Hedge Fund Manager Wants Sotheby’s to Start Betting on Art

Sotheby’s auctioneer Adrian Biddell (image via the Financial Times on Flickr)

Dan Loeb, an activist investor and erstwhile Jeff Koons egg-haver, today fired off an apoplectic screed to Sotheby’s on behalf of Third Point LLC, his $14 billion hedge fund. In this letter, which was addressed to the auction house’s board of directors, Loeb outlined with characterisic legerdemain the various excesses, missed opportunities, and general strategic incompetence of Sotheby’s CEO William Ruprecht. Among his litany of complaints was one delightful evening in the country, a dinner at an unnamed “farm-to-table” restaurant (Blue Hill, apparently) where “senior management feasted on organic delicacies and imbibed vintage wines at a cost to shareholders of multiple hundreds of thousands of dollars.”

Loeb’s recommendations for Sotheby’s, in which his firm has amassed a 9.3% stake, don’t seem particularly unreasonable, save for one: that the auction house begin making speculative investments in artwork “when doing so would not conflict with its clients’ interests.” This is not a good idea. We all know the story, after the final collapse of Glass-Steagall, when investment banks began the march of murky proprietary investing and its attendant double-dealing that was in large part responsible for the financial crisis. And although many auction houses currently do take on a minimal amount of credit risk when they pass along “guarantees” to clients before promising works go to auction, investing in art directly would seriously compromise Sotheby’s already shaken reputation for transparency as a broker.

The suggestion is so fundamentally daft that it calls into question the hedge fund impresario’s knowledge of the art market — though ignorance has certainly not been an impediment to the “Sinners in the Hands of an Angry God” routines Loeb frequently plays out with the companies in which he invests.

Two other recommendations in the letter are worth mentioning. First, Loeb believes that Sotheby’s CEO Ruprecht does “not fully grasp the central importance of Contemporary and Modern art to the Company’s growth strategy, which is highly problematic since these are the categories expanding most rapidly among new collectors.” Second, Loeb charges that the firm “has stated that it intends to focus on ‘top clients’ and high value lots, and shun the lower value lots that your top competitor has effectively captured by leveraging new technologies. Despite this ‘focus’, Sotheby’s market share relative to Christie’s in items over $1 million actually trails its overall market share.”

Best of luck to all involved.

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