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  • Writer's pictureVan Weyenbergh Fine Art

How in major auction houses the collateral system has become the playground of speculators!

At the origin of the system of guarantees , there is the promise of auction houses made to owners of artworks who wish to sell them; "If your work is not sold at auction, the house buys it at a set price," they tell them. Over time, the opportunity to place this minimum auction opened to collectors, and in 2015, to private investors.

For these investors, the benefit is sure thing: the system put in place by large houses can indeed receive a sum of money if the work is sold above this irrevocable purchase order. The investor will then receive an agreed percentage in advance (between 15% and 30%) on the difference between his order and the final selling price.

The irrevocable purchase order is generally between the reserve price decided by the seller, and the low estimate of the work. It therefore allows to imagine a nice remuneration if the auction came to fly at the time of the sale. This is in any case the reasoning of more and more investors, for whom the goal is not to acquire a work, but to be under bidders in order to cash this compensation.

The Wall Street Journal shows some figures that measure the phenomenon: Grégoire Billaut, head of contemporary art at Sotheby's, says that the number of these investors has increased from a few dozen to 90 in five years. In 2018, they placed an irrevocable purchase order on approximately 300 items, distributed at Christie's, Sotheby's and Phillips, for a total value of $ 1.3 billion.

As with any bet, there is a risk: to leave with a work that has not found a bidder, and it will be impossible to return to the market before a certain time. Investors limit their risk by betting on high-demand artists. The works of Basquiat, Warhol and Lichtenstein represent more than a billion dollars of guarantee over the last four years, representing 29% of the value of guaranteed sales since 2015.

Over time, the fact that a lot is guaranteed has even become a sign of trust for the market. Posted by a small asterisk in the catalogs, the works covered are often awarded. To further limit risks, investors pool them, forming groups, or calling on specialized firms such as Pie-eX.

The device was initially aimed at more conventional collectors, and reassured sellers as buyers. "If I win the auction, I'm not stuck, because at least I wanted the work. It's not an investment for me, " Halit Cingillioglu told the Wall Street Journal . This Turkish banker based in Monaco has guaranteed a dozen works in ten years. His son, Kemal, regrets to have one day bet on a work that he did not like, and which is today in his office: "I say to these newcomers that they must like these works that they guarantee, but they only want the financial gains. They do not know what they are doing. "

Washington post article

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