Steven Cohen, the founder of Stamford, Connecticut–based SAC Capital Advisors and one of the world’s biggest collectors of contemporary art, has found a way to combine his two interests: He is helping auction houses hedge their risks by underwriting the guarantees they offer to sellers of important collections.
According to a well-received new book, The $12 Million Stuffed Shark: The Curious Economics of Contemporary Art (Palgrave Macmillan, 2008), Cohen has underwritten a number of important offerings by Christie’s and probably some by Sotheby’s — the world’s two leading auction houses. It’s a lucrative gig for Cohen, according to the book, which reports that he charges fees as high as 10 percent of the guaranteed minimum price that an auction house puts on a collection. A spokesman for Cohen declined to comment.
Don Thompson, the author of Stuffed Shark — whose title is a reference to British artist Damien Hirst’s 13-foot shark in a tank of formaldehyde that sources say Cohen paid $8 million for in 2005 (not the $12 million then reported) and has since loaned to the Metropolitan Museum of Art in New York — says the hedge fund manager earned about $400,000 from guaranteeing a minimum price of $13 million on a Cézanne self-portrait that Las Vegas casino magnate Steve Wynn bought at Christie’s in 2003 for $17.4 million. Thompson writes that Cohen is among a small group of guarantors who include Wynn and Peter Brant, chairman and CEO of privately held, Greenwich, Connecticut–based White Birch Paper Co., as well as several New York art dealers.
“The third-party guarantors are the most guarded secret in the auction houses, except for their client list,” says Thompson, who teaches marketing and economics at the Schulich School of Business at York University in Toronto. Indeed, although Christie’s confirms that it uses third parties to underwrite or provide its guarantees, it declines to name any.
Thompson says that auction houses like Sotheby’s and Christie’s are typically on the hook for $450 million in guarantees and usually aim to lay off about a third of that onto third-party guarantors. Because art values are so subjective, the terms and fees of guarantee underwriting are highly negotiable. Those who get involved in it usually know something about art.
“Collectors sometimes do it to make a profit,” Thompson says. “They think they are a better judge of value.”
