Liz Gunnison has an interesting take on the news that Charles Saatchi has been appointed an advisor to the Art Trading Fund. You might recognise the name: I said twice last summer that it was doomed to fail, and this news only confirms my take. Let’s start with the fund’s assets under management: in May 2007 it had reportedly raised ߣ10 million (that’s pounds); the following month, Kit Roane reported that "it has attracted about $40 million from investors". Now, a year later, we’re told that the fund "closed in August 2007, with a capitalization of $10 million". Oops. We’re not told how many outside investors there are in the fund, but my guess is that it’s somewhere between zero and five.
The same story seems to be playing itself out with respect to ATF’s second fund:
ATF’s Fund 2 will close at the end of June, said Carlson and Williams, and has a target capitalization of $50 million. So far the second fund has received $35 million in inward investment, they said.
Let’s just say I’ll believe it when I see it.
Gunnison thinks that Saatchi has been brought on board in order to take advantage of his art-world expertise:
ATF’s decision to turn to Saatchi in the midst of raising its second fund suggests that the fund is realizing the importance of high-profile art expertise in attracting warier investors.
But isn’t that expertise, in the end, the value added by auction houses and galleries, too?
The art market isn’t really inefficient. Dealer and auction house commissions are the price at which the market values their expertise. By paying Charles Saatchi an advisory fee, ATF is eroding its own margins and just recreating the same art market formula in different terms.
I think that this move is simply an act of desperation by ATF, a final attempt to raise some some – any – outside money. Their first try, which involved talking nonsensically about being able to short the art market, failed miserably, so now they’re waving a famous name in potential investors’ faces and hoping that they’ll be so dazzled they won’t ask the obvious pointed questions.
Here’s how the agreement with Saatchi works: "The fund will pay the Saatchi Gallery a percentage of the profits it makes from works acquired through the gallery." In other words, Saatchi will be a seller to the fund, and will retain a certain amount of upside on any works he sells them, even after he’s sold them. A nice deal if you can get it!
Saatchi may or may not have valuable insight into where the art market is headed. But if he really thinks one of his artworks is going to rise substantially in value, he has no reason to sell it. I said in June that the Art Trading Fund was "is just another punter to be exploited by art-world insiders," and this deal seems to prove me right.
But the biggest irony of all is that even Saatchi himself doesn’t consider himself much of a collector, in terms of dollar returns. A while back he gave an interview to Deborah Solomon:
Saatchi says heatedly: ”If I were interested in art as investment, I would just show Picasso and Matisse. But that’s not what I do. I buy new art, and 90 percent of the art I buy will probably be worthless in 10 years’ time to anyone except me."
He’s right. Saatchi has certainly been a successful art collector, but he would probably have made more money if he’d simply sat on the Warhols he bought with his ex-wife Doris, rather than selling them just before the market in Warhol started exploding.
Does the ATF know that Saatchi isn’t interested in art as investment? Do its potential investors? My guess is that the ATF does, and they’re hoping desperately the potential investors don’t. There’s transparency for you.