Optical Illusion: UBS + the Hidden Meaning of Bank Patronage
As many in the industry know, Swiss banking giant UBS has long been an enthusiastic supporter of contemporary art. The firm has amassed a collection of more than 35,000 works, distributed to over 870 locations in 56 nations. It has been the primary sponsor of Art Basel for over 20 years, and it recently underwrote the fair's acquisition of Clare McAndrew––lead author of the (infamous, on this platform) TEFAF Art Market Report––by agreeing to co-sponsor her forthcoming Basel-branded annual surveys of the industry in perpetuity. (In fact, McAndrew even cited UBS's participation as a major reason that she expects her upcoming work to be more thorough and well-informed than her work for TEFAF.)
UBS claims its heavy investment in the arts is about "shar[ing] a passion with many of [its] clients," spreading culture around the globe, and looking toward the future. There may be some truth to this high-flown rhetoric, but my hunch is that its primary origins lie elsewhere. More important, the continued existence of the bank's ambitious art program actually shows why collectors should be wary of trusting UBS with their money.
I started thinking about this subject when I read a New York Post story earlier this week about the prospect of UBS's Wealth Management Americas division going up for sale soon.* Using a few quotes from Alois Pirker of financial-market research firm the Aite Group, the Post's John Aidan Byrne defined UBS WMA as a "grand 'marketing outlet' beset by moneymaking and profitability challenges." While I'm not implying a causal link, that description mirrors one of the fundamental flaws in the "art as investment asset" narrative––high costs for dubious tangible returns––and also nods to, in my view, the main (and not exactly secret) purpose of UBS's art spending.
Throughout history, art patronage has often functioned as a form of conspicuous consumption. Everyone knows that highly sought-after works are expensive. The more of them you own or sponsor in some way, the clearer it is that your success has given you cash to burn on beautiful objects with, strictly speaking, no practical purpose. What bigger financial power move is there than that?
This dynamic can turn collecting into one of the world's most refined forms of advertising, whether for your personal brand (as a private individual) or your corporate one (as, say, an international banking titan). Which means UBS is really wielding contemporary art as a high-end marketing weapon, aimed between the eyes of plutocrats worldwide. Every dollar spent on acquisitions or sponsorships doubles as a dollar spent on sourcing the richest new business available.
But the irony in this relationship arises when we think about the source of UBS's excess capital. Banks certainly generate revenue from investments, but a healthy portion of their profits also come from the fees they charge their clients. Given the somewhat random nature of returns in the financial markets––evidenced by the fact that even history's greatest investors still suffer major down years––I think it's much more likely that one bank's outsize art budget probably comes more from pillaging its clients' pockets than from outsmarting its competitors in the investing space. As financial analyst and Ritholz Wealth Management CEO Josh Brown implied on Twitter a few days ago, that likelihood makes UBS's status as a leading contemporary arts patron a good reason to keep your hand on your wallet when its advisors are near:
Regardless of UBS WMA's fate, I expect the bank's art holdings and industry sponsorships to continue swelling like an untreated tumor. And as contemporary art solidifies as a common denominator among the world's elites, more and more competitors in the banking and wealth-management sector will follow UBS's lead. But I would advise anyone drawn in by these cultured marketing efforts to view them as an optical illusion. What looks like a welcome mat is more likely to be a trap door for your money.
*(UPDATE: A few days after the Post story ran, the online investment consulting platform ThinkAdvisor posted a follow-up piece in which Alois Pirker characterized the paper's original reporting as an exaggeration of a casual chat over drinks. Talk of a UBS WMA sale, in Pirker's opinion, would make sense on a certain level, but should not be considered imminent.)