Hedge-Fund Pioneer Steinhardt Sees Rocky Art Market (Update1)

Date: Saturday, May 26, 2007
Author: Linda Sandler, Bloomberg

May 25 (Bloomberg) -- Michael Steinhardt, who made hundreds of millions as a New York hedge-fund manager, said owners of contemporary art may have a rocky ride when values fall.

``We've seen some extraordinary rises in prices, but we haven't seen the downside,'' philanthropist-collector Steinhardt, 66, said in a telephone interview from his Westchester County, New York, house last weekend. ``There could be great volatility when the market declines.''

Auction records trebled or quadrupled for Mark Rothko and Andy Warhol in New York last week, with price jumps that are rare in other markets. This is happening because new millionaires around the world are buying contemporary art as a form of ``personal aggrandizement,'' Steinhardt said.

``There are limited assets that have cachet,'' he said. ``If you buy the fanciest Cadillac today, or a Mercedes, it's a yawn. The world is so wealthy.''

Steinhardt, a forerunner of collectors such as Steven Cohen of SAC Capital Advisors LLC, said he bought a Jackson Pollock painting for $2 million seven years ago that's now worth 10 times as much. The buyer of Warhol's ``Lemon Marilyn'' paid 100,000 times more at Christie's International on May 16 than the original cost. The hammer price was $25 million for the picture, which sold for $250 in 1962.

The average contemporary work cost $715,144 this year at Sotheby's in New York, five times as much as in 1998, the auction house said.

Picasso, Klee, Pollock

At home on Fifth Avenue, Steinhardt, a broad man with a silver moustache, has works by Pablo Picasso, Paul Klee and Pollock. The Madison Avenue offices where he manages his money and charities feature a room of Judaica, with donation boxes and a bobbing statuette of a man at prayer.

On Wall Street, Steinhardt of Steinhardt Management Co. was a legend like Soros Fund Management LLC's George Soros. He battled Warren Buffett of Berkshire Hathaway Inc. in a threatened bid to control US Airways Group Inc., and paid a $40 million fine to settle charges that he disrupted U.S. Treasury-bill trading, according to the Justice Department.

Spending on Art

He wound down his hedge fund in the 1990s with a fortune that Forbes magazine valued at $500 million. Steinhardt said he has given $150 million to charities and spent $200 million on art in the past 20 years.

``His 20th-century masters are of extraordinary quality, and his collection of Greek and Roman antiquities is one of the two most important, but it's not done for investing or speculative purposes,'' said New York art dealer Richard Feigen, a friend of Steinhardt, in a telephone interview.

Steinhardt isn't saying when art prices will fall. ``The decline will be associated with declines in stocks and real estate,'' he said. ``A lot of markets are near new highs.''

The art market is still in its infancy, lacks regulation or controls and has little information on dealers' prices, which makes it risky, he said.

``Twenty years ago, art was a personal possession, a luxury,'' Steinhardt said. ``It wasn't really a market.'' While paintings are regarded as a store of value, they aren't behaving like other assets, he said.

Not Like Stocks

``The fact that these pictures have gone up so much tells you they don't act like stocks. The art market hasn't had a serious setback since 1990. Some contemporary artists have had a straight line up.''

After the crash in 1990, Picassos and other modern masters lost half of their value, according to index-maker Art Market Research. Young artists and galleries disappeared. In the past 10 years, the top contemporary works made fourfold gains.

There's real wealth in the emerging economies underpinning today's art market, Steinhardt said. In the late 1980s, prices for artists such as Vincent van Gogh shot up on demand from heavily indebted Japanese buyers and entrepreneurs such as Alan Bond. ``The Japanese economy was a bubble,'' Steinhardt said.

Scant Liquidity

Still, new buyers from the U.S., Europe, Russia and Asia are bidding up a relatively small group of 20th-century pictures, and that will contribute to the volatility if they want to sell, Steinhardt said. ``There's not a lot of breadth or liquidity in the market.''

Renaissance bronzes, 19th-century paintings, old masters, haven't appreciated as much, he said. Compared with Picasso, Klee ``has been relatively flat,'' he said.

His 20th-century collection includes a dozen Klee paintings, about eight Picasso oils and drawings, works by Jean Dubuffet, Paul Cezanne, a Max Beckman and the Pollock, now worth as much as $25 million, he said.

Steinhardt sold some Egon Schiele works in the boom. He'd bought them from Estee Lauder Cos. heir Ronald Lauder, and wanted to sell more 20th-century works as values soared.

Selling Constraints

``I would have been a substantial seller, but I'm constrained,'' he said. ``My wife won't let me.'' Judy stopped him from selling the Pollock at $6 million, he recalled. They've been married 39 years.

``What appeals to me most is ancient art. For a long time it was dead as a doornail.''

One of his latest purchases, which he's lending to the Israel Museum, is a carved stone containing written evidence of a Maccabean revolt and the origin of the Jewish festival, Chanuka. ``The equivalent would be finding a new Michelangelo or an unknown Goya,'' he said.

Steinhardt, a member of Christie's advisory board, focused on collecting and charities after retiring from managing other people's money.

Among his philanthropic activities: New York University has the Steinhardt School of Culture, Education and Human Development. The Metropolitan Museum of Art has the Judy and Michael H. Steinhardt Gallery of 6th century B.C. Greek art. Birthright Israel, a program founded by Steinhardt and Charles Bronfman, sends young people on educational trips to the Jewish state.

To contact the reporter on this story: Linda Sandler in London at lsandler@bloomberg.net .