Can art dealers act more like hedge fund managers?

If art, it is said, imitates life, why has it taken such a long time for those ‘high art’ purveyors to follow the practices of those practising the high life norms?

The above pertinent query is raised by Matthew Vincent of The Financial Times, UK. To put it plainly, the writer wants to know: Why is that art dealers do not act more like hedge fund managers? The idea has struck the columnist having come across two peculiar transactions in the world of art, recently: the sale of Tom Saunders’ work for a predetermined £1, and that of artist Édouard Manet’s ‘Self-Portrait with a Palette’ for $29m-$43m (It was put on sale in Sotheby’s London auction in June.)

The later (dated 1878) is one of the two rare self-portraits available. It’s considered by a section of experts to be his most valuable artwork still in private hands. Had it reached its estimate’s bottom end, the loss incurred could have been a substantial one for its owner, based on what the media reports stated he actually shelled out in a private sale.

On the other hand, the Saunders work doesn’t even exist yet. Being sold, via the London based murmurART gallery, is the right to buy this Camberwell College of Arts graduate fellow’s art for £1 in a decade’s time. But that is going to cost £2,000, based on what UK law firm Ferguson Solicitors, thinks is the right price level for an ‘option’ contract. Analyzing the case, the FT writer mentions: “

And in this, as in much great art, there is an exquisite hidden irony. According to Rupert Beecroft, the corporate lawyer at Ferguson who put together the Saunders deal, it is arguably the first art derivative of its kind. Last year James Layfield, a UK entrepreneur, offered a 10 per cent stake in his future lifetime earnings for £1m, but this was more a private equity proposition than an options trade"

Beecroft explains the idea, adding it’s like an option. The strike price is £1 and the premium is £2,000. It can only be exercised in 10 years’ time, at maturity. Certain contractual issues are: Which future work would be (treated) ‘optionable’ and what exactly would happen if the artist was no longer working in 2020? But these haven’t deterred prospective investors, who have expressed ‘a serious interest’ in the idea.