Market Analyst Sergey Skaterschikov, on “Investment-Quality” Art and Whether We’re All Going to be Poor.

by Whitney Kimball on August 22, 2011 · 11 comments Interview

Sigmar Polke, "Supermarkets" (1976)

The past few weeks, the stock market has been reeling as concerns about the U.S. and global economy resurface. In an attempt to discover what this means, if anything, for the art world, I asked art market analyst Sergey Skaterschikov for his forecast. Mr. Skaterschikov authored an investment handbook for collectors and an up-to-date investment review that, through market research, aims to function as a credit rating for art.

Skaterschikov pointed to a few trends that emerge in times of economic instability.  Firstly, a booming market emerges for “investment-quality” art, or “individuals like Warhol, with significant liquidity.” In particular, Skaterschikov tells me that the future promises repricing of contemporaries of artists like Gerhard Richter, because Richter's liquidity has been significantly proven. At the same time, emerging artists, the galleries who represent them, and anybody unfortunate enough to be labeled less than “investment-quality” suffer, because, he claims, their middle-class patrons do not make unnecessary purchases.

What does this mean for art?  A lot of “untold story” artists and revisionist history.

One wonders whether the potential exists for a postmodern market if the goal is to position yourself within a cultural movement.  People need narratives, whether or not they make any sense.  Think of the YBAs, a group of artists with little in common other than their age and education; if there are no longer art movements to be discovered, at least they can be fabricated from a peer group (or, as Mr. Skaterschikov says, “comparables”) by dealers. Now we have post-YBAs.

This begets some troubling conclusions about the future of art, namely A) that in order to “emerge,” artists will need to rely on substantial support from already influential people, and B) that outside of museums, dealers and auction houses are doing most of the decision-making as to who gets written in and who gets written out of history (a fact true, surely, since at least the days of Leo Castelli). So by 2040, if we can scrounge up one investment-quality sculptor or painter, the 2011 Bushwick scene may turn out to have been the Lower East Side of the 1980's.  Will we one day learn that Castle Braid, the gleaming Bushwick hipster apartment complex, was our ABC No Rio?

Then again, things might not be dire enough to call in the historians-for-hire. I asked Ingrid Blomberg Kennedy, co-owner and director of the Klaus von Nichtssagend Gallery which focuses on emerging artists, how she has been affected:

Sales have been consistent even during the volatility of the stock market. We haven’t seen a difference. Collectors who are interested in emerging artists tend to stay interested, no matter what the stock market is doing. Our collectors are pretty dedicated to building on the collections they have.

Here to save the day is a responsible group of collectors who are interested in art. “There is not much consumer excitement these days,” Sergey tells me, but perhaps if art is not your average product, collectors are not your average consumers. One promising venue, Sergey notes, is the internet. Online companies have been able to connect contemporary art dealers with collectors far beyond their locale.

Anyway, says collector, artist, writer, and filmmaker Greg Allen, the stock market isn’t necessarily an accurate indicator of collectors’ decisions.  It has more to do with liquidity:

My experience…is that peoples’ cash flow and sense of liquidity–i.e., the ready availability of cash–have more impact on collecting behavior than reports of short term market swings. A better but still rough indicator would be things like fund withdrawal rates and bank earnings reports.

Sergey and I do not discuss how museums are affected, or their role in promoting artists, but many of them seem to be doing alright in terms of liquidity. My interview with Sergey, below:

Whitney Kimball: How will the U.S. stock market volatility affect the art market?

Sergey Skaterschikov: I would look at two things to make a prediction here.  One is the historical track record, with the crisis in 2008 and 2009, and another is the pipeline of auctions for the coming season.  Both of these factors point to an even stronger demand for high-quality art in the auction rooms and private sales.  So I would say we have a very robust demand for high-end art, major names, top quality pictures: this kind of art is being bought as a safe haven by individual investors in the midst of uncertainty. At the same time, there will be pretty difficult times for low-end or emerging artists.  Untested names will see very weak sales.

WK: So Impressionism and the Old Masters, for example, are viewed a safe investment alternative to the stock market…

SS: At least this is how individuals think.  That extends to names like Warhol as well, so big, proven names with significant liquidity.  They know that value destruction is going to be nil compared to what you see in the stock market if you come at the wrong time.  That's when investors look, not at returns, but at value preservation qualities, and the value preservation qualities for top art is spectacular.

WK: Do you see different genres of art affected differently by this?

SS: Absolutely.  It's not even “genres,” it's rather what you would call “investment-quality art.”  We would define “investment-quality art” as significant pieces over, maybe, a million dollars in value, with proven auction history, with impactful provenance: big name artists.  For less proven names or less important pictures, you will have a relatively dry season.

WK: So “less important” means less important to a particular artist's oeuvre, to history?  To art?  How is importance valued in investment?

SS: Well, there are the names of artists with the most developed liquid market, based on historical auction records.  Names like Picasso, Monet, and Warhol are alike, in terms of market value and liquidity. Then you have another, maybe, fifty names, with regular repeat sales and auction records in the over one million dollar category.  So one would say there is a universe of fifty to eighty top names that basically make for investment-quality art, but even for those names, you only look at top-quality pictures, meaning that they are important in an artist's history, they are well covered in literature and exhibition history, they have historical auction records with very strong provenance.  So once you have all those criteria in place, you have what we would call “investment-quality art,” and that holds value pretty well.

WK: How often does anecdotal information or information about an artist's career factor into the pricing of an artwork?

SS: Very often, in fact, if you read auction catalogues, they're always trying to drum up the value of highlighted pieces by piecing together what they believe is essential information about cultural relevance.  They're basically trying to develop enough talking points to broaden the potential demand for an art piece and create enough critical mass to stimulate a lively auction, so that more people can connect to the history of a particular art piece.

WK: You speak often about making the art market more transparent. What is your research revealing that wasn't stated before?

SS: There are a few things that are now becoming standard.  One is that people have started using peer group valuations, or comparables, as people call them on Wall Street…So it's increasingly okay to do what art historians would call “comparing apples and oranges.” Every work is unique, but for the market purposes, you need benchmarks. I think it's very well seen by the way auction houses develop price ranges for important pieces.  They never show it in the catalogues, but when we do our data research, we always see that they put low-end and high-end estimates that are implied by historical rates of returns of similar works or auction records for peer groups auctions that auction houses have used to evaluate a piece of art.

There is increased rationality in how the pricing is done, and at the same time, there is increased acceptance that, no matter how rational you are about pricing the art, if you manage to drum up the cultural relevance and importance of a piece, then you can always get an irrational premium out of aspiring buyers.

The second important issue about transparency is that Sotheby's is making a huge effort to become private dealers in order to keep a significant amount of value away from auction rooms, and not to ruin the market in certain cases.  We, in fact, saw this in order to make a billion dollars in private sales this year.  I mean volume-wise, not commission-wise. The dealers themselves try to gang up in closed clubs, keeping [price data] information protected.  So information is increasingly demanded by the buyer, and dealers are increasingly protective of it.

WK: You mentioned on your website that the internet will grow as a medium of exchange.  Will you expand on that?

SS: Well, there are already a few initiatives that are working already with mixed success.  I would say V.I.P. Art Fair, which launched in January, is going to have nice volumes, based on our data.  They are going to conduct a very interesting online fair in January of next year, which is becoming a well-established tool for dealers to find buyers online.  It does not allow for transactions online, but it's a new way of matching buyers and sellers.

WK: Circumventing the auction house altogether?

SS: Exactly. There is also a very notable attempt by Art.sy, which isn't in its infancy yet, but is very well-funded.  They are basically trying to replace arts advisors as an online tool, leading you to the right purchases.  [Also,] we thought [ArtNet] would be able to grow their volumes very steadily, but unfortunately the revenue remains insignificant.

We also like Saffron Art, out of India.  They are doing a tremendously good job in building a customer base among…groups in the U.K. in the U.S., in people of Indian origin.  I think they have decent volumes in online trade at that auction.  Again, I would say we have expected better growth when we made this prediction, so the bigger volumes are in classic auction rooms.

WK: And do you think this is, in part, because people fear a higher risk of fraud over the internet?

SS: Some of these companies, like ArtNet, are very good at managing fraud versus something like eBay, for example.  I think what really damages them is the lack of consumer confidence overall.  It's not really art trade-specific risk, it's the general situation when people are refusing unnecessary purchases.  So basically that goes back to my original point, the art market goes in a different direction.  It goes up for high-end art, but high-end art is not really traded online.  The pieces that range between $5,000 and a million: that's where online trade is skewing towards.  And that trade depends on consumer excitement, and there is not much excitement among consumers these days.

WK: So why is online trade successful for a group like Saffron Art, which sells new and emerging artists at lower price points?

SS: They developed their own niche. I think what they've done, very successfully, is identify their own consumers which are not sufficiently served by, in this case, well-targeted Indian art offering.

WK: Do you have any advice for contemporary and emerging artists?

SS: …My general advice for an artist would be to take a long view.  Not to be preoccupied with the price levels, but rather focus on placing your art with strategically important collectors and building your equity score in terms of cultural relevance.  Trying to become emblematic for the period or school or line of thought.  I think, at the end of the day, the reason art is valued so much is because it is emblematic of certain cultural trends, moments, or periods.

WK: What do you see as emerging cultural trends?

SS: We are really interested to watch the life-after-death markets for important artists, like Louise Bourgeois, Cy Twombly, and others who passed away recently, and now we are watching what will be the price for the artists from whom any new supply has stopped.

Also I think what is really becoming interesting is re-pricing of certain peers.  Gerhard Richter is by far the most valuable living artist right now, head and shoulders above anybody else.  But Richter had a lot of interesting peers in Germany, who have created very spectacular art…so I think there will be very significant re-pricing of these names, in the same way we saw re-pricing of Rauschenberg and de Kooning around the Jackson Pollock frenzy.

Because there is more rationality in this peer group analysis, certain price leaders like Warhol can induce value in some of his peers, simply because they were next to him culturally. I'm not saying there would be another Warhol, and I'm not saying that in all of these talented Germans there is another Richter, but I think there will be re-pricing of artists of his generation and his school.

  • http://matthewroseartworks.blogspot.com/ MATTHEW ROSE

    Great piece, well written, and delivering the sobering notion about a commodity that remains terribly mysterious.  The history of art is not anything like the history of the value of gold, but there are some parallels. 

    If I can post a review I wrote of Ross King’s The Judgement of Paris – a slice of art history look at Manet as he over came the high flyer Edouard Messonier – an artist of the early and mid 1800s who was at the time the world most expensive painter of noblemen, soldiers on horseback and fops quarreling in taverns and country gentlemen conducting gentelmanly conversations about being gentlemen. In the art wars Manet destroyed him with in your face pictures of ordinary (and sometimes) alarmingly naked people, and gave birth to everyone from Picasso to Duchamp to de Kooning and yes, even Elizabeth Peyton.  After Manet stole the scene in the 1860s the great Messonier all but disappeared from the cultural banquet.  I’m sure you can spend some money to buy his pictures at auction today, but a Manet scribble is probably more recherché. 

    If the editor would like, I’d be happy to repose the review here. 

    In any case, we should remember that all those wealthy art collectors are not in a panic as the market tumbles.  Remember they were smart enough to make money on the way up and they are extremely savvy about how to make money on the way down.  Bet on it. 

    But that has little to do with the making of art, we know, right?

  • Artlover

    Interesting. I presume Paddy is on holiday.

    “…There is also a very notable attempt by Art.sy, which isn’t in its infancy yet, but is very well-funded.  They are basically trying to replace arts advisors as an online tool, leading you to the right purchases….”  

    What is the value of this endorsement? SS is referring to a site that officialy launched without a website and months later is still in the making. Therefore SS probably meant “is in infancy” instead of “isn’t in infancy”. Anyone who’s seriously suggesting that software algorithms can replace humans in their interactions with art has overstayed their 15 minutes of fame and should be treated as such. Enough said.  

    • Sergey Skaterschikov

      Dear Artlover, you are right about your comments — I did mean “is in infancy” and I share your scepticism of Art.sy take on art advisers at this stage.. That said, Art.sy is perhaps the most interesting constellation of names that ever attempted to revolutionize the art trade since E-Bay and Sotheby’s teamed up for their ill fated venture years ago, and as such the Art.sy initiative is very much worth watching.. Thank you, Sergey Skaterschikov

    • Anonymous

      For Christ’s sake, Artlover, no one is suggesting that. Sergey only meant to say that websites are connecting dealers and collectors without the auction house. No one is going to spend millions on a JPEG of a painting.

      I apologize for the typo and the delayed response, I have been on vacation.

      • Will Brand

        Well, also, who said anything about replacing humans? Exactly which humans are currently employed in the field of making on-demand art recommendations to me, personally? 

  • jameskalm

    In her Aug. 16 posting “Forbes Magazine Article on
    e-Commerce Art Websites Mired in Conflict of Interest” Paddy criticizes author
    Abigail R. Esman for its slanted view and apparent conflicts of interest
    stating ” These exclusions are obvious snubs, and make it difficult for
    Esman to talk about the industry with any authority”.

     

    A week later we’re treated to this fairly well written post by
    Whitney Kimball which includes an extended interview with art market analyst
    Sergey Skaterschikov.  While I agree with
    many of the points expressed by Mr. Skaterschikov his assessment that the ”
    V.I.P. Art Fair, which launched in January, is going to have nice volumes,
    based on our data,” seems to leave out some essential points beyond just
    the “volume”  like actual
    sales, and user satisfaction.  There have been several discussions over the success
    or failure of the VIP Fair, not the least of which was this March 11, 2011
    piece by James Panero.  http://www.newcriterion.com/articles.cfm/Gallery-chronicle-6989

    In further private discussions, other aspects of the VIP Art Fair have been questioned,
    however the issue of transparency that Mr. Skaterschikov mentions has precluded
    in depth reviews of their business practice. 
    Because of the burgeoning shift to online art dealing, the ease with which Internet information can be manipulated, and well known
    cases of “misrepresentation”, as this market develops, it’s my hope that everyone keeps a skeptical
    eye on who, why and what is being highlighted as gospel.   

    • Sergey Skaterschikov

      Dear Jameskalm, I would only add to your comments to say that we have tried and failed so far to obtain datafeeds from some major art fairs about the price data for the sales conducted by attending galleries. As art fairs make the money largely from attendance fees paid by dealers, and their traffic is also significantly dependent on quality of art dealers bring and marketing they make, the decision on how far to go on price transparency of art fair trading remains with the dealers. Hence there is not much progress here so far. VIP Art Fair format, from what we have seen, does stimulate a fair amount of art trade (based on online leads) but due to the same business model as of traditional art fairs is not contributing to market transparency. So far..

      • jameskalm

        Hey Sergey Skaterchikov,  thanks for your response. I think the basic question dealers and artists should ask is “is the business model of this fair or website designed to help me make a profit, or only help its organizers make a profit?”  I realize there’s no “sure thing” in an open market, but improved transparency would go a long way towards answering this question.

  • Anonymous

    Sergey Skaterschikov’s view of the market is very conservative. Investing in tried and true painters is the equivalent of buying gold shares on the stock market. The investment return might not be too great in the future, but it’s safe.Only the creme de la creme of art collectors are going to buy up works by the “masters” at already exorbitant prices. Skaterschikov’s unable to account for the actions of a huge share of the art collecting market with his conservative logic. If what he said were true, most of Chelsea and the LES would’ve been doomed already since we’re in a double-dip recession. As such, I completely disagree with Skaterschikov’s conservative take on collecting emerging artists. There’s no such thing as a safe buy when it comes to buying works by emerging artists. In terms of contemporary art, it’s probably better to invest in something not so mundane as to be “emblematic for the period or school or line of thought.” There’s more “walking career” artists (a great description by Jack Smith) now than there were even in the mid-20th century thanks to a variety of factors, but I’ll only reference one example right now, the development of MFA programs. With more artists, there’s a glut of art, good and bad. I wouldn’t ever take a safe bet on contemporary art that’s safe enough to be emblematic of what hundreds and thousands of other artists are making.

  • http://twitter.com/edcrossfineart Ed Cross

    You mention India obliquely, I believe there is a great investment potential in identifying artists of profundity from areas of the world that have been largely overlooked by the mainstream western art world – we all know about China and India but there are some fascinating artists emerging from tjhe African continent as well as countries like Brazil – not to mention the middle east – these artists literally bring new blood to the oft jaundiced western dominated global art world – it is here that collectors can acquire exceptional works at often relatively modest prices – and in my view “quality will out”.

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