The Obama administration has approved salary caps of $500,000 for top executives at companies that receive large amounts of bailout money. This group includes many of the major financial institutions in this country. If that salary cap bleeds over to affect pay in other industries, the excesses of the super-rich will be due for a cutback. How will this affect the high-end art market?
According to James F. Reda of James F. Reda & Associates, a compensation consulting firm, “only a handful of big companies pay chief executives and other senior executives $500,000 or less in total compensation.”(1) In an economy intent on transparency, that doesn’t leave much room for millionaires and billionaires. High-ticket items will continue to sell at high-ticket prices. American buying, however, will most likely sharply decline.
These days, former US tycoons are thinking about not getting out of bed rather than Tracey Emin’s unmade bed. If depression isn’t holding buyers back, fear will. With TMZ broadcasting footage of executives travelling in private jets on their way to receive bailout money, and the Obama administration up in arms over the AIG bonuses, populist backlash has made conspicuous consumption questionable. In the past, collector’s names were regularly affixed to the exorbitant prices paid for artwork. Today however, even if you can’t live without that Emin, do you really want to be known as the person who paid a king’s ransom for it?
Hedge fund billionaire Steven A. Cohen is one American who has seemed comfortable with record purchases in the past. His collection is highlighted by works like Francis Bacon’s 1969 “Second Version of Study for Bullfight No. 1”- for which he paid an estimated $45.9 million in 2007, William De Kooning’s “Woman III” for $137.5m, a $52m Pollock drip painting, and a Damien Hirst shark in a tank of formaldehyde for $8m-which was molting and had to be repaired. It is estimated that Cohen’s art purchases have amounted to $700m.
Cohen is certainly a symbol of the art world’s bygone boom era. Will his decomposing shark go on to symbolize the wealth of the hedge fund icon himself? And if Cohen stops buying art, is there an American executive that will?
Wealth in America remains fortuitous. According to the March 2009 Forbes list of leading billionaires across the world, 45% of the individuals came from the United States. Other leading countries include Russia (27 individuals,) India (24), and China (28.) The finance industry, however, has played a such major part in US economic success. Its meltdown will cause substantial changes in these rankings. Forbes’ pre-crash list had already hinted of the times to come, naming 28 hedge-fund managers as its top US billionaires, down from 39 in 2008.
How does the decline in executive wealth correlate with the high-end art market? Consider the ArtNews annual list of top US collectors. Here’s a look at that list from 2007.
2007 Top US Art Collectors (courtesy ArtNews)
Eli Broad – Contemporary art
Steven Cohen – Impressionist, Modern and Contemporary art
Anne and Kenneth Griffin – Impressionism and Post-Impressionist art
Henry Kravis – Old masters, Impressionism, 20th Century art and French furniture
Ronald Lauder – Old masters, 19th and 20th century art and Austrian art
Sammy Ofer – Impressionist and modern art
Francois Pinault – Contemporary art
Mitchell Rales – Modern and contemporary art
Charles Saatchi – Contemporary British art mostly
Charles Schwab – Modern and contemporary art
Out of this group, four collectors (Cohen, Griffin, Kravis, and Schwab) built their fortunes on Wall Street. If we consider this a microcosm of US collecting wealth, what will become its substitute, if it is reduced?
Indeed, ArtNews’ Summer 2008 list of top international collectors showed that the tide may have already come in. The magazine reported three newcomers to the top ten: Ukrainian businessman Victor Pinchuk; Mexican telecommunications magnate Carlos Slim Helú; and Sheik Saud bin Mohammad bin Ali al-Thani of Qatar.
At the time of its release, conventional thought would have viewed this list as a result of globalization’s spoils- one that would give way to a gradual diversity of the mega-rich collector. The collapse and nationalization of US finance, however, may lead to a quicker reshuffling.
It remains to be seen if the art world’s gatekeepers are poised for such a change in both collecting class and taste. Galleries that speak the language, understand the nuances of the cultures and are accepted by the buyers will drive hiring decisions. But what exactly will they be selling?
Contemporary art has been the most popular category for major art collectors. 78% collect that genre with Modern and Impressionist art the second- and third-most popular categories. Americans, however, have been driving that trend. New cycles produce new winners and they are generally not the winners from the previous cycle.
It’s doubtful that the next cycle of winners in the art market will be Contemporary, Modern and Impressionist art. Like current stock market winners Walmart, IBM and McDonalds, the new buyer will demand the tried and true, and the Old Masters market stands to benefit. Rare works that bestow status and legitimacy will continue to be prized by collectors, but that crowd will likely not be led by US gunslingers, financial industry captains or real estate entrepreneurs. Move over America- here comes the new breed of art collectors.
-Debra J. Diamond, Hardassetjournal.com