Institutional Investor's Alpha Magazine - November 2007 - (Page 43)

itive,” says Westreich. “The market is very closed, very syndicated and very difﬁcult to penetrate in any serious way.” Hedge fund managers’ willingness to pay whatever it takes to acquire desired pieces is one way to penetrate a difﬁcult market. Instead of taking the traditional route of starting with smaller and lower-priced works by lesser-known artists and then working their way up to more-important pieces, they’ve tended to favor iconic works with big price tags — which can leave them open to criticism. “People say hedge fund managers should have studied and slowly gotten to that level,” says Aileen Agopian, New York director of contemporary art at Phillips de Pury, an international auction house that specializes in contemporary art. “But they’re really looking for what they want. They have it in their minds — this is the goal — and they go for it.” NEW YORK’S WEST CHELSEA neighborhood, situated between Greenwich Village and the garment district on Manhattan’s west side, is the epicenter of the contemporary art world. On the evening of September 6 alone, there were 91 opening receptions in Chelsea. The crowds moving from one gallery to another gave the impression of a large street party. This section of Chelsea — which until recently was full of mechanics’ shops and warehouses — is home to more than 300 contemporary art galleries. Goff + Rosenthal is one of them. Co-owners Robert Goff and Cassie Rosenthal opened the gallery, which occupies a modest space on West 23rd Street, in 2004. For hedge fund managers, gallery owners like Goff and Rosenthal, Zach Feuer, Larry Gagosian, David Zwirner and Marianne Boesky — the daughter of merger arbitrageur Ivan Boesky — are the contemporary art world’s equivalent of investment bankers, responsible for bringing new and old artists to market. Many collectors say that the primary market — which includes galleries, dealers and the artists themselves — is the best place to buy works, likening it to the IPO market. But buying in the primary market takes effort and time. Dealers want to sell to collectors who have demonstrated a commitment to art, with the ideal buyer being a prestigious institution such as New York’s Museum of Modern Art (MoMa) or the Met. Explaining why dealers are so careful, Goff says, “If something goes wrong in this whole process, it can actually hurt an artist’s career.” Amy Cappellazzo, international co-head of postwar and contemporary art at Christie’s in New York, says that hedge fund managers have an advantage over some other collectors because of their ability to process and analyze market information quickly. But that advantage only applies, others add, if managers follow the rules of the game — build relationships with dealers, make an effort to educate themselves about artists and their work and don’t confuse a gallery with a retail store. “You can usually spot ﬁnancial people who are new to collecting because they come in with a lot of aggressive questions,” says Goff. “But they quickly learn.” One well-publicized incident involved Third Point’s Loeb, who is famous for penning scathing letters to the managements of companies in which he invests, with suggestions on how to turn around their businesses. In 2003, Loeb wanted to purchase a photograph by Matthew Barney — an American artist who uses a variety of media and is best known for his film series, The Cremaster Cycle — from dealer Barbara Gladstone, only to be told later that it wasn’t available. Loeb was furious with Gladstone that he didn’t get the piece and is now reportedly on several dealers’ blacklists. And although some galleries will sell to him, as one established collector points out, it’s unlikely he’s getting ﬁrst choice. Invective may help push out an underperforming CEO, but it won’t help get a sought-after artwork. Hedge fund managers are attracted to the accessibility and simplicity of the secondary market. Auction house sales are the closest the art world comes to a transparent, open market, where “money is no object” returns to its traditional meaning. For a generation of young traders, auctions are the closest experience to the speed of Wall Street — Sotheby’s even has a new auction ticker that relays results in real time. Heller knows the attraction of auctions. “People are comfortable buying in an open market because they don’t feel they’re being taken advantage of,” he says. “They’d rather just go through the easy process of paying up at auction, and that has fueled this market.” That take on collecting has also led to hedge fund art collectors’ being accused of driving up prices. “They start with the premise, ‘These are the things I’m interested in,’” “Hedge fund managers are really looking for what they want,” says Aileen Agopian, director of contemporary art at Phillips de Pury & Co. in New York. NOVEMBER 2007 • INSTITUTIONAL INVESTOR’S ALPHA • 43

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - November 2007

Institutional Investor's Alpha Magazine - November 2007 Contents Letter from the Editor Longs & Shorts Pension Corner: Patriot State The Good Guys: College Connection Interview: Currency of Change Cover Story: Comeback Kid Strategies: Masters of Art Research Center: Alpha Awards: Top Technology Providers Top Analysts Alpha Bytes: Critical Choice Unhedged: Commentary: Banking on a Bubble

Institutional Investor's Alpha Magazine - November 2007

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