Fine art meets high finance

artThe

matterof theA painting artfully covering a safe set in the wall is one

way that art interacts with finance. Lisa K Erf is another.

The Director of the JPMorgan Chase Art Collection tells

Millionaire how banks perceive art as investment and the

role these institutions play in advising and acting for private

banking clients who want to create their own collections

text Shalini Seth

Dan Flavin. American, 1933 – 1996. Monument for V Tatlin. JPMorgan Chase Art Collection

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Lisa K Erf is poised at the cusp of two equally intimidating worlds – art and finance. With an advantage in both. The JPmorgan Chase art Collection, started nearly 50 years ago by David

rockefeller when he was head of Chase manhattan Bank, is one of the oldest and most extensive corporate collections in the world and Erf’s job, as the Director of the collection, takes her all over the world. in the past three years, she has bought close to 200 works of art from her travel to art fairs and galleries worldwide, adding to the collection of 30,000 pieces.

“When we acquire, it is art of our time, young artists with not much of a track record and emerging artists who are getting recognition through articles and shows but are not yet established,” she says.

in the past few years, she has been focussing outside the United States, following rockefeller’s idea of buying works >©

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Lisa K Erf with Sheikh Mayed bin Mohammed bin Rashid Al Maktoum and guests at DIFC

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for the communities where the bank has offices. “There is no agenda to purchase artwork that will be a financial investment, as this is a permanent collection and we do not typically sell works. That said, our goal is to make smart acquisitions that will hold their value, if not appreciate,” she says.

But that is only one half of her working day. She says, “i combine my client business travel with art collecting.” an artist herself, Erf is called in to interact with the private banking clients of JP morgan, which claims to advise 40 per cent of the individuals on the 2006 Forbes list of billionaires and the magazine’s list of the 400 wealthiest americans.

“our senior partners know that the amount of time i have is discretionary, so if it is important to build a relationship with the client they send him to me. last week, i was in miami to meet a client of the bank in reference to collecting art. about 50 per cent of my work is advising private banking clients on art investments. But we do not advise them on a day-to-day basis about individual pieces of art.” she says, speaking to Millionaire at Dubai international Financial Centre (DiFC) where master artworks from the JPmorgan Chase art Collection are being exhibited.

“Art is not like television.

You cAnnot be pAssive. it

hAs to engAge You And it

hAs to speAk to Your soul”

INTIMIDATINGErf is entirely at home amidst museum-quality modern and contemporary works by Jean-michel Basquiat, Zaha Hadid, roy lichtenstein and andy Warhol (who, incidentally, said, “Being good in business is the most fascinating kind of art”). Even if some of the bank’s clients are not. “The world of art can be very intimidating, perhaps purposely so. So if you walk in speaking exactly the same language and understand the workings of it… it does make a difference,” she explains. Seen through her eyes, these high net worth individuals learn that a red dot means that an artwork has been sold, that they should expect to pay

Richard Prince, American.1949 JPMorgan Chase Art Collection

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almost as much for the frame as they do for a painting and other peculiar ways of the art world. “You need to know that the gallery should make the price list available to you,” she says.

many of the bank’s clients are first-time buyers of art. Some of them have always wanted to collect art but did not know where to start. others might want to take up art as they buy newer, pricier cars or bigger, glossier diamonds. and JP morgan is not the only bank which has incorporated art in its circle of advisers.

almost echoing Erf’s sentiments are the words on Citigroup’s art advisory service website: “The art world is a singular culture: unpredictable, sometimes impenetrable, often inexplicable. it is a world where both what and who you know matters. in collecting, ultimate success may be linked to ultimate access.”

in operation since 1979, Citigroup’s art experts educate neophytes or bid at auction for clients wishing to remain anonymous, for an annual retainer. The bank’s advisers also help authenticate, insure, and value pieces. if a client needs cash, they can arrange for a sale or a loan against the artwork.

aBn amro’s private banking arm, neuflize, specialises in providing advice on art, including paintings, sculptures, furniture, jewellery, books, etc. it also assists with physical management of collections, their valuation and the sale of artwork. its bespoke services include restoration, photography, transport and loans of artwork for exhibitions.

inG Private Banking clients receive advice on art from the experts at inG art management. its services include a collecting policy, sales, purchases, and insurance, restoration and conservation, tax and legal issues, appraisals and succession planning and auctions and catalogues.

ESTATE TAXESCollecting art is not just a rich man’s sport; it also poses a unique set of management issues. For example, what happens to the collection when the collector dies? While some collections are

donated to museums, your bankers will tell you that collectors who want to leave artwork to their children must contemplate having insurance in place to cover estate taxes, which can run as high as 48 per cent in some countries.

as the director of the JP morgan collection, Erf ’s work, typically, is not about getting anyone to sign any dotted lines.

“i might tell them how to deal with prices, with art galleries and the market value of the artist… my advice to clients is to see a lot of art. Go see as much as you can. if you want to buy a particular artist try to see as many pieces of his work as possible,” she says.

Cindy Sherman. American, 1954JPMorgan Chase Art Collection

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and while a bank may advise on, mortgage or insure the work of art for you, experts straddle the two worlds with great efficiency. “We never advise clients to buy art only for financial reasons. it is a cultural investment. art is not like television. You cannot be passive. it has to engage you and it has to speak to your soul. it is a long-term experience,” says Erf. advisers say that the best art investments are driven by three things: an individual’s passion, timing of purchases, and the quality of the works bought. Erf and her ilk put love and money in the same sentence when they tell you that when you buy what you know and love, it is likely to appreciate.

and it does, becoming a valuable investment as well as a joy. “last year, we bought an artwork at art Basel miami Beach fair. The work has appreciated three times since then. i know because it was part of an editioned series and the piece that we acquired

was the first. So there has been a lot of interest in that. But that is a rare occurrence,” says Erf.

ProvENANcEnot rare enough for the financial world to stay away from it. For a bank, even a private bank, art advice does not come in the same category as choosing which school a client’s child goes to. Usually, a collector has a lifetime interest and collections are typically in the $1 million to $200 million range.

in a non-transparent market, advisers research everything from the artist, the authenticity of the work, its condition, quality, provenance and pricing. a finance-backed purchase would mean

a dossier on current markets – auctions, dealer and private markets. The vendor as well as the export and legal history would have been vetted.

an adviser will also tell you when not to buy. like now, for instance. When everyone is buying, creating an overheated art market where the rate of price increase is not justified by authenticity, quality, rarity and condition. “There is a lot of temptation to buy because contemporary art has become so popular, but one would advise not to go so fast,” says Erf. She recently advised a client from the region who was interested in building a serious collection, “to first see a lot of art, wherever you can, to help focus his interest.” in fuelling his passion for art fairs, whether at DiFC or at arco, Erf would have helped create a collector rather than sell a painting.

“We never Advise

clients to

buY Art onlY

for finAnciAl

reAsons. it is

A culturAl

investment”

Gilbert and GeorgeBritish, 1942 and 1943 JPMorgan Chase Art Collection

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after the indiscriminate buying of the Eighties, experts say that the art market took off in 2000 with the deterioration of the equity market. like any other investment, art comes with its own index, or two – the artprice Global index and the mei/moses Fine art index. according to artprice, prices rose 24.4 per cent between January and December 2004. in 2006, artprice’s global price index was up a further 25.4 per cent, to just 5 per cent below its peak level in 1990, with markets such as the United States being 32 per cent higher than the speculative bubble peak in 1990.

The mei/moses Fine art index, on the other hand, compares art sales performance with the S&P 500’s total return. according to the 2004 update, art outperformed the S&P from 2000 to 2003.

according to artprice, in 2006 no less than 810 works sold for over a million dollars, generating total auction revenue of $2.7 billion. in 2005, 487 fine art sales generated figures above a million and total auction revenue of $1.4 billion. Until the end of the nineties, only 100 to 200 auctions per year broke through the million-dollar threshold.

most art advisers do not like auctions. For one, they can artificially escalate the market value of an artist. Two, they do nothing for the world of art. “i do not usually buy from auctions because i believe that they do not support the world of art. But we do buy occasionally from auctions,” says Erf.

INSTITUTIoNALCorporate collections certainly do. Even though the banks with such collections – such as JP morgan Chase, UBS or Deutsche Bank, which has a collection comprising of some 50,000 pieces with an emphasis on paper – have other uses for them. While sustaining the world of contemporary art, it also becomes a form of indirect marketing. “artists want to be in our collection because it gives them a chance to be seen in the context of others in the collection. a corporate collection becomes institutional rather than about one person,” says Erf.

and then, for the sake of art, auctions do serve a purpose. Erf says: “auctions are important because very often the world of art is closed to those except the ones have an intimate relationship with the gallery owners. if you want to buy an artist like Damein Herst there are many others in the queue before you. in an auction, everyone can have access to that piece of art. in that sense it creates a level playing field.”

Andy Warhol. American, 1928 – 1987JPMorgan Chase Art Collection

Just as you would be reassured by a favourite chair or candy in a meeting room, the choice of paintings greeting you each time you enter can become the start of your collection. This region, with 46 billionaires who are finally agreeing to have their wealth counted and managed, is the target of a host of private banks. With the india and China art markets showing the path to growth, the middle East is not far behind. auction houses such as Christie’s, Sotheby’s and Bonhams, and museums such as the Guggenheim and the louvre are all hoping to ride this wave.

Alighiero e Boetti. Italian, 1940 – 1994JPMorgan Chase Art Collection

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