Hedge Fund Woes May Slash Art Prices

Aug 17 2007 | 12:43pm ET

The subprime mortgage market collapse is poised to sink a very different kind of market: the art market.

Los Angeles billionaire Eli Broad knows both markets well. He’s one of the top ten art collectors in the world, according to ARTnews, and he was also part of a group of investors pouring $1 billion into a troubled Goldman Sachs hedge fund. And he says losses in the latter industry are going to have a big effect on the former.

“Many of the buyers of contemporary are have been hedge-fund managers and other investors who obviously are having a difficult time and have lost lots of money,” he said in an e-mail statement. “The art market will soften, and an adjustment in values will take place, but it may not happen for six months to a year.”

Prices of contemporary artworks have quadrupled over the past decade, but Broad said in June that he expects a price plunge similar to that of the 1990s, when prices halved.

“Typically, when there are adjustments up or down in the art market, it follows what happens in the securities and real-estate market,” he added.

Three of Broad’s fellow top-tenners are alternative investments moguls: SAC Capital’s Steve Cohen, Citadel Investment Group’s Kenneth Griffin and Kohlberg Kravis Roberts’ Henry Kravis. Also in the top 100 are Level Global’s David Ganek, Third Point’s Daniel Loeb and Exis Capital’s Adam Sender.

There are already signs that the art market is weakening: Last month, some 40% of the pieces in an Old Masters auction failed to sell. Damien Hirst has also failed to find a buyer for his $100 million piece “For the Love of God”, a cast of a human skull encrusted in 8,601 diamonds. Cohen, of course, owns Hirst’s most famous piece, a dead tiger shark suspended in a tank of formaldehyde.

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Damien Hirst's "For the Love of God"Damien Hirst's "For the Love of God"

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