Art as investment is a tricky business. Stocks and bonds have cash flows that can be projected and discounted to arrive at a theoretical value. Even commodities are subject to supply and demand curves. Art is altogether more nebulous.
In a realm where beauty is purely in the eye of the beholder, specialists have the advantage. That’s one reason why most investors probably aren’t delighted to learn that their small-cap property company or communications device maker has been dabbling in the market.
Shareholders of Singapore’s MYP Ltd. might never have known that their company had bought “Monkey Train (Blue),” a 2007 work by American artist Jeff Koons, had the property investor not decided that “plant and equipment” wasn’t the ideal place in its accounts to record a contemporary oil painting of a smiling simian. The company reclassified the piece under “other assets” in its 2020 results, prompting a flurry of questions from the city’s exchange operator last July.
MYP wasn’t greatly forthcoming in answering some of the exchange’s queries, though it did confirm the identity of the shareholder who was holding its art pieces on trust for the company: Jonathan Tahir, chairman, chief executive officer and controlling shareholder. The 34-year-old is the son of Indonesian billionaire Tahir, who is worth $3.3 billion, according to Forbes.
The company’s responses didn’t appear to satisfy shareholders, with the Securities Investors Association (Singapore) lodging its own set of questions — including asking pointedly whether an indebted, money-losing business that hasn’t paid a dividend since 2015 might have better uses for its cash.
The association also queried what the collective investment experience of MYP’s independent directors was in art investments. “The independent directors’ core competencies mainly comprised accounting or finance, business management, legal or corporate governance and strategic planning,” MYP said in its reply. Which looks like a roundabout way of saying “not very much.”
Never mind. The tale has a happy-ish ending. The fair value of MYP’s 5.7 million Singapore dollar ($4.3 million) of art investments had increased by SG$1.1 million as of March 31 last year, MYP said, citing an independent appraisal by a specialist art valuer. A 19% return isn’t bad — not quite in the realm of cryptocurrency (another asset whose value arguably lies in the eyes of beholders), but seemingly a lot better than MYP’s core business, considering the company has reported four net losses in the past five years.
MYP’s art adventure is featured in the biennial CG Watch report published last week by the Asian Corporate Governance Association and CLSA Ltd. It’s a mostly dry tome — 500 pages of regional surveys and rankings covering ESG, regulatory enforcement, audit practices and the like, though spiced up by the occasional vignette from the colorful world of Asia’s small-caps.
The amount invested by MYP accounted for only 0.66% of the company’s assets, so was never a life-or-death issue. The equivalent of $2 million that MYP shelled out for “Monkey Train” was also a snip compared to the $33.7 million that casino operator Wynn Macau Ltd. paid in 2016 for “Tulips,” a stainless-steel sculpture by Koons (who appears to have corporate appeal in Asia) — although that was bought to be displayed in the Wynn Palace, rather than reserved for the chairman’s viewing pleasure.
A darker and more consequential example comes from Hong Kong, where Champion Technology Holdings Ltd. and its subsidiary Kantone Holdings Ltd. spent 92% of the group’s total assets, or the equivalent of around $1.1 billion, on gemstones that ultimately proved almost worthless. Most were purportedly Tianhuang stones — carved, yellow-colored rocks from Shoushan in Fujian province that were often used for imperial seals and which are highly prized in their genuine form.
Champion, founded by Paul Kan, was once a technology pioneer in pagers, before being overtaken by the advances in mobile telephony in the 1990s. Kan, a noted collector, and his brother, then-executive director Leo Kan, bought the stones over a six-month period in 2015-16 without having them valued or authenticated by professionals, according to CG Watch. A few months later, Paul Kan sold his stake and both brothers left the board. Experts were called in to value the gemstones after auditors raised concerns while preparing the 2016 results: The group subsequently wrote off 99% of their value over two years.
There are plenty of unanswered questions around the case. The Hong Kong stock exchange censured the Kan brothers and another director in April 2020 for failing to exercise sufficient skill, care and diligence, and criticized others. In November, Hong Kong newspapers reported that the Commercial Crime Bureau had arrested eight former directors of the group, including the Kan brothers. Champion Technology, now reinvented as a gas and oil trader under new ownership and management, said in a statement that police had informed it of the arrests.
Are there lessons to be taken from such episodes? Perhaps. Beware the tendency of small companies toward bandwagon-jumping and what the legendary fund manager Peter Lynch called “diworsification,” particularly if accompanied by poor disclosure. And if your humble widget-maker really must delve into the glamorous world of art, maybe stick to Jeff Koons.
Matthew Brooker is a columnist and editor with Bloomberg Opinion.
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