Profit and contributes to many other publications.