Can an online exchange turn artworks into liquid assets?

Can an online exchange turn artworks into liquid assets?

By Judd Tully For Art Auction

In January the Paris-based A&F Markets launched the online Art Exchange — on which investors can buy and sell shares in individual art-works — to a mixed reception.

Although billed by its creator, the 26-year-old entrepreneur Pierre Naquin, as "the first financial marketplace for artworks," the exchange has a few precedents. In recent years art funds have enticed high- net-worth individuals to make long-term investments in a portfolio of valuable artworks, and in China last year, the Shenzhen Artvip Cultural Corporation sold 1,000 shares in a group of pieces by Yang Peijiang on the government-sponsored Shenzhen Cultural Assets and Equity Exchange.

The Art Exchange (aexchange.net), however, is the first to allow the equivalent of day trading on name artists, enabling people to profit from short-term movements in the price of their works, and it is open to the general public.

Buyers, once accredited, can open online accounts and acquire shares, at €10 (about $14) each, in artworks that are put up by participating galleries. Unlike the art funds, the exchange will not buy or invest in works itself. "We’re simply the platform provider," says Naquin. The pieces remain on the market until they are sold by the gallery or an investor has purchased all the shares; an 80 percent stake enables the holder to force the sale of the remaining 20 percent. A&F receives a commission of 0.5 percent from both sides of a transaction, plus 5 percent from the gallery, but it assumes insurance, storage, and transport costs.

ireggular_form_0.pngThe site’s initial offering consisted of two works, contributed by dealer Yvon Lambert, of Paris and New York: Sol LeWitt’s 1998 gouache "Irregular Form" and Francesco Vezzoli’s 2007 conceptual print "The Premiere of a Play That Will Never Run," valued respectively at €110,000 ($151,000) and €135,000 ($185,000), or the equivalent of 11,000 and 13,500 shares. About 180 shares were traded during the first three weeks of operation. "We are continuing to create new accounts daily," says Naquin, explaining, "We need to have a large base of clients, so we have to offer small [numbers of] shares to gain liquidity."

In addition to Lambert, seven other galleries, in France, the United Kingdom, and Russia, have signed on. Naquin expects 10 works — mostly paintings and sculptures from the 19th century and later, priced from €100,000 ($137,000) to €1 million ($1.37 million) — to be available in April.

the_premiere_of_a_play_that_will_never_run_0.pngLambert’s objective in participating in the Art Exchange is "to encourage people to become collectors," says director Olivier Belot. "Everybody’s pretending they’re not interested in investors and speculators, but I would say 99.9 percent of the galleries have clients who are speculating in one way or the other." He adds, "This project seemed pretty straightforward and pretty well organized."

Some market specialists are less sanguine. "It’s a dumb idea," says the New York dealer Christophe van de Weghe. "Their target is people who don’t know anything about art and who think of the art world as fancy, exotic, and fun."

Sergey Skaterschikov, CEO of Skate’s Art Market Research, says that A&F has the right idea in making art an investment vehicle, but the exchange "is aimed at the wrong segment of the investor market. I don’t think retail investors are the right place to start." He also voices qualms about the potential for manipulation: "There’s enough fraud and abuse in the art market already, and it would be very easy to exploit art-backed securities."

George Sutton, a senior research analyst who covers Sotheby’s stock for the Minneapolis-based firm Craig-Hallum, calls the concept "intriguing" but asks, "How do you build enough volume on both sides, from buyers and sellers, to make it a true network?"

One seasoned New York art dealer and investment adviser who requested anonymity comments, "If you started out with a portfolio of serious paintings by the likes of Yves Klein or Picasso, yes, it might work. But you’d have to launch it with more than a Sol LeWitt."

Philip Hoffman, the head of the London-based Fine Art Fund Group, echoes that view. "Investors want works with fantastic provenance and exceptional quality, and these aren’t. I don’t know any of my clients who would buy stock in it." Like others, Hoffman has trouble envisioning how Naquin might ultimately profit but says that were a $50 million Picasso to come onto the exchange with a listed value of $20 million, "I’m certain people would pile in."
That possibility is remote. Naquin, however, remains bullish on the concept and with two silent partners put around €200,000 ($275,000) into the enterprise. "We’re an exchange," he says, "and we’re here to create liquidity."


"Stock in Trade" originally appeared in the March 2011 issue of Art+Auction. For a complete list of articles from this issue available on ARTINFO, see Art+Auction's March 2011 Table of Contents.

 

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