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The Business of Art

Past performance does not predict future returns. You may get back less than you originally invested. Reference to specific securities is not intended as a recommendation to purchase or sell any investment.

In this episode of Global Infusions, Tom and Tom discuss the business of art, from auction houses to private collections, and warzone bargain hunters to status-signalling royals. They also explore the story behind the most expensive painting ever sold, discuss a collection of Picassos hidden in plain sight, and find out why orange juice is suddenly so expensive.

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TR – Hello, I’m Tom Record and I’m here with Tom Morris. Welcome to Global Infusions, an investment podcast from the Liontrust Global Fundamental team that takes a long term view of today's stories.


Last episode we chatted about the business of Christmas from trees to pudding monopolies. This episode we’re tackling Art, from the auction houses to tax scams to hidden assets. If your taste buds are tickled or you have any questions for our next episode, please do send them in via your client contact or through the contact us link on the Liontrust website.


So sit back, grab a cup of tea and remember that when we talk about individual companies we are not making a recommendation to buy or sell shares and that some of these companies may not be held across Liontrust’s global fund range.


TR – So Tom, let’s start with a deceptively simple question – Who makes the money in art?


TM – Generally speaking not the artists. Similar to music, there is a very small number of very rich artists, like Damien Hirst and Jeff Koons, and an enormous number of artists making somewhere between very little and nothing.

TR – So the real money is being made by other players in the art world.

TM – Exactly – auction houses, astute dealers and gallery owners, and the occasional smart or lucky collector.

TR – So, let’s talk about the auction houses. The top end of the market is dominated by Sotheby’s and Christie’s, which interestingly are both now private companies, owned by French billionaires.

TM – Yes it’s funny the way it’s worked out – both were originally British family companies – Sotheby’s was founded in 1744 and Christie’s in 1766 – and both grew into big multinational businesses with significant operations in the US and Asia.

TR – And then Francois-Henri Pinault bought Christie’s in 1998. He’s best known as the patriarch of the family behind Kering, the luxury group that owns Gucci, Bottega Veneta and many other brands, that we’ve spoken about on here before.

TM – Yes and that says something about those two top auction houses – they are close to being luxury brands themselves. They stand for exclusivity and rarity and provenance, and owning them is a kind of status symbol for a certain type of billionaire.

TR – Like Patrick Drahi, the telecoms entrepreneur behind Altice, who bought Sotheby’s in 2019.

TM – Exactly. So auction houses make money through commissions charged to both sellers and buyers, ranging from a couple of percent up to perhaps 25%.

TR – Chunky!

TM – Yes, and they can also help to arrange financing for bidders, as well as guaranteeing minimum prices for sellers, sometimes with the aid of third-party financers who agree to step in and buy things if prices in the room fail to reach a certain level. It can get quite murky, and it’s all done to counter the greatest fear of most sellers, which is that their item might fail to sell.

TR – Yes failed sales can be disastrous, and really kill sentiment around a work, or even an artist.

TM – And that reveals something about the top end of the art market – it’s largely not about aesthetics, or artistic merit, it’s about financial speculation and wealth signalling. People aren’t buying stuff they love, they’re buying to impress others, or to get even richer.

TR – Yes. So it’s often helpful to have high valuations for collections of art. So if I were lucky enough to own 20 Andy Warhol pictures it might make sense for me to bid up the price of a similar Warhol in an auction so that the apparent value of my 20 pieces on the wall at home rises.

TM – Even though art markets are highly illiquid, people still generally use the last sale price of a similar item to define current values – it leaves the whole process wide open to manipulation.

TR – exactly! And it makes sense for me to push up prices, because I could then use my highly valued art collection as collateral for borrowing from a bank.  Or I could give one of the pieces to a museum in an act of charity and use it to offset my income tax bill.

TM – Yes, I’ve heard of this. People buying art, revaluing it up and then giving it to a museum at a much higher valuation and getting the tax credit…

TR – Indeed that apparent act of generosity can sometimes actually be quite devious!

TM – Art can also be deeply political – a way of people or countries trying to show off and say ‘I’ve arrived’. Take for instance the most expensive piece of art ever sold, Salvator Mundi, a painting that had been newly attributed to Leonardo da Vinci.

TR – Oh yes I remember this from a few years ago. It sold for almost half a billion dollars?

TM – Yes! $450m in 2017 – an incredible amount of money – and way above the previous record holder, a Willem de Kooning painting that sold in 2015 for $300m.

TR – And wasn’t there quite of controversy about it?

TM – Yes there was then, and remains now, considerable debate about its authenticity. It had previously been attributed to a ‘follower of Leonardo’, and had been sold as such in 2005, fetching just $1175.

TR – What!

TM – Yes! It was in a terrible state – it had actually broken into 7 pieces due to a woodworm infestation, and had been overpainted many times. The owners had it very extensively restored – it was glued back together, loads of paint was stripped off, loads of new paint was applied to repair cracks and correct perceived faults. It was scanned and analysed and inspected by notable art historians – like the ultimate episode of one of my favourite TV shows, Fake or Fortune?

TR – And presumably the owners managed to find a few people who would vouch for it being a genuine da Vinci?

TM – Yes they did, initially a renowned conservator at New York University called Modestini, and then the director of the National Gallery in London, Nicholas Penny, and several others.

TR – So some very big hitters. And psychologically I can imagine that the people involved might have been predisposed towards vouching for it, given the rarity of Leonardo’s paintings, the prestige of finding a new one, and the fact that the National Gallery got the honour of being the first gallery to display it.

TM – Yes quite a coup! …and the experts were big enough names that when it went up for auction in 2017, it caused quite a stir, and was purchased by Prince Badr of Saudi Arabia, who was initially thought to be acting on behalf of the government of Abu Dhabi.

TR – OK…

TM – But it was later reported by the Wall Street Journal that Prince Badr had in fact been acting on behalf of Crown Prince Mohammed bin Salman of Saudi Arabia, and the painting hasn’t been seen since.

TR – So where is it?

TM – Nobody knows – in 2019 it was reported to be in storage in Geneva, and then Bloomberg reported that it was on MBS’s yacht!

TR – Amazing. So let’s move on to art collectors.

TM – Yes – a pastime of the rich and ambitious for centuries, and also of big companies, especially banks.

TR – Yes indeed - Siena’s Monte dei Paschi bank started the first known corporate art collection back in 1472 and now has over 30k pieces. And I’ve visited Banco Santander’s amazing art collection, which is so big they have their own gallery next to their head office.

TM – And there’s some amazing stuff today held by Deutsche Bank, UBS, JP Morgan, and many others. Sometimes even casinos.

TR – Are you perhaps talking about MGM, Tom?

TM – I am – so the casino group had long operated a restaurant in The Bellagio, one of its Vegas properties, called Picasso, where diners could enjoy posh food while surrounded by original Picasso artworks.

TR – Sounds fancy.

TM – It is. So I’d always assumed that the paintings were on loan from a gallery or a private collection – they weren’t mentioned anywhere in MGM’s annual report and accounts. So it was a surprise to me, and to a lot of people I think, when MGM announced in 2021 that it was going to sell 11 of the pieces in a special auction.

TR – Didn’t Sotheby’s build a re-creation of their auction room in one of the Bellagio’s ballrooms for the event?

TM – Yes it was all very Vegas, and generated a lot of attention. They ended up selling the paintings and ceramics for $108m.

TR – A decent amount of money for something not even mentioned on the balance sheet – hidden assets in plain sight! But what’s the appeal of a restaurant called Picasso that doesn’t have any Picassos anymore?

TM – Well – it also turned out they had 12 more Picasso pieces dotted around other parts of the hotel that they could move to the restaurant as replacements!

TR – Ha! OK, moving on from Vegas, we have to talk about Keynes.

TM – The economist?

TR – Yes – one of our colleagues, Tom Hosking, pointed out to us this week that Keynes was also a noted art collector. He had a great collection that contained 135 works that he bought for the equivalent of about £600k in today’s money.

TM – and given that Keynes was an economist, we have to ask, did he manage to choose pieces that went up in value?

TR – Indeed he did – an appraisal in 2013 valued his collection at about £70m, implying that it had generated returns of about 10.9% per year since he assembled it in the early 20th century, so pretty much in line with the British stock market. Three academics called Chambers, Dimson and Spaenjers did some work on the collection, and there are a couple of really interesting bits in here that I think are worth chatting about

TM – Go on…

TR – OK, well the first is that it was a couple of items that drove the valuation and those two paintings now account for over half the value. And the top 10 account for over 90% of the value

TM – So similar to the work by Bessembinder that you often talk about for long term stock returns, and the importance of owning a handful of extreme returners in your portfolio.

TR – Exactly.

TM – and your second point?

TR – Keynes is known for telling people to buy when there was blood on the streets. And he made some of his best purchases on a trip to Paris just as the Germans were shelling it in WW1. He persuaded the UK government to front him some money, and provide him with an armed escort, as well as the director of the National Gallery.  Of course the director couldn’t afford to be recognized so he shaved off his moustache and grabbed some fake glasses in a cunning disguise…

TM – This sounds like the plot of Casino Royale!

TR – Ha! Too true.  It worked though and he managed to buy some great works including a Cezanne for less than £400 from Degas’ estate sale, the equivalent of about £30k in today’s money.

TM – And he got back alive.  That is amazing.

TR – and it left him with pretty good subsequent returns!

TM – and that brings us on to fractional ownership, which has made it possible for everyone to get their share of financial returns, or losses, from owning art.

TR – but of course they miss out on the joy of seeing the art.  So how does this work?

TM – It’s basically like issuing shares in a work of art. So rather than having to buy the whole thing, you could a share representing 0.01% ownership, for instance.

TR – and something similar to fractional ownership is also being used to support artists. We all know about the patrons of the arts – possibly the most famous in the past were the immensely wealthy Medici family back in Renaissance Italy.

TM – yes they supported great masters like Michaelangelo, Da Vinci and Botticelli.

TR – …and brought a wonderful array of art to Florence and the world.  Nowadays many creators are sponsored in a different way through patreon, where individuals can give a few dollars a month, but it adds up – probably not to the same scale as the Medici family, but often enough to support artists or authors.

TM – a great example of the internet democratizing another service – in this case, patronage.

TR – I’ve always been impressed by the creativity, thoughtfulness and patience that’s often needed to paint.  It’s particularly surprising when you see your colleagues creating art.

TM – Yes I enjoyed our team trip out to see Xav’s exhibition on the south bank in the summer.

TR – A talented man – great at coding programmed trades and at painting!

TM – so we should probably touch on that intersection of coding and art and talk about NFTs again. The pieces of art or tokens that are on the blockchain and so are effectively made scarce.

TR – Yes, it’s been a roller coaster ride for Art NFTs.  I saw an article that reckoned that In 2021 $2.6bn of art NFTs were sold. At the pinnacle of that was probably the auction of 101 Bored Ape NFTs in Sotheby’s a year and a half ago. And Justin Bieber apparently spent $1.3m to buy one of those NFTs and join the Bored Apes Yacht Club.

TM – Yes, and like most crypto assets they’ve collapsed in value in recent months – I saw they were for sale for well under $100k. So well over 90% down.

TR – But great to see new art forms being created. So We’ve talked about NFTs in collaboration before, but there are some industries that are perfect for collaborations with artists.

TM – Just look at the current collaboration between Louis Vuitton and Yayoi Kusama, the artist famous for dots and infinity mirror rooms.

TR – Didn’t you go along to one of those a couple of years ago?

TM – Yes I did and it was great. The Tate Modern had two of Kusama’s mirror rooms for people to walk through, and I was lucky that Tinger, who we work with, had a spare ticket. It’s actually still on, and is well worth a visit.

TR – It sounds like an interesting collaboration.

TM – Yes it’s actually the second time Kusama has worked with Louis Vuitton – the first time was in 2012, and that collection has become highly sought after on the secondary market, so now they’re giving it another go. For Kusama it raises her profile as an artist, and is presumably pretty lucrative.

TR – And for Vuitton it associates them with a genuinely visionary artist, and generates a lot of brand interest.

TM – Yes High Snobiety reported that the collaboration teaser video posted to LV’s Instagram page generated over 1.2m likes, vs a typical level for their posts of about 30-70k.

TR – OK, I have a feeling we’ll revisit art in the future as it’s such an interesting topic, but let’s move on to the news.

TM – So the first story I wanted to mention this episode is a follow up on our discussions about food. I saw that the current Florida orange crop is set to be the smallest in almost 90yrs, down by more than half vs the previous year, and by more than 90% since the peak in 1998.

TR – Wow that is a total collapse and reflects the climate challenge that we all see and feel. And it’s important as Florida accounts for about 20% of the world’s orange juice production.

TM – Yes it’s one of the reasons that orange juice prices have spiked to record levels, just above $2/pound of frozen concentrate, so watch out for inevitable price rises in supermarkets.

TR – That brings back memories of Trading Places! Now a quick quiz for you Tom. Which country exports the most orange juice?

TM – OK so my rule on food production questions is if in doubt, guess Brazil.

TR – Correct! So Brazil grows about half the world’s oranges, and is another example of a hidden oligopoly as there are just a handful of private companies that control the market.

TM – ah the Brazilian orange magnates.

TR – and another random Brazil point for you – Did you know that the most northernly point in Brazil is closer to Canada than it is to the most southernly point of Brazil.

TM – Really? I definitely did not know that. It really is a gigantic country.

TR – OK, so my first story this episode is from New York.  Madison Square Garden has started using machine learning to stop people they don’t want from entering their venue. So the news I saw was that it’s taken mug shots from the websites of lawyers that are suing them, and using face-recognition on the door to bar any of those individuals from entering.

TM – The next thing from me is some more experimentation with GPT-3, the chat AI that has been getting a lot of attention recently.

TR – The one that wrote a Christmas film pitch for us last episode.

TM – Yes indeed. You know I’m still really impressed by how good that pitch was. Anyway, I saw someone online who has been using GPT-3 as an intelligent journal – something he can record his daily thoughts and experiences in, like a diary, but which also talks back to you, like a friend or a therapist.

TR – That does sound intriguing.

TM – Yes, my first thought was that it reminded me of Tom Riddle’s diary in the Harry Potter books – a sentient journal that wrote back to its user.

TR – With pretty evil intentions, as I recall.

TM – Yes, it contained part of the soul of Lord Voldemort, rather than an amusing AI chatbot, but the user experience is quite similar really.

TR – Ha!

TM – It also got me thinking that given how good GPT is at imitating the writing style of famous poets and musical artists, presumably you could train it on a diary or message history with someone you know, and get it to imitate them.

TR – That sounds plausible, as long as you had enough material to give the AI

TMPeople often say they wish they could talk to a dead relative one more time – it seems to me that GPT could be a pretty convincing imitation of that person that you could message and get responses from. A bit like the paintings of dead people in Harry Potter.

TR – It’s telling that you keep using magical comparisons – it really is an impressive bit of tech.

TM – Agreed.

TR – now before we move on from AI, I came across a cool paper that can use technology to work out the way people are standing in a room. 

TM – OK, that doesn’t sound overly different.  I assume they use cameras?

TR – ah… No – and this is the cool bit – they’re using wifi signals and machine learning to work out the deflection of the wifi and then they use that to plot where people are in a room. This could have some pretty wide ranging issues for privacy. You could also end up in a situation where your router tells you to stop slouching!

TM – Wifi is pretty pervasive so the privacy issues could be worth watching.

TR – Indeed.  Now Tom, have you come across Google’s project Jacquard? It’s a team that takes textiles and weaves in conductive threads so that your clothes become a giant touch pad.  So you can use them to control all sorts of devices.

TM – Ah yes, I saw the Samsonite Konnect backpack they launched in 2020 with jacquard smart fibres in the straps that allow you to control your phone without having to get it out of your pocket. It looked interesting, but I maybe a bit of a gimmick at the time?

TR – I think it’s just a stepping stone to more interesting and capable implementations. They’re aiming to fit the electronics that work with them into a button sized device.

TM – Well that would be cool.

TR – and a new definition for a “smart suit!”

TM – ha ha ha.

TR – And the same team are working on a similarly awesome project called Soli, which uses radar from a minichip to watch your hand movements so you can gesture above the sensor and adjust the volume, press virtual buttons and things like that.

TM – Well that sounds fun – you could definitely see applications in things like sterile environments in hospitals…

TR – … or for people who are too lazy to get up and press a button.

TM – So the next thing from me is a follow up to our previous discussions about the music industry, and in particular the value of song catalogues. I saw a few days ago that Dr Dre is reportedly selling his back catalogue to Universal for somewhere between $200-250m.

TR – So about half a Salvator Mundi

TM – Yes if that’s our new unit of expensive purchases! So according to Variety, the rights currently generate annual income of around $10m, so Universal are paying a pretty high multiple of that, which implies they must think there’s scope for growth.

TR – Sounds like we should expect to hear more Dr Dre songs in adverts and on social media

TM – Yes that is surely part of it. Now before we go, I’ve actually got one more bonus snippet for you. There’s been a lot of coverage in the last few weeks about Prince Harry’s book, which became the 6th fastest selling book of all time in the UK, with first week sales of about 470k copies.

TR – That is a lot, but where’s this going?

TM – Well it made me look up what the top ones were. And it turns out that Prince Harry may be 6th, but he is miles behind the top three – it’s not even vaguely close.

TR – So presumably number 1 is a Harry Potter book?

TM – Yes in fact the top four are all Harry Potters. Number 1 is the final book, Deathly Hallows, which in its first week in 2007 sold 2.6m copies.

TR – So HP sold more than 5x PH!

TM – Ha! Exactly – the Royal Family may be a strong franchise, but nothing matches Potter!

TR – Thank you for listening to Global infusions - a podcast that believes that the best discussions are had over tea and cake. We hope you've enjoyed your cuppa and our thoughts on the business of art. Please do subscribe through Apple or Spotify and with that we wish you goodbye!

TM – Goodbye!

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