Tuesday, August 19, 2014

Don’t have a heart attack: ‘flipping’ is nothing to be afraid of


Jeff Koons, Hanging Heart
So why are dealers so careful about who they sell to?

The New York Times has just run a piece about the so-called ‘flipping’ of works of art that is apparently rife in the over-heated art market.

“Flipping” describes how those with a speculative instinct (you know, bankers, hedge-fund managers) like to buy works of art and then “flip” them at auction a short while later for a profit. Media reports would have us believe that the practice is growing, increasing in pace, and having a deleterious effect on the art market. 

However, new research commissioned by the New York Times suggests that it is not as commonplace as some people assume:

… the pace last year was only slightly faster than it was in the mid-1990s, signaling that the reselling may be just the latest iteration of a historical cycle, not a lasting change,” says the report.

Here, then, is another example of how many of today’s art market commentators read current trends as troubling innovations when in fact they may be part of a longer historical process. As Charlotte Gould and Sophie Mesplède recently phrased it with reference to the UK art market:
“Many of the commercial strategies adopted in the British art world which today tend to surprise, if not outrage, actually stem from a specific national history in which the role of commerce has both attached stigma to local creativity by hindering some practices, and encouraged the development of marketing innovations.”
One of the most frequently-cited instances of flipping was the acquisition in 2005 by billionaire financier Adam Lindemann of Jeff Koons’s Hanging Heart sculpture (above left) from über-dealer Larry Gagosian for $4 million before selling it at a Sotheby’s auction two years later for $23 million. A furious Gagosian bought it back at the auction.

In his influential book Talking Prices, on the pricing of contemporary art, sociologist Olav Velthuis revealed why some art dealers are cautious about who they sell to. One or two of the dealers Velthuis interviewed made it clear that if a collector buys a work from them and then ‘flips’ it at auction, he or she would never be allowed back into the gallery.

So did Gagosian ban Lindemann from his gallery?

Now Gallerist magazine has run a piece by Daniel Grant about how rising prices in the art market are putting pressure on dealers to bid up works by the artists they represent. Grant suggests that some of this pressure comes from the artists themselves, many of whom expect their gallerists to engage in these practices in order to protect their market.

Grant quotes John Cheim, of Manhattan gallery Cheim & Read, who says: “We are in conversation with our living artists about work that arrives at auction, and we attempt first to place works in collections that are not speculative.” For “speculative” read “likely to flip.”

The New York Times report concludes that, “Flipping remains very much the exception, not the rule,” but whoever said it was the rule? After all, how many people have the sort of capital required to make it a truly profitable activity? Nor does it have to be the dominant practice to be potentially damaging to an artist’s career. Even the occasional “exception” could reap untold harm, as Sandro Chia and Sean Scully will testify.

Whether it occurs frequently or infrequently, it seems clear that flipping is frowned upon by dealers, many of whom view it as potentially damaging to their artists’ equity profiles. It also suggests a culture clash between those with the artist’s welfare in mind (dealers) and those out to feather their own nests at whatever cost to others (speculators). That said, we tend only to hear of the works that have risen in value between acquisition and disposal, not those that were bought and then flipped at a loss.

The essential unpredictability of the auction mechanism (the increasingly common guarantee and irrevocable bid arrangements notwithstanding) also explains why many dealers are keen to “bid up” their artists’ works when they appear under the hammer. It makes sound commercial sense, however unethical it may seem to the uninitiated.

One of the mottoes of Paul Durand-Ruel (1831-1922), the great French dealer and champion of the Impressionists, was to “protect and defend the art above all else.” To that end, he recommended attending auctions to ensure that works by his artists did not sell too cheaply — “To keep prices up, you must never be in a hurry to sell,” he wrote, “and be ready to bid at sales for works by your artists.”

So how reliable or authoritative is the New York Times report?  It was compiled by two agencies, Tutela Capital and Beautiful Asset Advisors. Their methodologies were then audited by two independent experts, Stephen T. Ziliak, professor of economics at Roosevelt University, and Alan F. Karr, director of the National Institute of Statistical Sciences and a professor of statistics and biostatistics at the University of North Carolina, Chapel Hill. “Both experts found the methods sound,” says the New York Times.
But aren’t Tutela Capital and Beautiful Asset Advisors both embedded in the very investment culture they are supposedly helping to investigate?
Brussels-based Tutela boast an ability to deliver “a complete range of consulting services to institutional clients,” while aiming to “set the industry standard to provide art and finance solutions.” Fabian Bocart of Tutela Capital told the New York Times that reports of flipping are a form of scaremongering.
“They see bankers and hedge-fund managers coming into the market, and they have a preconceived idea of what they will do. But they’re not the rogues or vultures they imagine.” As a provider of art and finance solutions to billionaire bankers and hedge-fund managers he would say that, wouldn’t he?
Beautiful Asset Advisors, meanwhile, make it clear on their website that they openly ignore art’s aesthetic, symbolic and social values in favour of a focus on its investment potential. Are they not thereby endorsing the carnivorous instincts that underpin the flipping tendency, however occasional, slow-paced, or exceptional it may be?
For all their analytical ability and consultancy expertise, neither of these companies is truly impartial or objective. It’s a classic art market conundrum.

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