Art for Money's Sake

For Charles Saatchi, wealth begets wealth. The Art Trading Fund, a London-based fine art hedge fund, told Bloomberg News that it had hired the advertising mogul-turned-art guru to advise it on the western, Middle East, China, and India contemporary art strategies for its second fund.

With his brother Maurice, Saatchi founded Saatchi & Saatchi and turned it into a global advertising powerhouse until the brothers were forced out of their own firm in the mid-1990's. Charles Saatchi has parlayed his fortune into a renowned art collection and gallery, and has now used that art world stature to secure the lucrative consulting position.

For Saatchi, who will be paid a portion of the profits from pieces bought through his gallery, this isn't his first artistic dealing with the hedge fund world. In 2005, he sold Damien Hirst's 13-foot tiger shark floating in formaldehyde to Steve Cohen of SAC Capital for a reported $8 million, turning a handy profit.

Saatchi had commissioned the work for £50,000 (about $100,000 today). Hirst's piece, "The Physical Impossibility of Death in the Mind of Someone Living," was unveiled in 1992.

ATF, which began raising funds from investors a year ago, hopes to be so lucky. It's just one of a number of funds that have sprung up over the last few years as investors began clamoring for non-traditional places to put their money.

Funds like ATF, Fine Art Fund, and Meridian Art Partners seek to earn big returns by buying and selling art while removing "market inefficiencies" like dealers and auction houses as middle men. They then pass those margins back to the investors, taking a management fee and percentage of returns.

ATF focuses on short-term art trades, buying directly from living artists and distressed sellers, while hedging itself by shorting derivatives correlated to art market performance (such as shares of Sotheby's stock).

But on the heels of this summer's credit crisis and a flagging economy, finding willing investors has become more difficult.

According the Bloomberg, ATF's first fund closed in August 2007, with a capitalization of $10 million, just a fraction of what the fund's managers originally indicated they were looking to raise. Some funds have begun to look to emerging markets for investors and artists, as European and American investors turn more cautious and watch the art market for signs of a bursting bubble.

Art is an asset that is infamously difficult to value, since its price is closely tied to fashion and demand with little basis in intrinsic material value. ATF's decision to turn to Saatchi in the midst of raising its second fund suggests that the fund is realizing the importance of high-profile art expertise in attracting warier investors.

But isn't that expertise, in the end, the value added by auction houses and galleries, too?

The art market isn't really inefficient. Dealer and auction house commissions are the price at which the market values their expertise. By paying Charles Saatchi an advisory fee, ATF is eroding its own margins and just recreating the same art market formula in different terms.

Liz Gunnison