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.

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. 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. The Art Market’s Golden Years
3

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

5. 5

6. 6

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. 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. 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. 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

11. 11

12. Linking Peer Group and
Intangible Valuation Drivers
12

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. Explosive Growth in the “Chinese Colony”
14

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. Skate’s Art Investment Handbook

17. www.skatepress.com
skatesartinvestment.com
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