Artistic Pursuits, Financial Rewards

Collecting isn't just for the rich, but record prices driven by wealthy Wall Street buyers require that beginners beware.
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Bill Gates bought his Da Vinci; hedge fund honcho Steven Cohen has his Monet.

But you don't have to be a billionaire to collect art. The art world is opening its doors to smaller players who are willing to spend thousands or even millions for that special painting, photograph or sculpture.

For some collectors, art is a welcome outlet for their right brain, often left idle in the Wall Street world of stock charts, P/E ratios and financial statements. Others from the hedge fund world are approaching art as they do a stock, buying what they think will appreciate most.

"We had a client for the first time who said he wanted to take a position in a particular artist -- like it's a stock," says Barbara Guggenheim, a partner of art advisory firm Guggenheim, Asher Associates but no relation to the famed art-collecting Guggenheim family. "That's OK. They understand the

art market's ups and downs. Most people don't."

Indeed, new art collectors should tread cautiously. The Internet has opened up the art world more than ever, but it can still be an insider's game. And many long-time insiders believe big corners of the market -- especially contemporary art -- are inflated, with hedge funds partially to blame.

The Starting Point

Art advisers say the best place to start before buying anything is the museum. After that, visit galleries, talk to dealers, go to art auctions and fairs, read art publications and visit Web sites such as

artnet.com to learn about artists and their work.

"As with anything, one has to study" before buying art, says Mary Zlot, a principal with San Francisco-based art advisory firm Mary Zlot & Associates. "You wouldn't make an investment in a company that you didn't learn about."

After you find a piece you like, carefully check its condition and provenance, which is the history of a work's owners.

"If it comes from a distinguished collection, that lends cache to the piece," says Jon Bourassa, vice president, Citigroup Private Bank Art Advisory Service.

Getting an art adviser to guide you can shorten the learning curve and prevent mistakes, but at a cost. Art advisers can charge by the hour, as a percentage of purchase price or on a retainer. Citigroup Art Advisory Service, for instance, charges an annual retainer that can range from $30,000 to $100,000 a year, based on the size of collection and activities required, says Bourassa.

One misstep to avoid is walking into a gallery and buying something right off the bat. "That's always a temptation when you're traveling," Bourassa says. "That can be a very dangerous mistake if you don't know what the price should be or you haven't looked at the painting under black light to see the condition."

But that's exactly what J. Michael Bewley, an art collector and lawyer in Silicon Valley, did when he bought his first painting on a business trip 20 years ago.

"That really got me going. It's an excitement that comes over you that's just a passion," Bewley says.

As his tastes have evolved, Bewley has created an eclectic collection of 150 to 200 pieces of primarily contemporary work. "I really like exploring the ideas, the execution of a piece, the way a piece is put together, the meaning of a piece," he says.

But there's a downside. "It's always a problem finding the space," Bewley concedes.

Do-Ho Su Sculpture
He explores the notion of space and displacement.

His biggest piece: A diaphanous life-size replica of Korean artist Do-Ho Suh's bathroom, with tub, shower and sink made of fabric. The only place it would fit: Bewley's living room.

Though Bewley hasn't sold anything from his collection, it's been rewarding to see undiscovered artists whose work he has bought gain critical acclaim.

Hot Market

Bewley's buy-and-hold, even sentimental approach to art collecting, however, has recently been overshadowed by an encroaching trend: a growing number of hedge fund hotshots and wealthy Wall Street types snapping up work by contemporary artists. Earlier in November, these aggressive buyers helped break more than a dozen records at Christie's and Sotheby's contemporary art fall auctions.

"A couple of $100,000s here and there doesn't mean anything to them," Guggenheim says.

As with the stock market, some buyers are looking to make a quick buck while the paint is still wet. Guggenheim saw this recently with a 2005 painting by Damien Hirst that was already up for auction by a seller who likely bought just months earlier. "That person is flipping it," she says.

Gallery owners, who represent artists, don't like to see pieces flipped so quickly because it makes keeping track of an artist's work more difficult, says Marianne Boesky, a gallery owner in Manhattan's Chelsea neighborhood. And if an artist isn't ready for auction, going too early could hurt his market, she adds.

"That's why we're all very cautious and careful who we sell to. It's not a snobbish thing or an elitist thing," she says. But "if you just want to be able to walk in and throw your money around, we're not so interested in that. There has to be a show of dedication."

With high front-end transaction costs but low holding costs, art is, in fact, a better investment if a collector takes a longer view, says New York University professor Michael Moses.

With colleague Jianping Mei, Moses has created a fine art index that tracks objects sold at auction more than once. During the past 50 years, their index enjoyed roughly the same compound annual return -- 10% to 11% a year -- as the

S&P 500

.

"

Art is not like a stock where you can call and in five minutes sell it," says Citigroup's Bourassa. "You can't get in and out of the market easily."

Bourassa doesn't advise clients to buy artwork based on its market potential, although he believes it can be a good long-term investment.

However, there's one key difference between art and stock markets -- liquidity.

"The most important thing is to like the area and grow with knowledge and experience," he says. "Those are the people who do best financially -- who are truly learning along the way and becoming experienced collectors and who stay collectors for many, many years. It's a lifetime process."

Ardor for Art

Seasoned, even passionate art collectors take a similar view, bristling at the notion of art as investment. "All that does is demean the primary purpose someone should collect," says Frank Martucci, who runs the Millcross bond fund in New York.

Monet Monet
Steven Cohen paid big bucks for Water Lillies.

Martucci collects works by American landscape artist George Inness and is even funding a scholarly compendium of his work, due out next year. He says he will donate, rather than sell, his collection.

"To buy art for economic interests is almost as bad as what most people are doing today -- buying art with their ears," says Martucci, referring to buyers flocking to the hottest artists. "They're really subordinating the value of what a work of art can express."

Fortunately, such expression is no longer just for the uber-rich to ponder, now that art collecting has become more accessible.