Art Authentication and Synthetic DNA

I believe I have posted on this project in the past, so this is more of an update piece.  ARIS Title Insurance Company has funded a program at the State University of New York at Albany to develop the use of synthetic DNA, actually encrypted nanotechnology to identify and tag artists works. The tagging would be available to both artists and collectors, and the information would be read by a scanner and relate to a database which holds the information. The tagging would not harm the works, and the cost of tagging and data input and storage would initially be around $150 per work. In addition to authentication, the tagging can also be used to determine if the work has been stolen.

The NY Times reports
The artist Eric Fischl remembers the time a friend waved a catalog at him to alert him that one of his paintings was up for auction for six figures in London. In reality, the work was a fake, but so convincing, Mr. Fischl said, “I thought I was losing my mind.”

Brushes with forgery like that one two decades ago, and concerns about his legacy and estate, prompted Mr. Fischl to appear in London on Monday to vouch for a new authentication system that would let artists sign their works with specks of synthetic DNA.

The method is being developed at the Global Center for Innovation at the State University of New York at Albany. The school said it had received $2 million in funding from the ARIS Title Insurance Corporation, which specializes in art.

Two years ago, the center, known for its work in bioengineering, encryption and nanotechnology, set about developing a way to infuse paintings, sculptures and other artworks with complex molecules of DNA created in the lab.

“We wanted a marker that was very hard to locate and not prone to environmental issues or tampering,” Robert J. Jones, president of SUNY Albany, said. Equally important, he added, was that artists would embrace the approach.

Experts say fakes have become one of the most vexing problems in the art market. Scandals like the one involving dozens of forgeries sold through the venerable Knoedler Gallery in Manhattan before it closed in 2011 are sapping the confidence of buyers, owners and artists, they say.

An objective way of marking art would be particularly attractive at a time when reliance on subjective expertise, or connoisseurship, and often-incomplete provenance, seems to be waning. Curators, artists’ foundations and independent experts now often shy away from authenticating works for fear of being sued.

“There is a deep freeze in authentications,” said Colette Loll of Art Fraud Insights, who was a consultant on the project.

But while automobiles, for example, have vehicle identification numbers, works by living artists enter the market without dependable standards of identification.

The new approach, in its formative stage, would implant synthetic DNA, not the personal DNA of the artists, because of privacy issues and because a person’s DNA could conceivably be stolen and embedded, thus undermining the authority of such a marking protocol.

The developers said the bioengineered DNA would be unique to each item and provide an encrypted link between the art and a database that would hold the consensus of authoritative information about the work. The DNA details could be read by a scanner available to anyone in the art industry wanting to verify an object.

Those trying to create the new standard said they had signed up three dozen internationally recognized artists, archives, foundations and museums who want to test the technology, which could be ready as early as next year.

Artists and owners would buy a kind of tag that they could use to apply the DNA. Early estimates by the developers say tags would cost about $150. Once applied, the DNA would penetrate the work at the molecular level, so removing the tag would not eliminate the item’s forensic signature.

“We see it as a secure, safe and invisible solution that artists and owners can accept,” said Lawrence M. Shindell, chairman of ARIS, which is based in New York. “Our goal is to remove uncertainty from the market.”

Potential buyers and sellers could also check items for DNA codes to see whether the items had been stolen. Doing so could block their resale by galleries and auctioneers and bring about their recovery, the supporters said.

They said it was crucial that applying the tags have no impact on the work.

Deciphering and replicating the DNA would be all but impossible, according to Mr. Shindell. He said even sophisticated counterfeiters “would leave microscopic forensic evidence” if they tried to remove or replace the DNA.

Mr. Jones said SUNY took on the task as a public service and a possible revenue generator, though those details remain unclear. ARIS said it had no ownership of the technology, but would benefit from the greater transparency and confidence in a $55-billion-a-year market in which it sells insurance.

“It makes a lot of sense for us to be involved given that the state of New York is one of the world’s largest art markets,” Mr. Jones said. “We hope there will be financial benefits from creating the intellectual property and the process becomes a gold standard in the industry.”

Mr. Fischl said he wanted to assure fellow artists that the idea is “a no-brainer” for preventing forgeries of their work from being sold. He added that “authenticating a work from the very start can alleviate the pain and frustration people go through when they think they have something of great value and they really don’t.”

“What’s not sexy about synthetic DNA?” he added.
Source: The NY Times


Perspectives In Insurance, Real or Fake

The insurance site Property Casualty 360 has an interesting post on insuring fine art and the importance of appraisals and authentication. As I have mentioned in recent posts, we are seeing more trade publications on the value of art, on investing in art, the need for appraisals and the importance of proper valuation and authentication for insurance a collection.

This Property Casualty 360 post looks at the wide range of values from authentic to forgeries to decorative and from giclees to prints. Take a few minutes to read and get a better understanding of what the insurance underwriters are looking at when determining risk and acceptance when deciding to insure fine art.  Have this knowledge will also help appraiser know what insurance agents and underwriters are looking for within an appraisal.  It is still rather basic, but, they are certainly starting to get it.

Property Casualty 360 reports
One of the most intriguing and confusing categories in property insurance involves appraising fine art. With the highest price paid for a work of art now at $250 million, a forgery is comparatively worthless; the potential cost of making an error is enormous.

The official definition of fine art is “a visual art created primarily for aesthetic purposes and viewed positively for its beauty and meaningfulness.” Objects considered fine art include paintings, sculptures, drawings, watercolors, graphics, and architecture. Fine art should not be confused with mass produced decorative items, IKEA art, children's drawings, framed posters and the like.

It's common to see a lot of fine art items with incorrect artist attributions and incorrect mediums, which means an incorrect claimed value. Different art mediums such as oil paintings and prints require different authentication methods.

Authenticating oil paintings

While only one individual or institution can own an original painting, thousands of people can own a copy. Original art has been copied for centuries with reproductions providing less expensive versions for popular distribution. As a result, the world is awash in copies. Advanced copying techniques and skilled forgers can make it a challenge to distinguish a reproduction from an original piece.

There are several things to look for to determine if an oil on canvas is genuine — among them signatures, artistic styles and abilities, hand-painted versus machine-made, canvases and provenance.

Of these, identifying the signature can be the quickest method for authentication. The question is — does the signature on the subject painting match signatures on known documents by the same artist? Fortunately, there are reference books and periodicals that contain known artist signatures for this purpose.

Another method for determining authenticity is to check the artistic style and ability. Did the artist execute the subject painting in the same style and manner as known documented paintings? Sometimes in a forgery there will be lines that are normally detailed but instead rendered in a blurry style, or the painting may use lighting techniques not normally associated with the period or artist. These are good giveaways to identifying a potential fraud.

Another tool for identifying forgeries is examining the construction of the canvas itself. An original painting may feature irregular and uneven paint on the edge of the canvas, while a print copy may have clean and even edges that can be hidden within a frame.

With original oil paintings, viewers can see and feel the texture of the paint and notice the colors may overlap one another. An original painting examined under a strong light might also show the pencil lines from the artist's original sketch or changes they made while painting.

Sometimes forgers will use high quality inkjet printers to make giclée copies and then add hand-touched embellishments afterward to make them look like a real painting. On close examination, appraisers can see these copies use a dot matrix pattern similar to the ones found in magazine images. It may be necessary to use a black light to see this level of detail.

The back of a canvas is also a great place to look for establishing authenticity. An original painting will show variations of light through the back because artists use a varying degree of impasto, or heaviness of paint in certain areas. The back of a giclée print will most likely be stark white because there are no variations in the paint technique and the paint layers.

The final important method used is the painting's provenance — the documentation that commonly accompanies any piece of artwork confirming its authenticity. Good provenance typically leaves no doubt that a work of art is genuine. It can include a gallery label, a signed certificate of authenticity, an artist statement or recording of the artist discussing the piece, receipts, an expert appraisal, and a history of ownership including names of previous owners.

When working with provenance, it is important to establish that the documents themselves are not forgeries. A reputable company will always call galleries to verify that the receipt in hand is authentic since these can be easily forged.

Certificates of authenticity (COAs) include an artist or dealer signature with a date and a thorough description of the artwork, though unscrupulous dealers have provided false COAs in the past. Also, great forms of provenance are a catalogue of an artist exhibition at a gallery or museum that displayed the artwork in question, exhibition history in general, and a reference in the artist's catalog raisonne. Good provenance almost always increases the value and desirability of a work of art because it authenticates it with certitude.

Authenticating prints

Original prints differ from oil paintings in that they are produced on a mass scale. They are works of art created by the artist or his professional assistant from a hand-made plate, block, stone or stencil for the sole purpose of creating a limited number of images.

Because they are a different medium entirely, distinguishing authentic prints from reproduction prints requires a different set of authentication methods than oil paintings. With prints an appraiser looks to edition numbers, signatures and plate marks to make the determination.

When an artist makes a print, it is usually produced as part of a limited number of impressions. Each print produced from the plate is technically a unique work of art even though it is produced as a signed and numbered multiple. The term for the group of prints from a single plate is called the “edition.”

This number of prints is limited to the amount that can be safely pulled from the plates before the plates begin to wear out and break down. An artist typically has control over the number of prints that can be produced from one stone and once the edition number is met, say 50 or 100, the stone is usually destroyed to enhance the value of the prints.

Original prints are numbered at the bottom with fraction numbers. The bottom half of the fraction indicates the total number of prints made. The top half of the fraction indicates which number this print occupied in sequence in the total run. So, for example, 6/100 would indicate the sixth print made in a 100-print edition.

When examining an original print, look to the bottom of the work to find this fraction. These edition numbers can sometimes be hidden under the frame, so it may be necessary to remove the frame if the numbers are not visible.

Edition numbers are not an indication of absolute authenticity, but are an important first step. After obtaining the edition number, appraisers (and adjusters) should look to catalogs to confirm the numbers given indeed match the known number. For example, if a known edition has 200 prints within it, it should ring alarm bells if the edition number on the print states it as a number different than 200.

Prints usually have the artist's signature on them — either done by hand after the print is done, in the lithographic plate itself, or in some cases, both. If the print in question has both, it's a good sign the print is authentic. If the print only has the plate signature, it's most likely a reproduction print.

Other important things to look for when working with prints are the plate impressions and marks. Authentic prints will have a discernable plate mark where the stone pressed against the paper and this indentation should be visible around the image. Sometimes these plate marks are concealed by a frame so it may be necessary to remove the frame for proper examination.

One company recently appraised a piece believed to be a print by Picasso valued at $12,000. Using these authentication methods it was determined the piece was actually a photographic print worth no more than $100. It just goes to show that when evaluating fine art, confirming authenticity is the master piece of the work.
Source: Property Casualty 360


Charitable Donations Explained

Fellow appraisers  Xiliary Twil, ASA sent me this very good article from the Planned Giving Design Center on valuing charitable donations.  It is written by  Russell James III, an attorney and a certified financial planner.

.It is the type of article (and this is only part 1 of 2) that is worth reading and printing as it puts many concepts of charitable donations and the tax code in perspective for donors and for the appraiser.

The below block is only a portion of the article, please follow the source link to view the full article. I plan on printing out and saving a copy.

The Planned Giving Design Center reports
To begin the topic of valuing charitable gifts of property, it is useful to consider why this topic is so important.  As discussed previously, the vast majority of wealth in this country is not held in cash, savings accounts, checking accounts, or money market accounts.  Consequently, if fundraisers wish to ask for gifts of wealth, then, by and large, they must ask for gifts of property.  In other words, if fundraisers want to ask from the “big bucket” of wealth, then they need to ask for gifts of property, meaning any type of non-cash asset.  A fundamental requirement of being able to ask for these property gifts from the “big bucket” is an understanding of how such gifts are valued for tax purposes.  As we will see, this is no small issue.  Different types of assets in different types of transactions may be valued dramatically differently, including a valuation of zero dollars.  In order to be able to learn how to ask from the “big bucket”, it is essential to have a basic understanding of how gifts of property are valued.  A fundraiser or advisor who suggests a charitable gift of property while being unaware that the deduction in that particular case would be far less than the value of the property is creating serious potential problems.  This chapter is intended to eliminate that risk by reviewing the rules for valuing charitable gifts of property.

If you are familiar only with cash gifts to charity, then this issue of valuation may be new to you.  Cash gifts include all cash equivalent transactions such as checks, currency, or credit cards.  Gifts of cash require no valuation.  The value is simply the amount of the gift.  Because the valuation is simple, calculating the deduction is also simple.  Although cash gifts are simple, the bulk of a donor’s wealth is rarely held in cash.  Understanding gifts of non-cash assets opens up the possibility for many more sophisticated and beneficial conversations with donors

The simplicity of valuation with cash or cash equivalent gifts contrasts with the complexity of valuing several kinds of property gifts.  An initial cause of this complexity may come from the difficulty inherent in valuing certain types of property.  Additionally, there are special tax rules for charitable gifts of certain kinds of property which can themselves alter the valuation of the property for tax purposes.  These rules have at times been put in place to curb abuses of the charitable gift tax deduction.  Because many of these rules were created in a reactive fashion – responding to particular individual abuses – it has resulted in a hodgepodge of rules that are not always consistent.  Consequently, because so many specialized exceptions have arisen over the years, it is not always enough to know a single approach to the valuation of charitable gifts of property.  Nevertheless, there are some general principles that apply to most gifts of property.
Source: The Planned Giving Design Center


Christie's Changing Spring Art Sales

The Art Newspaper is reporting on the new schedule plans for Christie's spring sales in New York. According to the article, Christie's will hold 6 sales of mostly pre Modern art with a new curated sale called Revolution which will include works from the 18th to 20th century with works pertaining to "political, social or artistic upheaval".

The Art Newspaper reports
Christie’s is re-vamping its spring New York sales calendar and introducing a new centrepiece auction. Six sales of mostly pre-Modern art, including the new “Revolution” sale, which includes work made from the 18th to 20th centuries, have been consolidated into the new “Classic Art Week,” which will take place from 12-14 April 2016. Five other sales (antiquities; the two-part Old Master paintings auction; sculpture and the “Exceptional” sale of decorative arts) have been moved into the week from December and January as part of an overall push to cross-pollinate across departments.

Jussi Pylkkänen, the auction house’s global president, says the streamlined calendar allows Christie’s staff to collaborate and present work to collectors interested in various art historical periods. “Most of our collectors are buying in five or six different fields,” he says, which is a radical departure from previous years. “Ten years ago, they may have been buying in one or two fields.”  The week “makes it as easy as possible for collectors to see the very best in every field,” he says.

The auctions revolve around the “Revolution” sale, which focuses on art made in periods of political, social or artistic upheaval. The list of works on offer has yet to be finalised, but Pylkkänen says pieces by Eugene Delacroix, Jacques-Louis David and Jean-Auguste-Dominique Ingres may be included. “People love a narrative,” he says and the sale offers “a more intellectual look at great artists working at particular times of political unrest or moments of scientific discovery.”

Curated sales have become a key strategy at Christie’s. “The Artist’s Muse,” a sale scheduled for 9 November in New York, spans the 20th century and is led by Amedeo Modigliani’s painting Nu Couché (Reclining Nude) from 1917, which is expected to fetch as much as $100m. In May, another curated sale, “Looking Forward to the Past,” made more than $705m and set 10 auction records.
“You’ll hear of other curated sales in other weeks across 2016,” Pylkkänen says. “It’s a way of looking at the market in another way.” 
Source: The Art Newspaper


Fine Art and Estate Planning

Fellow appraiser Tony Pernicone, ASA, ISA AM sent me this interesting article from the NY Times on estate planning when fine art is involved. The article gives some good insight into handling high end art collections and estate planning, and various tax consequences of planning and not properly planning. As appraisers, we are not tax advisors, but it is always a good idea to understand the issues involved so you can understand client needs and how an appraisal may fit into the planning process.

The NY Times reports
Art investors are nearly always advised not to invest in art at all, but to collect it. Buy what you like, the conventional wisdom goes, not what you expect to increase in value.

But collectors still must contemplate financial matters, especially related to inheritance, advisers say. It’s essential for them to consider what will happen to their art when they are no longer around to appreciate it.

“As somebody’s art portfolio gets more valuable, it becomes a more significant item in their financial and tax lives,” said Michael Delgass, managing director of Sontag Advisory, a financial planning firm in New York.

Like collecting itself, the planning surrounding it has tangible and intangible aspects, especially involving legacy issues, Mr. Delgass said. There are often unpleasant tax consequences for heirs, who may not be related to the collector and who may not be connoisseurs if they are.

“If you have a very valuable art collection, you may feel responsibility to the public to preserve it,” he said. Meanwhile, “it’s not a given that just because you love it, your kids will love it. Do you want to allocate family resources to hold that forever?”

Specialist advisers exist to handle such issues. They typically focus on tax and legal concerns in estate planning and philanthropy — often across borders. Their expertise in art tends to be a niche within that niche, and they fill a different role from art advisers who steer clients toward certain artists based on their tastes, budget and the state of the market.

The fact that it is difficult to put a price on art can actually work to investors’ favor when planning their estates, advisers say.

“Art is something whose value is very different if you’re going to use it or if you’re going to give it away or lend it to an institution,” said Jordan Waxman, managing partner of HSW Advisors in New York. “It’s an asset that’s not going to solve lifestyle or retirement goals, but it has a distinct advantage as a wealth-transfer tool.”

If you want to pass your Picasso on to the children, it’s better for it to be valued as low as possible. Transfers to heirs, either as gifts during the giver’s lifetime or as part of an estate after death, are taxed at high rates in many countries, though the estate or gift amount usually has to be fairly large before the tax kicks in.

Because Picassos that are similar to yours are not sold that often, a precise value for your work is hard to gauge. The result is that the tax authorities are likely to accept a lowball estimate. But it must come from an independent appraiser, Mr. Waxman said, not your own hopeful imagination, and he noted that rules on valuation and tax treatment vary from country to country.

“You can appraise it for less for gifting purposes because it’s illiquid,” he said. “The market for it has a very wide range — there may not have been comparable sales in recent years — so a $5 million painting may be valued at $3 million.”

Lack of liquidity can help in estate planning, but it can also hurt in significant ways. When you sell shares, the transaction occurs in a public market and is recorded. When you hand the Picasso to your lucky kids, it may create a taxable event that will catch up with the new owners one day.

“You can just take it off the wall and put it on another wall,” Mr. Waxman said. “That transference of property, if it’s not documented, will avoid taxation, but it’s not a legitimate transfer. If it’s not properly transacted, it can lead to major issues down the line.”

One potential issue, Mr. Delgass said, results from having “an illiquid asset that generates a liquid liability.” Say a collector’s heirs inherit $10 million of artwork and the same amount of liquid assets, and they are handed a $10 million estate tax bill.

They can sell the liquid assets, pay the bill and have all their wealth tied up in art, he said, or they can sell the art. But professionals in the small, ruthless, opportunistic art market have a way of sensing desperation and may see the sellers coming; $10 million of art may fetch far less than $10 million in such circumstances.

As the creativity in valuing art suggests, financial planning for collectors often involves changing facts on paper without changing facts on the ground. Advisers often recommend techniques for transferring ownership of art without transferring the art itself.

Collectors can sell art to heirs, in exchange for cash or a promise to pay, or place it in a trust or similar entity, such as a corporation, and then lease it back. Each strategy can convey a tax advantage, though advisers emphasize that the break, if any, depends on a jurisdiction’s legal framework. Without the leasing agreement, they add, such arrangements might not survive scrutiny by the tax authorities.

Trusts or corporations may also help collectors and their heirs avoid tragically bad luck. One feature of many tax codes is that property is subject to estate tax wherever it is situated when the owner dies, said Ruth Raftery, an adviser at Round Table Wealth Management, a New York firm that specializes in cross-border planning issues.

Say you’re Australian and you are bringing a nice, expensive Rothko to Toronto to hang on the wall of your second home there. Now let’s say you die while changing planes in Chicago. The United States will assess estate tax on the value of the Rothko.

Even worse, Ms. Raftery said, because you were not an American citizen or resident during your ill-fated trip through Chicago, only the first $60,000 of the Rothko’s value escapes taxes, instead of the $5.43 million that is exempt for Americans. Should such an event occur, it would represent not just bad luck in Ms. Raftery’s view, but also bad planning.

“If an asset is located in the U.S. but you’re not a U.S. taxpayer, when you die it’s subject to U.S. estate tax because it’s physically here — but those are the rules for people who don’t plan properly,” she said. “You have a trust or corporation own the art so that you, as an individual, don’t have ownership.”

Beyond planning estates and avoiding such gruesome outcomes, advisers counsel collectors on tax-efficient philanthropy. When giving art to an institution, it is best if an appraiser can bump up estimates of valuation to maximize the tax write-off.

Collectors who are eager to be charitable and receive a tax break while maintaining ownership of an artwork, at least for a while, may be able to thread the narrow eye of that needle by lending the work to an institution, advisers say, or remaining a part-owner and donating the rest.

Under American law, a report by BNY Mellon says, a collector can allow the institution to use the work for a certain portion of each year and take a prorated charitable deduction based on its value. But the collector must give the work away entirely within 10 years or at death, whichever comes first, and the tax deduction is based on the value then or when the fractional interest was donated, whichever is lower, with penalties due if deductions are found to have been excessive.

The valuation rules are more stringent than they used to be, so “for many art lovers, it no longer makes sense to gift fractional interests in appreciating works of art,” the report concedes.

These strategies matter only if a valuable collection has been accumulated in the first place. That remains no small feat.

“People make the argument that art is a diversification tool or store of value, but I don’t think you can prove that,” Mr. Delgass said. The idea that art is a sound investment is “part cult, part marketing gimmick. You need to look at this in a hardheaded way.”

The good news is that the quirks of the market provide benefits for collectors that are unavailable to investors in mainstream assets.

“Planning for art is very complicated,” he said. “That’s code for, ‘There are lots of opportunities.”’
Source: The NY Times


Art as a Store of Value and Art as an Alternative Currency

Quartz has an interesting look of the growth of the art market and how it is impacting investments and collectors at the top of the market.  The article notes art is being used as a store of value and can also be used as a form of currency, while the overall art market may have the potential to itself be an alternative economy.  It also touches on growing collectors, and the billionaire class who used to donate to public museums and institutions, and are now opening,endowing and managing their own museums for their collections, More fun and more control. Overall a very interesting and insightful read for appraisers.

Quartz reports
Here’s an interesting question: If the world’s economy is filling markets with a pervasive sense of uncertainty, why is the art market picking up steam for yet another season of what would appear to be massive sales?

For the very rich, art is a store of value—which is not a very new idea and one reason that art is often lumped in together with gold as a safe haven from inflation. Gold prices peaked in 2011 and have been on a long slide ever since. Not art. That’s because art is also an object that provides social currency knitting together a select group of global nabobs and those who want to be seen sharing economic and cultural rank with them.
Owning art—and, if you can, owning a lot of art—provides a kind of access in today’s globally integrated social world that few other objects can provide. The few thousand serious, active art buyers around the world come into contact through transactions, on museum boards and during the endless round of global art fairs and biennials. There is no vetting committee for collectors. Money, patience and determination will get you taken seriously enough. You just have to buy art. And the auction houses, art advisers and global galleries seem more than willing to oblige.

Even though markets around the world began to collapse in mid-August, Christie’s announced in early September that it would hold another gigaweek round of Contemporary and Modern sales in New York in November. Anchoring this show of force, the auction house announced a $100 million Modigliani nude that the owner agreed to consign only if Christie’s would assemble a show-stopping sale of equally sought-after mega-works.

The move might have been seen as a headstrong action from an aggressive, risk-taking firm were it not followed shortly thereafter by Sotheby’s own decision to guarantee former Chairman Alfred Taubman’s art collection for an unprecedented $500 million. The size of that guarantee, by the way, is evidence of more bullishness. Even with Taubman’s son on Sotheby’s board, the estate was not willing to award the sale out of sentimentality. Sotheby’s paid up because others would have had it not, which gives you a barometer of the art market’s internal forecasting.

Meanwhile, private galleries continue to open more branches, take on more artists and estates, and, like Gagosian, bring on the world’s most respected curators to produce museum-quality shows. Across the board, the art market is showing exceptional confidence these days.

But why?

The conventional answer is that art indicates a bubble. It’s a frivolous purchase made by the reckless rich. After all, these gung-ho aesthetes are presumably the same insulated fools who gobbled up nearly $200 million worth of Damien Hirst’s art the day Lehman Brothers failed.

Received wisdom also tells us that the art market is a backward-looking indicator with buyers spending excess cash they’ve already decided they don’t need. In this view, auction market collapses tend to trail the financial markets by six to 18 months.

Art is now viewed by the very rich as an alternative currency.

Tell that to those who consigned works of art in November of 2008 when the market froze nearly as completely as a mill pond in a Breugel painting. Like everything else in our current financial world, perceptions in the art market today are swift and reactions immediate.

And yet. The professionals who run auction houses keep close contact with their clientele. If the auction houses are offering big guarantees, it is because they have confidence that the world’s wealthiest remain eager to buy art, especially the most expensive art.

There are some very good reasons to believe that there have been important changes in the art market that reflect some broader changes in the global economy. I’d like to suggest that one of the reasons art has become more and more valuable over the last decade and a half—but has accelerated even more rapidly in the years since the credit crisis—is that art is now viewed by the very rich as an alternative currency.

Art as currency

For art to function as currency though, collectors have to buy the art that others esteem, which is one reason the world has seen the Qatari royal family spend so freely on some of the most recognizable and well-thought-of paintings remaining in private hands like one of Cezanne’s The Card Players and a Gauguin that is thought to be the world’s most expensive art transaction at $300 million. Today the Qataris are taken seriously not because they have a lot of money but because they have—or we think they have—a lot of important art.

Art can be used as a currency today only because the art market has grown to the point where the value and volume of transactions allows it to function that way. What’s new here is the scale upon which art collecting is taking place. Passionate collectors once owned a few dozen works, now the big names own thousands. Collectors used to buy and hold, now they buy and trade.

The crowning achievement of a life of collecting was once a museum donation that might be housed in its own pavilion, now we have hundreds of private museums. Eli Broad’s museum in LA was merely one, and perhaps the best, of those that have recently opened or been announced. Who knows how many more billionaires or mere multi-millionaires will visit the Broad and think, could I do this one day? (The answer, of course, is a resounding, ‘Yes!’)

Opening a private museum isn’t something one does—even one with seemingly infinite resources—on a whim. The Broads have been collecting for nearly half a century. And, as everyone in the art market knows, mere money won’t buy you the best art. Although the most expensive works are rarely the best works, the best works do become more and more valuable over time. That process can move what is commonly referred to as blue-chip art from having social currency to becoming something even more rarified, a reserve currency.
Art as a reserve currency

In monetary terms, a reserve currency is money that gives you easier access to the dominant economy. Throughout history, the hegemonic power has seen its currency become the favored medium of exchange. Those who are not residents of the dominant power also acquire and hold its currency to be sure they can gain access to goods and services they might not be able to obtain with their own weaker currencies. For much of the 20th century, the US dollar has filled the role of the world’s reserve currency. Before that, it was the British pound and at times the Euro and the Yen have both functioned in the same way. Citizens of nations all over the world hold dollars because the value the dollar is considered stable and safe.

In this sense, owning art over the last decade and a half has gone from being a particular interest among some of the world’s affluent to become a symbol of membership in a global class of the world’s elite. In the past, only a small percentage of the rich were willing to devote the time and resources necessary to become art collectors. But as more and more of the world’s wealthiest began to imitate their peers and purchase art collections, art became a luxury purchase. Then it became an investment. With the influx of new collectors, an industry grew up around providing expertise, advice and financing. That industry also fueled the growth of international galleries and a global circuit of art fairs.

This new supra-national domain, the art world, functions as its own domain. It’s residents are anyone who joins the migratory circuit. It’s currency is art.

Those lucky or foresighted enough to have already purchased art—particularly Contemporary art—have seen the value of their currency rise.

Others, seeing their gains in monetary and status terms, have followed behind, attempting to replicate or exceed those returns. These new buyers exchange their local currency or dollars for art in the belief that art can be turned back into dollars or local currency at a later time.

Everyone dreams of big gains, but most will be happy to sell without having lost much of the monetary value. That confidence is especially valuable to a world of

In reality, the vast majority of art is not an asset of any kind.

wealthy persons who are highly mobile, with residences in multiple countries and continents, and somewhat fearful of either local instability or the kind of regional economic uncertainty that is with us today.

In reality, the vast majority of art is not an asset of any kind. Most art is a luxury good purchased from its creator and, effectively, consumed. But the global art market has endowed the work of a small group of artists with the perception of lasting value. These works are seen as having significant and aesthetic value that transcends place and time. As much as one looks for the central authority that confers such value, the process is stubbornly diffuse and passive. Works of art become valuable through a complex and often imperceptible process that makes their value somewhat of a mystery to outsiders.

It’s even a mystery to insiders. Halsey Minor made a small fortune in the first tech boom of the late 1990s. Wary of the lasting value of his dotcom shares, he chose to hide out the bubble burst in American art.

”’When the CNET stock was at $35 to $55 a share, I decided to buy physical assets like art and real estate,” Minor told the New York Times’s Carol Vogel in 2002. “Now the stock is at $3.50.” By trading his overvalued stock for art, Minor preserved some of his wealth.
Buying art may be unfamiliar to most people. Keeping value in a physical asset is not. The simplest thing to do when you don’t trust the financial system is keep your wealth in physical currency. The US eliminated $1,000 and $10,000 notes nearly 50 years ago. Today, the government doesn’t see a legitimate need to transact in those larger denominations. But in Europe you can get still your hands on a 1000 Franc note in Switzerland and a 500 Euro note.

Many Europeans (and others) do. We know that because a full one third of the entire value of the Euro’s currency is in 500 Euro notes. Few ordinary consumers ever see those notes or would ever use them. It’s not even clear one could even walk into a store and make a purchase with a 500 Euro bill. Their only value is as a marker. And they’re used primarily by those who do not trust the financial system.

Art in times of uncertainty

Today we’re in a moment of uncertainty. But in the winter of 2009, it was anyone’s guess whether the global financial system would survive. During that extreme shock to the global banking system—the worst in generations—Christie’s held the spectacular €343 million sale of the Yves St. Laurent-Pierre Bergé estate. (If this November’s sale of the Taubman estate meets Sotheby’s guarantee, it will break the YSL-Bergé sale’s record for the most valuable single-owner collection offered.) St. Laurent was one of the most famous men in the world and the collection he assembled with Pierre

Bergé contained a very wide range of works of exceptional quality.

That sale’s success showed that the very wealthy were willing to exchange cash for cultural objects even during a panic. Indeed, they seemed eager to get prized art works and rid themselves of mere money. In the six years since that sale, the trend has only increased as the value of trophy works has far outstripped others.

Lest you think this is just something crackpots do with their money, one of the world’s most prominent bond fund managers, Jeffrey Gundlach, recommended his clients should have at least 50% of their assets in something other than stocks and bonds as late as September of 2011, when the world was in the grip of the European sovereign debt crisis. Then, Gundlach, a serious art collector, claimed to have two thirds of his liquid net worth in assets outside of the financial system. He meant “fine art, gold, gems, rental property, etc.”

Curiously, and perhaps as even more evidence that art is a reserve currency all its own, money managers have been launching art funds for more than a decade trying to appeal to those looking for just the kind of diversification non-correlated assets can provide. Try as they might, few of these funds have been able to attract significant investment. That may be because the value of actually owning art itself is greater than the potential return of mere cash from investing in an art fund.

All of these new collectors and buyers are putting a strain on the art market’s infrastructure. The main players are responding in kind. The auction houses are trying to expand their footprint while controlling costs, including the cost of guarantees that lubricate the very top of the market. Phillips is expanding in a bid to join the duopoly of Christie’s and Sotheby’s. And the gallery world continues to bifurcate into large global enterprises like Hauser + Wirth, David Zwirner, Pace, White Cube and Gagosian and small, focused and opportunistic dealers of all sorts.
Infrastructure is what’s needed most now, infrastructure that creates greater price transparency and confidence either through the more frequent circulation of art works or more information about the art itself.

Whether the value of art goes up or down is far less important than that it can be bought or sold regardless of the prevailing economic conditions. That’s part of what the art market has seen over the last six years since the financial crisis. Rather than the art market freezing amid doubts about the global economy, we see the art market thriving with the potential to become an alternative economy all of its own.
Source: Quartz 


AAA Conference New York City, November 8th and 9th

On Sunday November 8th and Monday November 9th, the Appraisers Association of America will hold their annual conference at the New York Athletic Club.  I just registered last week, have attended in the past and AAA always hosts a fantastic conference and program. The theme of this years conference is Global Trends and Market Forces.

I am most interested in seeing art economist Clare McAndrew's talk on the art market in 2015.  Dr. McAndrew is author of some excellent books on the art market and is well know for her annual TEFAF art market report and analysis. In addition to Dr McAndrew's presentation, there are some really excellent programs including talks on outsider art, the IRS, valuing archives (another topic I am interested in as I recently did an artist's archive), mid century design, evaluating a home library, how high end art is impacting the market, and insight into the growth of online auctions, plus much more.

There is still time to register, follow the source link below for more information.

AAA reports on the program
Sunday, November 8, 2015
8:00 am – 8:45 am, 9th Floor Hall
8:45 am – 9:00 am, 9th Floor Lounge
Cynthia Herbert, AAA, Co-Chair, Conference Committee
Deborah G. Spanierman, AAA, President, Appraisers Association of America
9:00 am – 9:30 am, 9th Floor Lounge

Robin Pogrebin, Culture Reporter, The New York Times
On the Brink of Another Museum Building Boom: Can Philanthropy Keep Pace?
9:30 am – 10:30 am, 9th Floor Lounge
PANEL: Rites of Passage for Outsider Art: Growth and Change in the Field and Marketplace
The definition of the term “Outsider Art” has changed and grown in the 50 years since it first came to public attention as “Folk Art.” This panel will discuss aspects of scholarship and the changing marketplace in this very rich and varied field.
Shari Cavin, AAA, Gallery Co-Owner, Cavin-Morris Gallery (moderator)
Andrew Edlin, CEO, Wide Open Arts, LLC
Jane Kallir, Co-Director, Galerie St. Etienne
Leslie Umberger, Curator of Folk and Self-Taught Art, Smithsonian American Art Museum

10:30 am – 11:00 am, 10th Floor Presidents Room

11:00 am – 12:00 pm, 9th Floor Lounge
PANEL: Issues in Valuing Archives
With so many archives now being donated, sold or inherited, it is more important than ever to understand types of organization, methodology and valuation. This presentation covers recognizing different types of archives; handling various collections containing high and low value objects and dealing with supporting documentation; differences in retail replacement and fair market valuations; when to apply blockage; typical IRS issues and distinctions in artists’ estates.
Robin Bonner, Art Appraiser, Art Appraisal Services, Appeals, Internal Revenue Services
Leila Dunbar, AAA, President, Leila Dunbar Appraisals and Consulting LLC (moderator)
Lewis Shepard, Director, Lewis A. Shepard Works of Art, Inc.

12:00 pm – 1:00 pm, 9th Floor Lounge
PANEL: Changes in Due Diligence: Past & Present
This panel will discuss the latest developments used to analyze objects, expose fakes and forgeries, and how these changes impact due diligence for appraisers.
Stephen Clark, Vice President, General Counsel and Secretary, J. Paul Getty Trust
Michael Cohn, AAA, Appraiser, Michael Cohn Fine Art Consultants, LLC (moderator)
Sharon Flescher, Ph.D., Executive Director, International Foundation for Art Research
Jennifer Mass, Ph.D., Senior Scientist, Winterthur Museum and Scientific Analysis For Fine Art, LLC

1:00 pm – 2:30 pm, 9th Floor Card Room
Belmont Society Award Presented to Samuel Rosenfeld, AAA

2:30 pm – 3:45 pm, 10th Floor Olympic Suite

1. Mid-Century Modern Design
David Rago and James Zemaitis will present an illustrated discussion, moderated by Molly Seiler, on the shifting marketplace for Mid-Century Modern Design. The speakers will address issues relating to provenance, authentication, manufacture and the reissuing of iconic mid-century designs.
David Rago, Partner, Rago Arts & Auction Center
Molly Seiler, AAA, President, Molly Seiler Appraisals & Art Advisory (moderator)
James Zemaitis, Visiting Curator, Indianapolis Museum of Art

2. Understanding Asian Art Through 10 Objects
Through 10 examples of typical Asian objects, this session will lend insight into how to recognize, categorize and value in this area. Asian material comes from many countries including China, Japan, Korea, India and Southeast and Northern Asian countries. You will be introduced to different themes and materials.
Michael Cohn, AAA, Appraiser, Michael Cohn Fine Art Consultants, LLC
Michael Murphy, Appraiser, Michael Cohn Fine Art Consultants, LLC

3. De-Mystifying Auctions
This presentation will provide an overview of “art auctions”, how property gets to the auction block and the advantages of buying and selling at auction. The mystery of what actually is happening in the saleroom and how an auctioneer conducts the sale is also explained. A discussion of the terminology of auctions is followed by a brief review of rules and regulations and some common saleroom bidding techniques are also described.
Barbara Strongin, Director of Administration, Sotheby’s Institute of Art

4. Evaluating a Home Library Shelf-by-Shelf
Learn to appraise rare and common books as encountered on virtually every appraisal!
Peter Costanzo, AAA, Director of Rare Books, Autographs, Maps and Photographs, Doyle New York

3:45 pm – 4:15 pm, 10th Floor Presidents Room

4:20 pm – 5:30 pm, 9th Floor Lounge
PANEL: When All Is Not Lost: Appraising Partial Loss in Fine and Decorative Arts
Determining the diminution in value to an object that has sustained a partial loss can be challenging for an appraiser. This panel will address the appraiser’s scope of work when faced with a partial loss, the need for extraordinary assumptions, working with conservators and other experts, and the expectations of insurance companies.
Ronald Fiamma, Vice President, Global Head of Private Collections, AIG
Karen McManus, AAA, Director, Jacqueline Silverman & Associates (moderator)
Brad Shar, Vice President & General Manager, Lowy
Victoria Shaw-Williamson, Furniture Specialist, 1stdibs
Molly Seiler Art Advisory &
Appraisal Services
Betty Krulik Fine Art, Limited
W.C. Ferry & Associates

6:00 pm – 8:00 pm, Bonhams, 580 Madison Avenue, New York, NY
Hosted by Bonhams
All Appraisers, Members, Conference Attendees & Guests welcome!

Monday, November 9, 2015
8:45 am – 9:00 am, 9th Floor Lounge
Harmer Johnson, AAA, Co-Chair, Conference Committee
Linda Selvin, Executive Director, Appraisers Association of America

9:00 am – 9:30 am, 9th Floor Lounge
Clare McAndrew, PhD, Founder and Director, Arts Economics
The Global Art Market in 2015

9:30 am – 10:30 am, 9th Floor Lounge
PANEL:The Polarized Art Market – How High End Sales are Changing
 the Infrastructure of the Global Art Trade
The panel will examine the influence of top prices on the growth of the aggregate market and assessing the performance of the top end versus rest of market. It will ask how these sales are affecting market valuations and appraisals as well as looking at the investment implications
for collectors. The panelists will determine who in the art trade is really gaining from these sales and the competitive and legal implications of practices such as auction guarantees and other potential manipulation of the market in the struggle to secure vendors. It will also look
at which markets will be most important for high- end sales going forward: Beijing versus New York versus London, asking which center has the greatest sustainability and why.
Stephen Brodie, Partner, Herrick, Feinstein LLP
Benjamin Mandel, Economist/Global Strategist, J.P. Morgan Asset Management
Clare McAndrew, Ph.D., Founder and Director, Arts Economics (moderator)
Michael Plummer, Artvest Partners

10:30 am – 11:00 am, 10th Floor Presidents Room

11:00 am – 12:00 pm, 9th Floor Lounge
PANEL: Cuban Art: Where the Past Meets the Future
This panel will discuss the possible effects in the art market in a post-embargo Cuba, and potential art restitution claims by Cuban exiles. The state of the current Cuban art scene and the impact of a potential travel boom on the art market will also be discussed.
Ramon Cernuda, Director, Cernuda Arte
Maria Josefa Gonzalez Mariscal, AAA, Josefa Gonzales Mariscal Fine Art (moderator)
Carmen Melian, AAA, Principal, Melian Arts
Alex Rosenberg, Sc.D, AAA, ASA, President, Alex Rosenberg & Associates

12:00 pm – 1:00 pm, 9th Floor Lounge
PANEL:The Developing Landscape of Online Auctions
As the Internet has matured, online sales have become an essential tool for auctioneers.
As auction sites proliferate and costs to host auctions drop, what can we expect in the future?
Thomas Galbraith, Managing Director, Paddle8
Mark Lurie, CEO, Lofty
Amelia Manderscheid, Global Head of eCommerce, Specialist, Associate Vice President,
 Post-War & Contemporary Art, Christie’s
Lark Mason, AAA, Lark Mason Associates, iGavel Auctions
Renee Vara, AAA, Director, Vara Global Fine Arts (moderator)

1:00 pm – 2:30 pm, 9th Floor Card Room

2:30 pm – 3:45 pm, 9th Floor Card Room

1. The Museum Library as a Resource
This session will discuss the online research tools available through the Thomas J. Watson Library at the Metropolitain Museum of Art, as well as important resources available and in development at peer institutions.
Tina Lidogoster, Assistant Museum Librarian, Technical Services and Departmental Special Projects,
 The Thomas J. Watson Library, The Metropolitan Museum of Art
John Lindaman, Assistant Museum Librarian, Technical Services,
 The Thomas J. Watson Library, The Metropolitan Museum of Art
Andrea Puccio, Assistant Museum Librarian, The Thomas J. Watson Library, The Metropolitan Museum of Art

2. The Language of Luxury: Understanding Value in Today’s Luxury Goods Market
Learn about the current, robust state of the U.S. secondary luxury goods market. How does Heritage’s Luxury Accessory division determine what gets into a Signature Auction? Which pieces are in greatest demand? And why do collectors continue to go to auction houses?
Diane D’Amato, Director, Luxury Accessories, Heritage Auctions

3. New Deal Artwork: Ownership and Responsibility
This session will address the complex history of the government’s role in art of the 1930s, how an appraiser identifies these works, and the federal requirements imposed on such material.
Jennifer Gibson, Ph.D., General Services Administration

4. From Antiquity to Modernity: 20th Century Murano Glass
A discussion of the history of glass-making in Italy culminating in an in depth look at 20th century Murano glass, its companies, designers and today’s secondary market.
Jim Oliveira, Co-Director, Glass Past
3:45 pm – 4:15 pm, 10th Floor Presidents Room

4:20 pm – 5:30 pm, 9th Floor Lounge
PANEL: IRS: The Donation Appraisal
A summary of the IRS appraisal rules, including IRS updates and recent case law.
Robin Bonner, Art Appraiser, Internal Revenue Service
Karin Gross, Art Appraiser, Internal Revenue Service
Joanne Kesten, Principal, Joanne Kesten + Associates (moderator)
Source: Appraisers Association of America