• artnet’s Q1 Results: When will artnet correct its downturn?
• Collectors Universe Q3 Results: Perfect Timing for Expansion
• Skate’s Art Stocks Index

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Beijing Poly International Auction Co. Ltd is not even seven years old, but it is the world’s third largest auction house, selling RMB 12.2 billion worth of art (USD 1.9 billion) in 2011. It remains in the third spot so far this year, trailing behind Sotheby’s and Christie’s in terms of trading volume.

Skate’s covered the rise of Poly on July 26, 2011, and this week we learned the latest updates from the company concerning their strategy and vision going forward.

So far Poly’s business has been squarely focused on Asia, specifically on China where the absolute majority of its art-buying clients reside. The firm acknowledges that its meteoric rise could have not been possible without backing from its parent, China Poly Group Corporation, a diversified state-owned holding group with commercial interests in industries ranging from arms to culture. This support, which includes funding for the Poly Art Museum—the largest corporate museum in China—has helped to build up domestic demand for the Chinese artworks that are Poly’s primary offering. It is also helping Poly to achieve its first strategic objective, which has been to put Beijing on the map as one of the world’s art trading capitals.

Poly currently trades in four auction categories: ancient Chinese art and calligraphy, pre-modern art and calligraphy, contemporary art, and antiques. It does well in each of these categories, eating away market share from the world’s major auction houses in the Chinese art segment (the fastest growing globally) and efficiently blocking attempts of smaller rivals like Philips with their BRIC strategy to venture in the category.

Poly’s strategy was timed perfectly. The surge of Chinese art acquisitions could have brought a bounty of revenue and profitability growth to international auctioneers, but instead thanks to efforts from Poly and smaller auctions like China Guardian (incidentally, a name that is itself very characteristic of a Chinese art market strategy) it helped to create a powerful domestic art auction industry in the emerging world’s superpower. This new Chinese industry now intends to go global; China Guardian was the first to set up operations in New York, and Poly has just followed.

Beijing Poly International Auction Co. Ltd is smart in its approach to global expansion. It began by educating the global art market community about the strength of its domestic distribution capabilities for Chinese art. Just a few years ago when Christie’s wanted to auction famous fountainhead bronzes in Paris it ran into considerable controversy as official China attempted to block the sale. The Chinese now put forward purely economic arguments for consignors—why consign important Chinese works to global auctions if Chinese auctioneers offer better sales channels? Poly has spared no expense in proving this point, sending its marketing team to European cities this summer to educate potential consigners about the company’s distribution capabilities. Poly intends to play aggressively in New York as well, having purchased real estate for its New York headquarters on West 44^th Street and establishing a fully staffed office to focus on U.S. expansion, specifically the sourcing of Chinese material from the vast community of U.S.-resident Chinese and American collectors of Chinese art, clearly the largest international source of Chinese works of art.

This strategy will work. Poly should be recognized as a lasting and increasingly global force in the international auction business. Move ahead four or five years, and Beijing Poly International Auction Co. Ltd will greatly dominate the global trade in Chinese art by adding a strong client roster of international consigners to its domestic Chinese buy-side clientele, the firm’s original competitive advantage. This growth will set the stage for Poly to challenge the high-end market oligopoly of Sotheby’s and Christie’s. Unless the powerful duo of global auctions established in the 18^th century finds a way to defend its market position and discover new sources of growth, the seven year-old Chinese rival will increasingly depress Sotheby’s and Christie’s equity story well before it starts hiring away key employees in New York.

We continue to expect that Poly will go public soon. Although Beijing Poly International Auction Co. Ltd officials declined to comment on the matter, it really does make sense for Poly to float its shares as it starts Western expansion. It could benefit from exceptionally favorable valuations for art stocks, as was recently proven by the IPOs of Abbey House in Poland and Weng Fine Art in Germany. That said, the art market is not the place where one necessarily needs to be transparent about ownership. We just observed Frieze get away with its entry into the New York art fair market without even being asked about the funding sources behind the lavish Randall Island extravaganza. Frieze is notoriously secretive about its beneficial owners, and in that context Poly can well be called a model of transparency: it is a Chinese government sponsored international expansion of the art trade and Chinese cultural mission executed by a Beijing-headquartered firm beneficially owned by Chinese state. It’s as simple as that. Now, the company is in New York.

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Since the official announcement that Edvard Munch’s pastel painting The Scream would be presented for auction at Sotheby’s, it is difficult to imagine a time when there have been more expert predictions, social discussions and media coverage dedicated to a single work of art. The Scream obviously generated a great deal of interest on the part of top buyers from around the globe, as the Sotheby’s sale saw approximately seven collectors competing for ownership. As a result, the artwork’s final price nearly tripled the modest starting bid of $40 mln to bring $119.9 mln, the highest figure ever paid for a work of art at a public auction. While the buyer has yet to be announced, the money is stated to fund several Norwegian real estate projects.

Skate’s is particularly proud to announce that our preliminary estimate for the artwork provided to The Wall Street Journal proved to be correct. On April 26, we were quoted as forecasting a final sale price of $92.5–123.4 mln on the basis of an accurate peer group assigned to the work and the irrational premium that we calculated.

The full article can be found at the following link:

http://online.wsj.com/article/SB10001424052702303592404577364321881780342

With all of the excitement surrounding the sale that made history, it is easy to overlook the fact that several other significant sales that took place during the past couple of days at Christie’s and Sotheby’s, including six others that sold for prices exceeding $10 mln.

To read our full issue of Skate’s Market Notes, including data, please click here.

In this Issue:

• April Entries to Skate’s Top 5000
• Repeat Sales Forecast for May
• Premium Segment of the Sculpture Market: Cherry Picking Investments
• Top 5 Art Investment Ideas for May 2012
  • Constantin Brancusi, Prométhée
  • Alexander Calder, Un noir et en jaune
  • Auguste Rodin, Le baiser, 1ère reduction
  • Henry Moore, Reclining figure
  • Alberto Giacometti, Buste de Diego

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• artnet’s Results for 2011 Show Disappointing Performance
• Weng Fine Art’s 2011 Results: Stagnating Revenue, Performance in Line with Expectations
• Skate’s Art Stocks Index

To read the full report, please click here.

• Chinese Art Market Research Based on Skate’s Top 5000
• Entries to Skate’s Top 5000 in March 2012
• Top 5 Art Investment Ideas for April 2012
  • Zhang Daqian, Guan Yin
  • Zhang Daqian, Lotus in the wind
  • Wu Guanzhong, Victoria Falls
  • Wu Guanzhong, Snow mountain in spring
  • Zao Wou-­‐Ki, 25.06.86

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• February Art Market Results
  • The Rise of the British and German Art Markets
  • Top 20 Entries to Skate’s Top 5000
  • Top 20 Repeat Sales in February
• Latest Insights into Skate’s Art Stocks Index Constituent Companies
  • Collectors Universe: Trip Across the Pacific
  • Artprice – Future Leader of Online Auctioning?
  • First Turbulence at Abbey House
• Skate’s Art Stocks Index

Please click here to read the full issue.

Gerhard Richter turns 80 today.

The world’s 12^th most valuable artist of all time and by far the most valuable living artist today, Gerhard Richter has 90 artworks included in Skate’s ranking of the Top 5000 most expensive works of art according to public auction prices (Skate’s Top 5000); their aggregate market value slightly exceeds $500 million.

The pulse of Richter’s market has been pounding ecstatically over the last several years (see Exhibit 1 below). Last year brought a new price record of $20.8 million for a single artwork by the master (Abstraktes Bild, pictured above), and the robust pipeline of February auctions suggests continued strong liquidity for the Richter market in 2012. Eighteen Richter works are being auctioned on February 14-17.

Exhibit 1—Richter Auction Sales (Skate’s Top 5000 eligible works)

Source: www.skatepress.com

Unlike many other contemporary artists, Gerhard Richter commands a strong market for almost all periods of his artistic career. The sole exception is his most recent works, which owners are wisely refusing to feed to the auction market for now. While the $20 million benchmark for the 1997 Abstraktes Bild mentioned above still looks like an outlier, from an investment point of view the big bet for the Richter market is whether his works from the late 1990s and 2000s will be priced on par or at a premium to those created in the 1980s. There is a considerable amount of capital locked into Richter’s works from the past decade (Richter has produced an average of more than 60 works per annum during this period), and many collectors around the world appear to be betting that Richter’s post-mortem market will be as strong as the post-mortem markets have been for works by Warhol and Basquiat.

Exhibit 2—Correlation of Auction Price and Year of Creation for Richter Works

Source: www.skatepress.com

While historical returns are no guarantee of future results, in the case of Richter they are nevertheless spectacular. His works essentially represent a well-groomed alternative investment product. Of the 90 Richter works in Skate’s Top 5000, 15 are repeat sales. In other words, one out of six Richter works sold at auction for more than $2 million has had a prior auction history. This strong liquidity is matched by spectacular returns; the weighted average effective rate of return (ERR) on Richter repeat sales is 29.48% per annum (before ownership costs and taxes), which far exceeds the weighted average ERR for repeat sales in general in Skate’s Top 5000 (approximately 4.72% per annum).

Credit goes not only to Richter but also to all the professionals who have worked to create the market for his works. His catalogues raisonné are a model of transparency and have been widely adopted as standard reference sources. His official website – http://www.gerhard-richter.com – is as good as the investor relations website of a transparent public company.

Gerhard Richter has accomplished for contemporary art what Charles Richter did for geology. Just as we use the Richter scale to measure earthquakes we should also use the Richter scale to measure the impact of contemporary art. Richter 80 is probably as far as one can go.

Happy Birthday, Mr. Richter!

Although unexpected for Krefeld, North Rhine-Westphalia is not necessarily a strange place to host a successful art dealer. “The old money” German land is rivaled only by Bavaria in terms of wealth concentration and significant art collections. Krefeld is a short 20-minute drive from Düsseldorf, a vibrant global city of culture. The area is certainly a fertile ground for building an art business, and Weng Fine Art AG has clearly seized a major opportunity.

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• Skate’s Top 5000 total value reached $30.5 billion, and the ranking’s threshold price broke the $2 million level.

• Average annualized investment returns on the world’s masterpieces peaked at 4.82%, confirming the strong performance of exceptional artworks amidst global economic turmoil.
• Skate’s Art Stock Index had its worst year since 2008, losing 15% in value in 2011. This performance came despite robust auction volumes, with the index’s flagship stock Sotheby’s shedding over one-third of its value in 2011, producing a -35.5% return for its shareholders for the year as of December 23, 2011.

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