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Skate’s Art Market Research provides high net worth individuals and institutional investors around the world with reliable and unbiased information and research supporting art investment decisions. Unlike art dealers and auction houses, Skate’s does not derive income from selling or buying art and is focused entirely on enabling its customers to make well-informed art investment decisions using the information and research produced by Skate Press Ltd. and its subsidiaries.

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  1. 1. ART INVESTING NOW: PULLING THE TRIGGER IN A NEW LANDSCAPE By Sergey Skaterschikov The UBS Art of Leadership Art Lecture Series November 17, 2009 New York
  2. 2. Discussing Today: •  New realities of the buyer’s market: How the downturn affects price, transparency and exit strategies •  Transparency and lack of regulation: How it impacts collectors and art investors •  Contemporary art: Why it may be the best investment category now •  Optimal buy side strategies in a less liquid and less transparent market •  Optimal exit strategies for owners of significant art collections 2
  3. 3. The Art Market’s Golden Years 3
  4. 4. Skate’s Top 1000 – Slower Growth in First 9 Months of 2009 Top 1000 Market Cap (09/30/09): $13,222,685,473 Average artwork price: $13.2 million Top 1000 threshold price: $5,730,951 Number of artists in Top 1000: 183 In situations of market uncertainty, trading volumes crystallized around the most established artists with larger free floats and a longer history of public sales. The Top 20 most liquid artists in the high-end market segment are listed on the next slide. With the exception of Leucian Freud, no living artist made it into this list. *All values are in nominal USD, including buyer’s premium 4
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  7. 7. New Art Market Realities Activity among art dealers has not dried up; rather, it has moved away from the spotlight of auction rooms to private sales and various private deals arranged for distressed sellers. Lower trading volumes at auctions have led to reduced price transparency and in many cases to greater counterparty risk in the premium segment. There have been very few fresh public price benchmarks for most of 2009. The ability to provide significant amounts of cash quickly ($50mln+ deals for important collections) has put select buyers in the driver’s seat when it comes to dictating price terms and sale conditions. Sellers in immediate need of cash have been unable to rely on alternatives to the auction market due to long lead times (in run-up to auctions) and the auction market itself has seen reduced liquidity. An initial casualty has been the ability of auctions and dealers to charge significant commissions (up to 20% in prior years), as ultra- HNWI have demonstrated a strong preference for off-auction, no- commission buying at major events like Frieze and FIAC recently. Auctions are compensating for this loss with the higher margin and high volume private sales business (dealer segment) 7
  8. 8. Transparency and Regulation Trading in art is not a regulated business, and the market downturn exposed quite a few dealers and smaller auction houses with bad practices. Many began delaying payments to consignors, releasing commissioned art back to sellers from their inventory and in some cases committing outright fraud. While Interpol, Art Loss Register and several other providers strive to maintain databases of lost and stolen art, criminal activity on the art market remains rampant. Aside from a steady flow of theft around the world, instances of malpractice involving sales of fake or wrongly authenticated art are a daily reality. Since Q3 2008, the art market has seen a significant distortion of price levels that was obvious to anyone dealing off-auction. For the average art collector, however, the price discovery process became less transparent. This explains the steady attendance of major art fairs where collectors have flocked in search of confirmation of today’s price levels. While authentication and title risks are generally addressed adequately by major galleries and dealers, perhaps the greatest risk that remains for private investors today is the poor choice of peer groups, which are often imposed by dealers seeking to maximize their economic benefit from a given transaction. 8
  9. 9. Skate’s Top 1000 includes 24 works under the same title of Nymphéas, which are visually Comparable. They are priced within a broad range of $4.15mln to $20.91mln 9
  10. 10. Choosing a peer group for an artwork is a critical element of the valuation process. At the same time, it is a very difficult exercise where in-depth knowledge of both the artist and the specific artwork provenance plays a tremendous role. 10
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  12. 12. Linking Peer Group and Intangible Valuation Drivers 12
  13. 13. Investment Case for Contemporary Art In terms of Skate’s Art Asset Pricing Model, the Provenance Factor is normally equal to one (PF=1) for art produced by living artists. In most cases this removes concerns related to authenticity, title and export restrictions. Established artists can be considered “fully priced,” as all information is already available to the market; values can change only together with economic cycles and when inflated by irrational premiums paid by individual buyers. Living artists’ works can still significantly go up (or down) in price depending on how well their art is “produced,” which means that artists themselves, their dealers and some value-adding buyers (i.e., major museums) can significantly alter art valuation levels regardless of current market trends. The availability of a strong contemporary art buy side, which is often very local at the beginning (due to fairly local appeal of the living artist’s equity story), is key to the development of an attractive and liquid market for an artist. This is demonstrated by the strong U.S., U.K. and Chinese stories of 1960s, 1990s and 2000s, respectively. 13
  14. 14. Explosive Growth in the “Chinese Colony” 14
  15. 15. Optimal Buy Side and Exit Strategies Multiple attractive buying opportunities exist, particularly when it comes to “fire sales” of entire collections – investing is possible either directly or through “syndicates” often available for important collections. While investing in well-established artists is generally a capital preservation strategy, it is also burdened with ownership costs. If you have a passion for “old art,” 2009 has been the best year to buy. Perhaps this market environment will remain up through the 2010/2011 auction season. Allocate a significant portion of your investments to contemporary art and look for long-term investment strategies with already established living artists that have strong upside potential and are already “produced” by quality dealers / galleries. Choose artists with proven financial discipline, a roster of known buyers and the ability to maintain controlled supply, as well as innovate and implement media savvy policies. Now is the wrong time to exit through direct sales – instead focus on quality provenance documentation and broadening exhibition / literature history for your art and wait for the market to turn around. Work on your own brand as of a savvy collector. 15
  16. 16. Skate’s Art Investment Handbook
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