Corruption and the art world are seldom placed together, the reality though, is that the art market is a free agent: free and greed-driven
The art market is one of the last unregulated markets in the world. From the United States to Russia and everywhere in between, the governments had little success in implementing effective regulations that would make it a fair and honest place to do business. At the same time the amount of money that circulates here has increased exponentially. Latest estimates indicate that it may be as high as 300 billion USD, however no one really knows. That’s because the majority of transactions on this market happen in the shadows, and the bigger the deal the less likely it will be reported. I wouldn’t be at all surprised if the actual global trade of art, antiques and collectibles already surpassed a trillion dollar benchmark. Without question the art business is very profitable even when the art itself, especially contemporary, on many occasions is far from that.
How could that be? How can so many auctions, galleries and dealers make money offering art, antiques or collectibles as an investment, when in reality not all of these items can generate consistent profit? The answer is quite simple. Today’s art market runs on a ‘Relay race’ ideology, where the objective is to move as much ‘product’ from one owner to the other as quickly as possible. An auction, a gallery or a dealer are always looking to push as many of their assets to someone else, who in turn does exactly the same. This process repeats itself until the top client is lured to pay the maximum possible price. Then the following happens, either they keep the item and it disappears into a private collection for a while or the person realizes what happened and tries to get their money back, often without success. Sometimes such an individual would use the same methods that ‘tricked’ them into buying an overpriced work of art on someone else. Then the process may repeat itself for a long time, all the while breeding mistrust, greed and manipulation among the market participants. Those who are familiar with the art world know exactly what I’m talking about.
While there is absolutely nothing wrong with the desire to sell as much art as one can, as quickly as they can, for as much as they can – it does create a great deal of problems. This business model is effective and even necessary for your local supermarket, but not the global art market. The reason is simple: the desire to maximize profit at the expense of the client is too great and too easy to do. Again, the art market is completely unregulated so what is illegal elsewhere is a standard business practice here (hopefully not for too long).
This is where art funds come in to change the status quo. Unlike an auction or a gallery, who are always seeking to liquidate their inventory, the very nature of an art fund dictates that it must hold its art, antiques or collectibles for a period of time (until optimal maturity date), before selling. Precisely this act of intentionally holding art, and not rushing to sell it right away, is what is so groundbreaking. Let’s examine the effect of this strategy in closer detail.
By holding an asset (art, antique or collectible) an art fund is openly showing their trust as well as confidence that their specific work of art will grow in value over time. The fund is also displaying its willingness to risk their time and money on this particular item. And above all, when its maturity date is due the art fund has to prove that their asset is actually profitable, by selling it (as close to the initially estimated price as possible). I’m sure you would agree, this is a completely different approach to the art trade that adds a great deal of credibility to the artwork as well as the seller.
Another major benefit to holding art for even a short term, let’s say a year, is that this period gives the fund’s experts the ability to thoroughly examine each and every asset in their possession. You only need to look at the amount of forgeries that sell at top auctions each year to realize that these companies push for continuous and quick profit that has created a conveyor-belt-like-business. A business that either turns a blind eye to quality, or simply cannot handle properly the vast amount of art, antiques and collectibles they process.
An art fund on the other hand has the luxury of time to perform all the necessary research, analyses and testing to make sure their artworks are authentic, rare as well as financially profitable assets. Above that, because a lot of art funds hold their items for an average of two to five years before selling, they can continuously study them, double-check their findings, cross-examine their data with other experts and apply new technologies as they become available. It’s just like the difference between the cheap, artificially flavoured, cognac and the real one that was professionally distilled, well-aged and continuously tested for many years.
Needless to say that this type of in depth research not only increases the financial value of an item, but it also promotes cultural education, teaches history and often uncovers unique facts about an item that would otherwise be missed. Auctions, galleries and dealers simply do not have this capability or objective. That’s why I envision that art funds will not only become profitable businesses but will also grow into influential research and education facilities that greatly benefit the public.
It is my hope that by now the full picture has emerged. Art funds are evolving into the natural filters of the art market. They discard all that’s fake, preserve everything that is valuable, generate honest wealth and promote history.
Lastly, art funds are not the only solution to the vast amount of problems which infect the art market. In fact, art funds themselves can be susceptible to corruption. Like any other business they can be mismanaged and even partake in criminal activity. After all, art funds are run by people and it is they who will ultimately lead these organizations towards failure or prosperity. I believe the basic concept of an art fund is very healthy for the art market, however I in no way imply that all funds are a great place to invest your money. We already saw a number of these organizations fail. A number of them made wrong investments, mainly into overpriced modern art. Some of them were involved in shady dealings, while others just called themselves art funds but in reality they were shell companies created to launder money using such rarities. Everyone has to remember this one fact, if the art market is completely unregulated in every country on this planet – this means that art funds, auctions, galleries and dealers are not regulated by anyone either.
That is why we advocate for transparent art funds that use technology, science and the legal system to conduct their business. Art fund managers need to understand that we as an industry at large must hold ourselves to higher standards than everyone else. Our business is taking clients’ money and multiplying it, and that is a far greater responsibility than simply selling art with limited consequences, as most auctions do. That’s why art funds must not just react to the art market, they must start leading it. We have to start advocating for better regulations, more accountability and even help our governments develop new laws so that the international art market finally starts resembling the modern financial marketplaces. After all it’s us, the art fund managers, who have to operate in it as any other professional investors. With the chaotic and unpredictable art world, as it is right now, that’s very difficult to do – only the best survive and this has to change.
The more well-managed and responsible art funds launched, the stronger we become as an industry. In turn this will undoubtedly begin to revolutionize the art market itself into a highly profitable, stable and far more sophisticated place to do business.
By Dmitry Tamoikin
President of Tamoikin Art Fund
Founder of the Soviet Jewelry Project
Owner of the DMT Collection of Fine Art