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  • Millionaire Steinhardt Says Art Is Riskier Than Hedge Funds
    June 10, 2005
    Linda Sandler. London

    June 7 (Bloomberg) -- Michael Steinhardt made his millions as a hedge-fund manager by betting against overvalued companies. Now, he says it's time to sell overpriced Picassos and Pollocks and buy bargains, such as antiquities.

    ``Contemporary art prices are in fantasy land -- they're near lunacy,'' says Steinhardt.

    The New York offices where he runs his money and charities are decorated with Jewish candelabras, feathered objects and landscapes by Israeli artist Anna Ticho. Now 64, he wound down his hedge fund in the 1990s with a fortune that Forbes magazine estimated at $500 million, and figures he has spent some $200 million on art in the past 20 years.

    Prices for works by Andy Warhol and Jackson Pollock have trebled since 1996, according to index-maker Art Market Research, and New York's $300 million of contemporary art auctions in May set more than 30 records. While some hedge funds may be putting investors at risk, buyers of contemporary art have more chance of losing money on their purchases, says Steinhardt, who is a former managing partner of Steinhardt Management Co.

    ``The major speculation in the past few years has been more in art and real estate than in the stock market,'' he says. ``I don't think that in general hedge funds are going out too much more than they ordinarily do in terms of risk, even though some may be stretching for returns because their performance hasn't been too good.''

    Hedge funds declined 1.75 percent in April, according to Hennessee Group LLC, a New York-based firm that tracks industry returns. U.S. Federal Reserve Chairman Alan Greenspan said in May that hedge funds pose risks for the financial markets.

    `Passionate Collector'

    On Wall Street, Steinhardt was almost as much a legend as George Soros. He battled Warren Buffett in a threatened bid to control airline USAir, and paid a $40 million fine to settle charges that he disrupted U.S. Treasury-bill trading, according to the Justice Department.

    In the art market, ``Steinhardt is a passionate collector,'' says New York dealer Richard Feigen. ``He has a strong collection of classic 20th-century art and is one of the two greatest collectors of Greek antiquities in the country.''

    Collecting art isn't like trading securities, of course. Steinhardt buys paintings by Picasso and Paul Klee to adorn his Fifth Avenue apartment. Still, as a veteran stock trader -- and a director of London-based auction house Christie's International - - he can't help keeping an eye on the investment side of art.

    He just paid $1 million for an ancient bronze gorgon, and would like to sell works by Pollock and Picasso. ``On a relative basis, ancient art is undervalued,'' he says. ``I truly would sell a lot of 20th-century paintings at this moment if I was left to my own devices.'' He can't get rid of them because his wife, Judy, wants to keep the pictures on the walls, he says. ``I'm under her thumb.''

    Eye on the Markets

    Steinhardt, who has been married to Judy for 37 years, fills the chair at his desk. He wears a blue shirt and suspenders, silver hair circles his head, and his eyes keep straying to a screen where he monitors the financial markets. He did sell Egon Schiele works last year at top prices, though he says his profit was modest because he overpaid for the pictures.

    So what does he think of U.S. hedge-fund managers buying contemporary art? Notably, Steven Cohen paid about $8 million for Damien Hirst's rotting shark earlier this year.

    ``Art is a form of asset,'' he says, after a grin. ``Hedge- fund managers who have made money fast should diversify into other areas.''

    His own 20th-century collection includes a dozen Klee paintings, about eight Picasso oils and drawings, works by Jean Dubuffet, Paul Cezanne, a Max Beckman, a Pollock and one last Schiele.

    Steinhardt focused on collecting and charities after retiring from managing other people's money. ``I made a commitment that I would find another area to devote my energies to,'' he says.

    Philanthropy

    ``I explored a number of different things,'' including Democratic politics, and making movies. ``None of them made any money. I developed a deeper interest in the Jewish world.''

    Benefactors of more than $100 million of his money range from New York University and the Metropolitan Museum of Art, where his name is on one of the Greek galleries, to programs and museums in Israel. ``The majority of my art is also Judaica.''

    In 2001, he took back a Rembrandt painting loaned to the Met in the early 1990s, and gave it to Jerusalem's Israel Museum.

    ``There had been the `intifada,' the museum was getting hardly a visitor. If ever there was a time to do something positive, this was it,'' he says. Rembrandt's ``St. Peter in Prison'' was valued at about $22 million for tax purposes, he says. U.S. donors can reduce taxes by giving away art.

    Steinhardt bought 14 works on paper by Austria's Schiele, including edgy nudes, for $13 million in 2003 from cosmetics heir Ronald Lauder, founder of New York's Neue Galerie. He relied on advice from a single expert.

    ``As soon as I bought them, I knew I had made a mistake. People told me they were mediocre,'' he says. ``Judy didn't like them at all. I asked Lauder to take them back. He tried to sell them, but he couldn't.''

    Record for Schiele

    New York-based Sotheby's Holdings Inc. auctioned them in London last June, along with a Schiele he'd previously bought, ``Liebespaar,'' a 1913 gouache and watercolor painting of lovers entangled in red and black garments.

    ``Liebespaar'' set a record for Schiele of 1.9 million pounds ($3.5 million). ``We made double our money on that one. But on the others, we had a tiny profit.'' The other 14 works brought in about 8 million pounds.

    Steinhardt is drinking grapefruit juice to fight off a cold, and says he has lost the aggressiveness that made him clash with Buffett over USAir. ``I've become a milk toast in my old age.''

    Not entirely. Steinhardt fought for four years to recover an ancient golden platter seized by U.S. Customs officials, and lost the battle in the U.S. Supreme Court in 2000.

    Antiquities and Risk

    ``Part of my attraction to ancient art is that there is an element of risk, of speculation,'' he says. The challenge is augmented by ``issues related to provenance, and a dealer community that is not a candidate for sainthood,'' he says.

    Steinhardt bought the platter from a Manhattan art dealer in 1992 for about $1.2 million. U.S. officials entered Steinhardt's home with a warrant in 1995 after Italian authorities said the object had been illegally exported and they wanted it back. Steinhardt sued, saying he had no knowledge of, or role in, its importation.

    ``I lost in the first court,'' he says. ``I lost in three courts. I spent more in legal fees than I paid for the object. The dealer should have compensated me, but he was bust. I lost the price I paid and the legal fees.''

    The case established a new law enforcing the regulations of the Italian government against export of national treasures, he says. ``It should have turned me off antiquities, but it's like an addiction to me,'' he says, enthusing about his gorgon.