00:00A year ago, we brought you the story of the business of art. We called it investing in your
00:04passions. But a year later, we're seeing some of the challenges and losses that can come with those
00:10passionate investments. Remember, these pieces of work, these assets, if you want to call them that,
00:18they don't produce an income. They don't have a coupon associated with them. The only income that
00:23you get is the appreciation. Krauss is chairman and CEO of Aperture Investors and has spent a
00:29career in finance, including as head of Alliance Bernstein. With his wife, he has also become one
00:35of the most avid art collectors on Wall Street. My wife and I have been collecting since we got
00:41married, which is 44 years. And the first thing we bought was really sort of a small print. And I
00:48said to the gallerist, who's not alive any longer, I said, well, you know what I like. And if you have
00:54any more, give me a call. And he looked at me and he said, here's what we're going to do. If you want
01:00to collect art, you will come in every Saturday, and I will show you art. But if you think I'm going
01:05to call you on the phone and tell you there's something for you to come and see, that's not
01:09happening. And I took his admonition seriously. And we went, we, my wife and I went in every Saturday.
01:18And every Saturday, he showed us work, most of which we couldn't afford. And we finally found
01:25a painting that we liked and we bought. And it was $6,000. And we paid for it $500 a month
01:33until it was paid off. Over the decades, Krause and his wife, Jill, have added to that single work,
01:40paid for in installments, and assembled a very large collection. It's people like the Krauses who are at
01:46the center of a growing web of players, including auction houses, banks, and advisors. They connect
01:52one-of-a-kind assets to collectors of all levels, from the very experienced to those just starting
01:59out. Traditionally, when folks wanted to go to sale, they would kind of call a gallery or a dealer
02:06or call an auction house. Anita Herio is Fine Art Group America's president. As the market's grown
02:13substantially, it became necessary to have an independent firm that kind of serves as a
02:18fiduciary for the client. According to a recent Deloitte report, ultra-high net worth individuals
02:24grew their art and collectible wealth from $2 trillion in 2022 to more than $2.5 trillion in 2024.
02:33The trend shows no sign of stopping as the so-called great wealth transfer gets underway.
02:39Just imagine this. Baby boomers bought more stuff than anyone in world history. Just think about
02:47that. And what are they all doing right now? They're trying to figure out what to do with it.
02:54There's more material that will be hitting the market than ever before. And it's required to find
03:00appropriate places and strategies for sale for these objects. So that's number one. Supply is going to
03:07increase with baby boomers. Number two. What did they buy? Right? Most young folks are not interested
03:16in 19th century paintings, old master paintings, regionalist artwork from the 19th century and the
03:2620th century, like the Ashcan American School, it's an example. So there are lots of areas where taste
03:32will really be impacted by the younger generation acquiring these objects. There's no doubt about
03:38it. And because these are kind of passion assets that tend to sit in homes, think about how homes
03:44are now designed. More art and more stuff also means a growing clientele for those in the art
03:52business. There were 121,000 ultra high net worth individuals in 2024, rising to over 163,000 by 2030.
04:01But that doesn't necessarily mean any time is a good time to be in art. It really depends on what's
04:08happening in the economy. So, for instance, you know, in 2015, 2016, 2017, when people were buying art
04:17like crazy, right, there was just this huge appetite to acquire these assets. It was really great to have
04:24an opportunity to utilize your art for liquidity, which allowed you to get a loan against your artwork
04:30to buy more artwork, right? Many auction houses would have advances, right? So you could acquire
04:37an artwork and it would automatically, you'd get an advance on it. So there was a desire to acquire
04:44more work. As the economy started to slow and there was inflation, there were issues in the
04:51commercial real estate market, we started seeing more and more clients not thinking so much about,
04:56hey, I want to buy more art, but they were thinking like, hey, I need liquidity, right? Maybe I'm
05:01over leveraged in other areas of my portfolio, but I've got this big art collection. I can use this for
05:07liquidity to buy another business, to pay for my commercial real estate. So the reasons for collateral
05:14really depend very much on what's happening to the economy and the necessity for quick money.
05:22While each work of art is unique, there's a big business in bringing some clarity to the market
05:27and in bringing together the buyers and sellers. Enter Edward Dolman.
05:32Well, basically, it's a sort of perfect form of the market. It's the ultimate sort of demand and supply
05:38where the two meet with an auctioneer in front of all our clients who have come along to bid for the
05:45works of art that we've offered for sale. We spoke to Dolman when he was CEO of Phillips,
05:50which specializes in contemporary art. Auction houses like Phillips, Sotheby's and Christie's
05:56provide a public forum for price discovery at events throughout the year, including big ones in the
06:02spring and spring and the fall.
06:03So the art business is essentially driven by this auction machine, but rounded is a huge sort of
06:10ecosystem of galleries and collectors and museums and art institutions. We're a big community, but I do think
06:21the auctions are probably at the heart of it.
06:22Over your time involved in the art auction business, how has it evolved?
06:28Well, it's been transformed, actually, in the time that I've been in it, which is a long time now, it's 35 years.
06:36When I first started, the market was opaque, to say the least. The only people who had any pricing information
06:43were the auctioneers and the dealers who attended the auctions and wrote down all the prices in their catalogues.
06:48And I think the biggest transformative event in our world has been information and access to data.
06:55So really, the market we see now, what's so different about it, is the access to information
07:01that everybody has who's in that room competing, whether they're in Asia or South America or Europe
07:08or America. They have access to the same information.
07:11Who'd like to open the bidding here?
07:13The price may be public and the seller may be protected by guarantees and irrevocable bids.
07:19But for the buyer, the question remains whether a work of art is worth the prices being bid.
07:24And also how those prices might be financed, which is where Fotini Zaitis and her colleagues at Citi come in.
07:31The art market can be still opaque. It has gained transparency in some ways, but in many ways,
07:39it still remains not a transparent market. And a novice collector might need some guidance.
07:47Fotini Zaitis is head of art finance at Citi, one of the major banks that have added art advisory
07:53and financing to their investment offerings. When needed, they lend against the investors' collections
07:58to provide the liquidity needed to acquire new art.
08:01Some of the things we look at when evaluating art, be that for an acquisition, a sale,
08:07as collateral for an art loan, for insurance purposes. We look at a range of factors.
08:13We look at an artist's market history. If it's a more established artist, we look at the longevity
08:20of that market and what's happening. We look at the individual artwork itself, so the sale history
08:28of that work. Sometimes artworks might show up for sale several times at auction.
08:33So we have to be able to put a value on an object and understand what is the long-term value for it.
08:40Is it financial preservation? Is it investment? So when I say quality, I can't help but think value
08:46as kind of the synonym for quality.
08:4914,900,000.
08:51Today, the art market is larger and more transparent than in the past. And it's interwoven with interest
08:57rates and financing and expert advisors. But in the end, whether you're an art investor,
09:02a collector, or something of a mix of the two, the value of your purchase depends in part
09:08on whether it will resonate through time.
09:11I literally think it's impossible. I think that if you were to ask yourself the question,
09:18if you went back to Renaissance times and were in Leonardo da Vinci's studio and he was painting
09:23the Mona Lisa, would you have known? Probably hard to tell.
09:27But fortunately, for a true collector like Peter Kress, it's not about predicting where
09:33the market will go.
09:34As a collector, the key issue is trying to unlock the language that the artist is using
09:41to communicate their feelings or whatever they're putting into the art. And it's trying
09:47to figure out that language. That's the mystery of me. And where you figure out that language,
09:53then all of a sudden you see what the artist is doing. You may not like it. It may not speak
09:58to you. But if it does speak to you, if that language is something you read and it does excite
10:02you and it moves you, that's interesting. And that's important. And then the question is,
10:07are you the only person moved by it? Or are many people moved by it?
10:11As a collector, do you sell? Never.
10:17For the true art collector, as for the true artist, maybe it doesn't matter how many people
10:22are moved. One can be enough. But it's how many people are moved that will take a passion
10:28asset and make it an investment.
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