Manager Update - Q4 2015


As 2015 draws to a close, most people would argue that the art market has had another good year, perhaps even one of the best ever. Despite mounting pressures from both internal and external factors, art prices made headlines right left and center. Four of the six most expensive art transactions in history occurred in 2015 (Wikipedia). Wow!!!

As the stakes are rising, the temptation grows. Major art market fraud cases such as Bouvier/Rybolovlev or Knoedler/Glafira Rosales are making more of the headlines, leaving market participants wondering how long the lax regulatory environment can last. More and more people are being drawn into the market putting large amounts of capital into play. The best evidence for this is the unprecedented growth in the number of new museums, mostly private, opening up.

But the true gauge for the financial health of the sector are arguably the auction houses. Here the picture is ostensibly less rosy. These face growing competition for attracting works at the high end of the market, requiring more and more use of their balance sheets and growing competition online for the low end of the market. Furthermore, macroeconomic factors such as the commencement of fed tightening in the US and changing fundamentals in China (one of the main catalysts for art market growth in recent years) add external pressures. Shareholders at these houses sensed this early in the year and pushed for restructuring at both major auction houses. So far for Sotheby’s, this has led to devastating results. The share price has fallen from about $47 in June to under $26 at year end, representing a 45% decline in 6 months and a $1.4 Billion of value destruction. 

With a growing sense that the top end of the art market is in bubble zone and perhaps supported artificially by lush financial incentives, the discrepancy with the low and middle markets is more pronounced. As investors, we therefore tread cautiously into 2016.

The past quarter marks an important milestone for the Tiroche DeLeon Collection. For the first time since our inception, we were able to produce a full scale exhibition drawn exclusively from works in our collection. This has always been a cornerstone of our strategy and a clear differentiator from any previous art fund. We are extremely pleased that we were able to commence this activity 15 months ahead of schedule, and to such resounding success. “Everything you are I am not” took place in Mana Wynwood in early December, in parallel to Art Basel Miami. Curated by renowned art historian Catherine Petitgas, who has also joined our advisory board this quarter, the exhibition grabbed attention from the main activities in South Beach, being named “The Cream of the Crop at Art Basel” on the cover page of the Miami Herald on December 6. We now hope to have the exhibition travel to a few more destinations.

Our next destination for the exhibition is the awesome 50’000 square feet Glass Gallery at Mana New Jersey. Designed by Richard Meier, this space is one of the largest open gallery spaces in all of North America. We are extremely pleased that our exhibition will occupy the entire space for 3 months, from May-July 2016, overlapping with Frieze Art Fair and the Latin American auction week in NY at the end of May. We are already in talks with several financial and arts institutions that will organize events in the space. With such visibility for our artworks, we are clearly demonstrating our ability to break new ground as an art fund, change market perceptions about such structures, and provide true Alpha generation through the widespread exposure of our artworks and the brand building that goes with it.

Apart from being in Miami for the installation, exhibition and de-install at Mana, I managed to spend a little time in the main fair and view some of the private collections (the Rubell’s “No Man’s Land” being my favorite). I also gave talks at Mana’s Gala dinner and on a panel at Pinta art fair with fellow collector Jorge Perez - whom the Perez Art Museum (PAAM) that opened in 2013 is named after and where I visited to discover the beautiful works of Firelei Baez, soon to join the collection.

Before Miami, I participated in another panel at Artissima in Turin in November discussing the Israeli art market. While there, I also enjoyed a private evening view of the installation of Adrian Villar Rojas at Fondazione Sandretto Re Rebaudengo, immediately following the dinner in his honor at the Sandretto home. Further highlights of Turin included the exhibition “Tuttovero” curated by Francesco Bonami in two marvelous locations: Castello Di Rivoli and Galleria d’Arte Moderna.

Serge Tiroche @Artissima Panel, Turin, 8 November 2015

Further travels included London for Frieze and 1-54; and Paris for FIAC and Asia Now (a new Asian Contemporary fair).  In London I attended the contemporary auctions and participated in the dinner honoring Ai Weiwei at the Royal Academy. In Paris I enjoyed a lovely dinner organized by Korean art consultant Eunju Park, who recently published her book “Collector” featuring several international art collectors, including myself.

As for the business of the fund, we sold 3 works in the quarter. A work by Abdoulaye Konate that received the cover lot of the Bonhams Africa Now auction disappointed when it sold on the reserve and produced a negligible return. In the same sale we also sold an Aboudia on the reserve but this presented a solid IRR of 155%. Last, we sold a Rodel Tapaya work at Christie’s HK which produced a very satisfactory 42% IRR. On the acquisitions front we completed 13 purchases this quarter in a mixture of primary, auction and residency transactions.

We welcomed 2 additional investors in the quarter who took advantage of the sharp decline in the October NAV of the fund due to the revaluation we took on the Ai Weiwei works we own, as reported extensively in the previous newsletter. This will undoubtedly also result in our first negative yearly return. One of the leading international auction houses has agreed to conduct the 2015 year end valuation, but the process is lengthy with some 450 works requiring valuation from multiple experts around the world. We hope to provide a full valuation report during February 2016. The fund closes to new investors in March 2017. We believe this is an opportune time for potential investors considering the fund, for both its financial potential and perhaps more importantly, its social mission.

As always, I am available to answer any questions and look forward to your feedback and thoughts. Wishing everyone a blissful 2016.