Wednesday, May 12, 2010

A Contemporary Photography Investment Vehicle

While we often talk about art as an asset class (in the financial sense), the fact remains that given the uniqueness of the objects being traded and their general illiquidity, it's nearly impossible to find ways to bet on the "market" without going "long" (via a buy and hold strategy) on certain artists or specific works. There really are no synthetic financial instruments that can be used to mimic the behavior of the art markets, no ways to "short" certain artists, or to buy insurance against volatility in art prices. After recently reading Michael Lewis' The Big Short and diving into the weeds of credit default swaps and collateralized debt obligations as applied to the subprime mortgage market, my head has been swimming with unrealistic ideas for finding a way to create a financial instrument that could encompass the world of contemporary photography.

So here's a thought experiment. Suppose you are a financial investor looking to get exposure to contemporary photography as a niche asset class. You are not interested in visiting gallery shows, looking at pictures, talking to gallery owners, or "buying what you love". You instead want to objectively place a financial bet on the prospects of contemporary photography, as it seems like a "hot" market that might outperform other asset classes, if you only knew how to access it.

Let's say that you heard about this site and decided that you would use the data provided here to generate "trade" ideas. If you went back through the 170+ reviews we did in 2009 and strip out all the museum shows (not for sale) and the exhibits of vintage work (not new/contemporary), you'd be left with a rated list (one to three stars) of the world of New York contemporary photography for the year (potentially a biased snapshot, but hopefully grounded in some reality, and far better than any you could generate on your own). If you then selected the top ten (or so) shows and purchased one print from each show, you might have a decent proxy (or "market basket") for the best of what was available in 2009. Sure, there are differences in quality between the works in any one show, but let's gloss over those for a moment and assume that a solid, representative work can be chosen from what was on view. And sure, we can have real arguments about whether the show ratings are accurate, but since you have no effective way to second guess the ratings (and no real interest in doing so), you are really just executing on what you have been given.

Taking this as a structural model, you then extrapolate this to a ten year fund vehicle (similar to a venture capital fund), five years of buying/investing in the work, and five years of "harvesting" (waiting to liquidate the images, via selling privately or in the auction market). Thus, in its minimum incarnation, the ultimate fund has approximately 50 diverse works from as many as 50 artists from a 5 year period. You then build a ladder of funds for each 5 year period of art.

If you followed the above instructions, here's what the 2009 DLK COLLECTION market basket for contemporary photography would have looked like (in alphabetical order):

1 Roger Ballen, 20x20, from Boarding House (Gagsoian)
1 Edward Burtynsky, 40x50, from Oil (Hasted Hunt Kraeutler)
1 Doug DuBois, 20x24, from All the Days & Nights (Higher)
1 Lee Friedlander, 16x20, from Still Life (Janet Borden)
1 Beate Gütschow, 36x31, from series of constructed cities (Sonnabend)
1 Sally Mann, 15x14, from Proud Flesh (Gagosian)
1 Walter Niedermayr, 50x100, from series of mountains/ski resorts (Robert Miller)
1 Nicholas Nixon, 11x14, from Old Home, New Pictures (Pace/MacGill)
1 Alec Soth, 32x40, from The Last Days of W. (Gagosian)
1 Kehinde Wiley, 24x20, from Black Light (Deitch)

This basket, as a whole, would have cost almost exactly $100000 last year. It covers both black and white and color, straight and manipulated, large scale and smaller sizes. If investors in this fund wanted to invest more than $100000 each year, simply multiply the investment out, buying say 5 prints from each show instead of 1 ($500000 a year invested in 50 pictures rather that $100000 in 10). This would avoid the temptation to dilute the pool by adding images from further down the list of shows. Year to year, there would of course be variation in the cost of the basket based on the arrival rate of great work, but I'm guessing it would likely even out over time.

The returns of the fund would follow a similar path as the "j-curve" of venture capital. Immediately after purchasing the works, their actual market value would fall, as a retail premium is paid before any lasting value is created. (The value of the works could in theory be "marked to market" by using comparative auction results.) The value of the images would likely slowly build over time, with some "winners" growing faster than others, driving the ultimate return on the whole pool of images. Was 2009 a "good vintage" for contemporary photography or not? It's too early to tell.

To me, all of this seems utterly plausible, in a ruthlessly financial sense.

From other vantage points, I think this whole concept raises a few tangentially interesting ideas, even for those who are not particularly financially minded.
  • Suppose you are a wealthy person who has hired a "photography consultant" to assist you in choosing what to buy for your collection. You are paying this person a fee for their services. If you were interested in building a contemporary collection, how were his/her recommendations different than what I've proposed? Did you buy the prints on the list above? And if not, why not, and what did you buy instead, and why?
  • Suppose you are on a museum acquisitions committee for photography, and you have a decent sized budget to spend on recent contemporary work. How did what you actually bought in 2009 match with the list above? Did you actually talk through all of these and actively dismiss them?
In both cases, I'd be tempted to slap this list down and force some real discussion about why you made the buying choices you did. Not because your aim is to maximize your financial return on contemporary photography (it almost certainly isn't in these two cases), or because our ratings are somehow all-knowing, but because the exercise of talking through the choices and trade-offs would be worthwhile. And of course, if you change your mind, it is altogether possible to still "buy into" this 2009 "trade", although prices may have already started to rise, diluting your eventual returns.

For you money managers out there, I'd be interested to hear how you might improve on this fanciful idea or if someone else is already doing it. By the way, I also think there is the potential for an "event-driven" investment vehicle for photography as well, driven by upcoming retrospectives, artist deaths, and other major market movers; but we'll save that for another day.


Anonymous said...

See Zelda Cheatle's fund mentioned in July 2007 NY Times article for existing photography portfolio investment vehicle,


Gabriel Benaim said...

Fascinating idea, I would only add international diversification to the basket, as you have 7/10 Americans in your list (8 if you count Ballen). Unless, that is, you assume that whatever's good anywhere else will eventually make it to NYC (this assumption would in itself make for an interesting discussion).

dlkcollection said...

I think Gabriel's observation is mostly a quirk of timing, and the global diversification would likely somewhat even out in the long run. For example, in 2010, there have been 9 contemporary "selling" shows so far that received 2 or 3 stars, with a slightly better mix of international photographers. They were:

Deal, Eggleston, Maisel, Misrach, Miyamoto, Parr, Ruff, Struth, Tillmans

And we still have the rest of the year to see what else surfaces before choosing the 10 or so in the "best of 2010" basket.

I do believe from a liquidity standpoint that the photographers chosen need to have a presence in the major photography markets, which likely does mean coming through NY at some point.

J. Wesley Brown said...

Music to my MBA ears. Now, I've often wondered about the venture capital itself and how it could work for a photographer / investor vs. the fund you discuss. Could someone invest in the whole body of work, or all future earnings by an initial investment and then career guidance, management and promotion? I'm talking about a hard equity and not an agreement like the galleries have.

Someone with experience and connections sees promise in a fledgling photographer and invests with a managerial / board member role and then when the value of the work rise, that stake could in turn be sold back to the photog. or to another interested investor.

I know, it sounds evil but interesting to ponder.

dlkcollection said...

I think Wesley's idea heads down the road of the Medici patron model, only updated for the 21st century. It could certainly work that a fund could purchase the rights to a stream of income from work produced, in addition to "adding value" through supporting the artist's career.

If you think of the structure I originally outlined as a "mid stage" fund, it is also possible to do a "seed stage" fund, by buying work from MFA shows and the like. In this case, the percentage returns might be higher - a $500 piece goes to $2500, but the ultiamte failure rate will also be larger. In the mid stage fund, the "cash on cash" returns would likely be higher - a $50K Ruff later sells for $100K, and the downside is a bit more protected.

There are clearly lots of potentially viable ways to do this...

rcp said...

Let me know when you set-up the fund. I'd like to invest.

J. Wesley Brown said...

Indeed, just like in venture capital, you'd be expecting to fail with 8 of the 10 emerging photogs and reap big enough rewards from the other 2 to cover your losses.

Yes, where are the patrons these days...?

John Legweak said...

I’m not a collector but I read your blog all the time and really enjoy it. From an investment standpoint I think it’s fair to view art photography as a sector within the art market. My question for you would be, do you view this sector as healthier or richer in growth potential ("hotter") than other sectors within the broader market, particularly contemporary painting, or is it simply a sector you’re devoted to and know well enough to be confident in your picks? I’m wondering in particular how frequent and big the home runs are likely to be in emerging photography vs. emerging painting.

BC said...

One strategy that surprisingly hasn't been mentioned yet is to stock up on older, established photographers who aren't likely to have too many years left then sell after they die. Sadly, I think this is a strategy that some collectors actually follow.

Another strategy would be to buy portfolios instead of individual prints since this tends to be a cheaper way to by on a per-print basis.

dlkcollection said...

I think John gets at one of the key questions that would need to be answered definitively before one could go forward: how many 10X winners are there in the contemporary photo market on average? Or how many have there been in the past 5 years, say? I haven't done the pencil work, so I don't really know. Intuitively, I'd like to think there are enough to generate the returns needed, but I haven't got the proof one would need to actually convince potential investors.

Other overnight readers have touched on the other obvious pitfall: the relationship between the small size of the fund and the costs/fees. The costs have to be managed to a minimum or the fund infrastructure will overwhelm the underlying assets, driving down returns. Maybe there's a way to defray some costs by being under the umbrella of a gallery, where costs could be shared. And the fund size needs to be optimized to be reasonably large (meaningfully larger than the 1M I used for illustration purposes), without becoming too large of a market player that it becomes hard to unwind its investments.

As with any fund, the devil is in the details. Is there a capital model that can make it work? And are there enough oppotunities to warrant the effort? These are the questions that would require intense investigation to get such a vehicle beyond the pie in the sky stage.

JayG said...

Very interesting post. A number of art funds have been started over the years, of course, and as other comments have noted, the fees, overhead and so forth pose a big problem, as does the illiquidity and lack of transparency in the marketplace. I always think that it is the sign of a top when these art funds start proliferating and getting a lot of press. I can only think of one, The British Railway Pension Fund, which had a documented positive return (and the political grief it caused was considerable).

Nonetheless, this is a very valuable thought exercise indeed and I think serious collectors and acquisition committees should take note...thank you.

John Legweak said...

Here's a link to the 2007 NYT article referred to by Anonymous (JB):

The fund seems to have started with WMG and gone over to Toscafund at some point, and seems to have still existed in 2009. I couldn't verify that it still exists today, though all I had to work with was google results.

At the very least it's an interesting footnote to the history of photography.

dlkcollection said...

I've gotten a couple of pointers to the Art Photography Fund, run out of Austria and focused on vintage photography (it sounds like). Gallery owner Johannes Faber is involved.

The site is here:

There is a podcast with one of the managing directors here:

Anonymous said...

what is missing in the art market is a tool to measure the price of an artist , because this is what is primarily sold "the name of the artist ", the bigger the higher the price is , so if there was a tool that could somehow measure transactions of a single artist at each given moment around the globe the market for fine art photography would be a much more reliable market to invest for example let's say i like a specific photograph of roger ballen i would like to see what is the range of his previous prices so that i have a measure of comparison with the price the gallery gives ,i think that if this is somehow solved then the problem of liquidity would dissapear ...