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October 12 2011

Art and money: the sharks behind the showpieces

By transforming filthy lucre into art, rich American financiers such as Steven Cohen earn more prestige than any yacht could buy

Following on from yesterday's ruminations on art and money, it might be fun to look at the career of Steven Cohen, owner of Damien Hirst's shark, in more detail.

Cohen leapt up the ranks of contemporary art collectors not just because he bought this iconic work of the late 20th century, but because he arranged to lend it to the Metropolitan Museum of Art in New York. I was amazed to accidentally come across The Physical Impossibility of Death in the Mind of Someone Living in this august museum. The timeworn leathery body of the tiger shark hung in its blue liquid near a window overlooking leafy Central Park.

In having his catch displayed in America's greatest art museum, Cohen achieved something even Charles Saatchi never has. So what makes Cohen so good at swimming in the waters of high culture? The answer may tell us something about how the art world works.

Cohen put some works from his art collection, then valued at £320m, on view at Sotheby's in New York in 2009. They were not for sale, and they exuded an aura of immense cultural – as well as economic – capital: no pickled sharks here, but paintings by Van Gogh, De Kooning and Picasso. As with his loan to the Met, he once again displayed a command of the heights of art.

In 2010 he gave an interview to Vanity Fair. In it, we learn that he lives in a mansion in Greenwich, Connecticut, and is America's 36th richest man. At the time, reported Vanity Fair, there were

persistent rumors that Cohen's fund, SAC Capital – one of the biggest movers of the stock market in the world; responsible, in better days, for as much as 3% of all trading on the New York Stock Exchange – is engaged in illegal information-gathering, rumors which have been stoked anew by a federal crackdown on another hedge fund, the Galleon Group, which employed several former SAC traders before collapsing.

The rumours persist. This May, the Wall Street Journal reported that "prosecutors are examining trades made in an account overseen by hedge fund titan Steven Cohen that were suggested by two of his former fund managers who have pleaded guilty to insider trading".

These reports caught my eye when I was following up Cohen's art collecting, but regardless of such stories there is a bigger picture. Before the 2008 crash, hedge fund managers were often seen as modern geniuses, yet today they are more likely to be vilified as a symptom of the madness of modern finance. A hedge fund supposedly "hedges its bets" and protects its investors by playing the markets in such a way as to be protected against a downturn. But this apparently cautious image is far from how hedge funds evolved in the 1980s and 90s.

Adept and fast-moving gamblers – Cohen told Vanity Fair that student poker-playing was the inspiration for his career – were lauded in the credit-boom years as the new heroes of global finance for the innovative ways in which they made billions. Today, such non-traditional finance looks like part of a festering problem.

Is art, for a billionaire, just something to do with your money, or is it a way to turn wealth into more satisfying forms of power? By translating wealth into art and culture, art collectors give themselves a stature in society that a big yacht won't buy. The wealthy in America have been good at this for a long time, and their efforts to turn filthy lucre into civilised prestige have given that nation its great museums.

Cohen seems to be bidding to become a great American collector whose appetite for the new is enriched by a respect for art history. As such, he is on his way to a stately fame. Or is he? That entire model of capitalism – the one where it works – is shuddering and juddering, and many blame wacky financial inventions such as hedge funds for getting us into this mess. If the money machine breaks, so does the art machine, presumably. Or perhaps what breaks is our deference to the idea that money makes taste.

I feel a bit sick. I need to stop thinking about art and money now.


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July 25 2011

Gold, fine wine, art or under the bed: what's the safest place for your cash?

In uncertain economic times, alarmed investors want to minimise their risks. We take a look at the options

For City traders digesting the news via their terminals today, the language had a constant ring.

"Swiss franc leaps as investors seek havens," screamed one story. "Investors poured into perceived safe-haven assets, driving gold to a record high," stated another, before adding: "US government bonds failed to benefit from their usual safe-haven status after the weekend breakdown in talks fuelled investor anxiety over treasury holdings."

It is a small sample but the message seems clear. Spooked investors, unsure of where to put their cash, are looking for places where they can be confident it will not suddenly vanish. So what are the safest investments – and can they really be risk-free?

Swiss franc

Sometimes you can look desirable just because the weaknesses of those around you are so stark. That was true of successors to Robert Green in the England goal, and it is now proving to be the case with the Swiss franc, which has appreciated by about 15% against the dollar this year. While some argue that the Swiss National Bank (SNB) will have to step in, others believe it is powerless to dampen demand.

In a research note, Simon Smith, chief economist at the foreign exchange specialists FXPro, wrote: "Switzerland is not the only country in decent fiscal shape but, apart from the Aussie dollar, it is the most liquid alternative to the US dollar, euro, yen and sterling, all of which have sovereign fiscal issues to varying degrees. Furthermore, the SNB could once again find itself pretty helpless in terms of trying to fight this strength, should this aversion to countries with sustained deficits really take hold.

"Intervention is an option but, despite the increased reserve levels and balance sheet position (around 55% in euros, from over 70% last year), it could well be a futile one."

Gold

Gold is always considered the ultimate safe haven, and it has so far served investors brilliantly during this downturn – rising 16% during 2011. Silver has performed even better, up 30%, despite a crazy period in the spring when margin calls (when an investor has to deposit more cash or securities to cover possible losses) were increased four times in six weeks as regulators feared that speculators were driving the price too high.

The consensus among analysts is that both metals will continue to rise, although there are some famous names who strongly disagree. George Soros, the financier who "broke the Bank of England", is a gold bear. "The ultimate bubble is gold," he said in May. "Gold has shown tendencies to go parabolic, and usually bubbles tend to end in that parabolic rise before the collapse."

Premium bonds

Another perennial safe bet, but are they worth it? According to the Premium Bond calculator on the financial website Moneysavingexpert.com, an investor enjoying average luck and punting £30,000 would expect to win £400 over one year – or a return of 1.3%. That comes tax free, so is equivalent to a 2.2% return at the 40% rate. In normal financial times, that would not appear stellar. But, with interest rates at 0.5%, it suddenly does not look too shabby.

Fine wine and art

Your typical City wine investor delights in boring acquaintances about how he drinks for free by buying two cases of young wine and leaving them to mature, before quaffing one and selling the other to finance his purchase. The brag is almost always nonsense but there are those around who reckon that wine can deliver decent investment returns. The Wine Investment Fund, which asks investors for a minimum £10,000 commitment, says it has paid out annualised returns of upwards of 13% on its portfolios between 2003 and 2006, while 2009 punters are enjoying a vintage year with many showing profits of more than 20%. Even 2010 investors currently have profits upwards of 8%.

However, there are those who believe that this cannot last. "Historically wine has had a good run, but there is a feeling it is getting near the end of the bubble," said one City trader. "Every man and his dog seems to be cropping up as a wine broker. And unlike gold and stocks, if the price starts to fall you might struggle to get out as it's not the most liquid asset, if you forgive the pun."

Yes, very droll. Equally, art is not an easily sold asset but it is also touted as another area for nervous investors. "The idea of contemporary art as a safe haven is a joke," said the entrepreneur Luke Johnson. "It is particularly illiquid, transaction costs are enormous, there is clearly no income and capital growth prospects are at best uncertain."

A number of art funds fell over during the downturn, but the Fine Art Fund Group, which has a base level $250,000 (£153,000) investment, is still around and boasts annualised returns in excess of 25% in its two main funds.

Still, in a world where everybody talks up their own book, it may be worth noting a quote frequently (but dubiously) attributed to Pablo Picasso: "I'm a joker who has understood his epoch and has extracted all he possibly could from the stupidity, greed and vanity of his contemporaries." Maybe not a screaming buy, then.

High-yielding stocks

Can high-yielding equities suddenly be a safe haven? UK shareholders have received their largest dividend payouts since the collapse of Lehman Brothers in 2008, with companies returning £19.1bn to shareholders in the three months to July – a 27% increase on the same period last year, according to Capita Registrars.

However, investing for the income might still put your capital at risk. David Jones, chief market strategist at IG  Index, said: "The stock market has been going up for two and a half years and might be fully valued. You may get the dividend, but possibly not the capital appreciation."

The mattress

If you invested in the stock market 11 years ago, you are still waiting for a return. And with interest rates at 0.5% for more than two years, leaving your cash in the bank has not proved to be a massively profitable option. Sticking your funds under the bed might be one approach and it is similar to one adopted by many companies, which are now reluctant to lend their spare funds in the wholesale money markets.

Louise Cooper, market analyst at BGC Partners, said: "For some risk-averse companies, it may be better just to keep the cash inside the company and earn nothing on it, rather than lend it out for a minimal return, with degrees of risk currently being replaced with fear of the ultimate risk."

So should private investors follow suit and simply stuff their wads under the mattress? "It's an option," admitted one frustrated City analyst. A word of caution, though: if the house goes up in smoke, the insurance will only pay out on £500 or so of burnt notes.


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January 20 2011

Donor gives £2m to National Gallery

Culture secretary hails 'generous gift', which will see gallery room named after Australian philanthropist and wife

Michael Hintze – a hedge fund manager, Tory party donor and philanthropist – has donated £2m to the National Gallery, which will be spent on gallery refurbishment, it was announced today.

Room 8 of the gallery, which contains Italian paintings from the 15th and 16th centuries such as Raphael's The Madonna of the Pinks and The Manchester Madonna by Michelangelo, will now be called the Dorothy and Michael Hintze Room.

Hintze, an Australian who founded the hedge fund CQS in 1999, is a regular giver to the arts, supporting institutions including the Old Vic, the V&A and Wandsworth Museum.

The National Gallery's director, Nicholas Penny, paid tribute to the Hintzes for donating when "the need to support the arts has never been greater".

The money will be used for refurbishment, including the installation of new technology and lighting that will reduce the gallery's running costs and carbon footprint.

The gift comes as the government attempts to boost philanthropic giving.

The culture secretary, Jeremy Hunt, said: "Giving money to arts and culture is an incredibly public-spirited thing to do and this is one of a number of generous gifts made by two exceptional people.

"Their gift to the National Gallery is truly inspirational and I hope others will be moved to follow their example."

Hintze said: "We have always sought to give back to those institutions that have enriched and given so much to our lives.

"Private benefactors have historically formed some two-thirds of the National Gallery's support and in these difficult economic times the commitment of private individuals is especially important."


guardian.co.uk © Guardian News & Media Limited 2011 | Use of this content is subject to our Terms & Conditions | More Feeds


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