As Their Riches Grow, Hedge-Fund Experts Put Art in the Deal

As Their Riches Grow,
Hedge-Fund Experts
Put Art in the Deal Some Hoard Favorite Talent
In a Bid for 'Wall Power';
Going Long on Ms. Arbus

By ROBERT FRANK
Staff Reporter of THE WALL STREET JOURNAL
May 18, 2005; Page A1

Earlier this year, hedge-fund millionaire Daniel Loeb made a sweet trade. The 43-year-old partner at Third Point LLC had purchased a rare asset in 2003. He found a buyer in January and sold it for a 500% profit, making a quick $1 million.

He wasn't trading stocks or bonds. He was selling "UNO-Gebaude Haus per la pax," a 1984 painting by the German artist Martin Kippenberger. Adding to Mr. Loeb's delight, the buyer was the London gallery owned by Charles Saatchi, the famed British collector and businessman. Mr. Loeb declined to comment on the sale. A spokeswoman for Mr. Saatchi confirmed only that the gallery had purchased the painting.

"These hedge-fund guys like to trade," says Andrew Fabricant, a major New York dealer and a director of the Richard Gray Gallery. "For them, the instinct to trade in and out of financial issues or in and out of pictures is equally compelling."

Hedge-fund managers are reinventing the art of the art deal. With their sudden riches, quest for status and big houses in need of adornment, fund managers have become some of the most active buyers and sellers in the art world.

They have been buying up hundreds of millions of dollars of paintings, sculptures and pop-art installations. They have helped turn middling artists into media stars. They compete fiercely against one another for what they call "wall power" -- trophy art in the lobbies of their Greenwich, Conn., offices and the living rooms of their Hamptons estates. They've helped drive up prices to record highs, especially for trendy, contemporary works. At last week's auctions in New York, they shelled out several million dollars.

'UNO-Gebaude Haus per la pax' by Martin Kippenberger

But just as the flood of money into hedge funds has created new risks in the financial markets, many say it has also helped to overinflate art prices.

"I'm afraid the bubble we're seeing with some artists is going to burst someday" says Richard L. Feigen, a prominent New York dealer and gallery owner. "There's just a big disconnect between price and merit. These hedge-fund guys are throwing money around the art world like confetti."

And where others see art, many fund managers see another market ripe for trading, buying, selling and flipping. Many invest heavily in one or two artists, to build up a "position." They promote the value of the artists, help boost their prices and sometimes later unload pieces through a tax-favorable gift or sale. Mr. Saatchi, Peter Brant and other collectors have used similar strategies for years. But dealers say the fund managers have been particularly adept at hyping their collections. "They have a tendency to get high on their own supply," says Mr. Fabricant.

David Ganek, who manages Level Global Investors, has been collecting for more than 20 years and has become one of the most active buyers in the art market. In 2003, Mr. Ganek commissioned painter Ed Ruscha to do a large picture featuring the word "Level," to hang in the firm's Greenwich headquarters.

His best-known investments are in painter-photographer Richard Prince and photographer Diane Arbus. Mr. Ganek and his wife last year pledged 13 rare Arbus prints to the Metropolitan Museum of Art, including the well-known "A young waitress at a nudist camp, N.J., 1963," and "A family on their lawn one Sunday in Westchester, N.Y., 1968."

Mr. Ganek also helped promote the Met's Arbus show this spring, giving a boost to the late Ms. Arbus's profile and prices worldwide. At the same time, he also quietly sold an Arbus print, of which he owned two copies, for a profit. A spokesman for Mr. Ganek says Mr. Ganek doesn't comment on his art collection.

Mr. Loeb is long on Mr. Kippenberger, a German artist whose value has soared since Mr. Loeb started buying his work in 2002. He has purchased more than 30 of Kippenberger's pieces and lent several to museums and galleries for high-profile exhibits. Mr. Loeb says he has sold only one painting in his life -- the Kippenberger piece to Mr. Saatchi.

"It's easy buying and selling when the whole art market is booming and everything is going up," says Mr. Feigen. "These guys don't really know a down market."

Most hedge-fund managers say they aren't in it for the money. Some of the savviest collectors in the hedge-fund world have been collecting for years, even before they were in hedge funds. They say their buying is driven by passion and that they aim to build legacy collections that can eventually be passed on to museums.

Glenn Fuhrman, co-manager of MSD Capital, the investment firm for computer billionaire Michael Dell, studied art in college along with finance. He and his partner John Phelan -- who also collects -- occasionally host lunches in conjunction with the Museum of Modern Art with artists such as Chuck Close, Jim Hodges and Brice Marden. Mr. Fuhrman is also one of the top collectors of Mr. Hodges's work.

Fund managers also pride themselves on discovering new talent. Mr. Loeb, for instance, was one of the early buyers of Julie Mehretu, whom he spotted at a group show. Adam Sender, 36, of hedge fund Exis Capital, started buying works by Richard Prince in 1999, before other fund managers discovered him.

Prices for artists favored by hedge-fund collectors have soared. Mr. Ruscha's large paintings fetched around $400,000 five years ago; now they are above $1 million, dealers say. Works by Mr. Prince have increased more than tenfold over the same period, now topping $1 million. Mr. Kippenberger's prices have doubled in the past five years.

Some fund managers take an eclectic approach to their art, picking up the works of various famous artists. Kenneth Griffin, the founder of Citadel Investment Group, in Chicago, paid more than $60 million in 1999 for Paul Cezanne's "Curtain, Jug and Fruit Bowl." He wouldn't comment on his collecting. Mr. Griffin also dabbles in contemporary and post-World War II art.

The best-known art sampler is Steven Cohen, the founder of SAC Capital Management, Stamford, Conn., who earned more than $350 million in 2003 alone. Over the past few years, he has run up an art tab of more than $100 million buying up works by Claude Monet, Edouard Manet, Jackson Pollock and Andy Warhol, dealers say.

He famously paid between $8 million and $12 million this spring for Damien Hirst's pickled tiger-shark, despite reports in the art press that the shark's skin was peeling and the formaldehyde pickling solution was getting cloudy. At last week's contemporary art auctions, Mr. Cohen was one of the high bidders for Roy Lichtenstein's "Blue Nude," but was beat out by an unknown buyer who paid $4.7 million, dealers say. Mr. Cohen didn't return repeated calls.

Several fund managers turned up in person at Sotheby's, Christies and Phillips de Pury & Co. Mr. Fuhrman sat with the art elite at Tuesday night's Sotheby's sale, perched under a pricey Alexander Calder mobile. Mr. Loeb, Mr. Ganek and several others made an appearance at the Christie's auction, where Willem De Kooning's "Sail Cloth" painting sold for $11.7 million after a bidding war.

Dealers say Mr. Sender of Exis Capital bought one of British artist Chris Ofili's elephant-dung paintings for more than $1 million at the Phillips auction. He was also an active bidder at the two other sales. A spokesman for Mr. Sender says he doesn't publicly discuss his art purchases.

Some hedge-fund collectors like an art market they can influence. Unlike Old Masters or Impressionists, whose prices remain more steady and whose artistic merit has already been set by art experts, contemporary art can swing wildly in value depending on who is buying and selling.

"With this kind of art, you can make your own taste," quips James Chanos, president of Kynikos Associates Ltd., a hedge fund.

Not that others always agree. Mr. Loeb received frequent comments on the Richard Prince "biker chick" photo -- showing a topless woman on a motorcycle -- which used to hang in his office. His rabbi, visiting, once asked him to cover it up.

Mr. Chanos proudly hung a Gerhard Richter painting in his offices at Kynikos Associates. He says he decided to take it home and hang it in his bedroom after a client mistook it for a child's finger-painting.

Write to Robert Frank at ¹
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