Who'll buy £30m Pontormo portrait? (ctd.)
February 6 2017
The saga of the Pontormo portrait continues. The US owner of the painting, financier Tom Hill, has rejected a 'matching offer' from the National Gallery to buy the painting for £30.7m (reports Martin Bailey in The Art Newspaper). He bought the painting for that amount two years ago. But Hill's argument is that because of the fall in the value of the pound since, he would be nursing a $10m loss if he were to accept the offer.
Therefore, two things will happen next. First, the painting will stay in the UK. The rules state that if a matching offer is declined, no new export licence can be applied for within ten years. Second, there will be more calls to amend the export licence system.
On the first; it's clear that the export licence system has done its work. It is not designed primarily to make it easier for UK museums to buy things. It is designed to make sure important works of art cannot go overseas without a UK buyer first having an opportunity to stop that happening.
On the second; evidently some changes need to be made, but there is no case for drastic changes. The system broadly works (see above). What does need to be looked at is the effective 'penalty' for overseas owners who subsequently renege on their commitment to accept a matching offer. (As the system works at the moment, in order to apply for an export licence you have to commit to accepting a matching offer, otherwise a licence is refused, and the painting must stay in the UK for at least ten years.) I expect very shortly that the ten year period will be extended. Clearly, we cannot have a situation where museums and bodies like the Art Fund spend months heroically raising money, for it to all be in vain.
And what of Mr Hill now? Personally, I can understand his dilemma. Why should he be compelled to accept a $10m loss? He saw a painting, loved it and bought it. We cannot criticise him for doing what he can to keep it. And according to The Art Newspaper he has said that it is available for public display in the UK.
That said, I don't think Mr Hill has necessarily been well advised in this case. It was unusual to pay the £30.7m up front, before an export licence was actually completed. Usually, buyers make an offer subject to an export licence being granted. Which means that the question of currency fluctations would never come into it. Furthermore, the decision to pay up front meant that a UK institution could not enjoy the tax breaks usually provided in such situations; the seller, the Earl of Caledon, had a number of tax liabilities on the painting, and in normal circumstances the Treasury is able to write these off if the painting is bought by a public institution. (Subsequently, in a special deal, the Treasury did grant the National Gallery the equivalent amount, some £19m. It was one of the last actions of George Osborne).
The suspicion must be that the sale of the Pontormo to Mr Hill was structured in such a way as to make it more difficult that a matching offer would be made by a UK institution. And if that is the case, then nobody can blame the government for wanting to look at the export licensing system again.
Update - a reader writes:
Is it not indeed good news that the primary purpose of the UK’s art export licensing system has been achieved - retaining the Pontormo in this country? And at no cost to the taxpayer too!
But how odd, if the Art Newspaper has quoted accurately, that the NG has no plans at this time to request a loan of it. For free.
Update II - another reader, a financier himself, writes:
After all the hard work form HM Treasury, the HLF and the Art Fund the outcome of this case is deeply frustrating although I am not sure we should feel too sorry for Mr Hill.
As a hedge fund manager I think we can assume he would have been cognisant of the exchange rate risk. Indeed, when he agreed to accept a matching offer for the painting it must have been tempting to think of it as a one way bet with two highly attractive outcomes. Outcome 1 - no matching offer is forthcoming and Mr Hill keeps the painting. Option 2 - a matching offer is made and stronger Sterling (following a probable Yes vote in the referendum) leads to an exchange gain. In such circumstances It would be interesting to know if Mr Hill would have accepted a lower sterling price if he was now $10m better off.
Sadly the unexpected referendum result wrong footed many people, Mr Hill included, and for now the Pontormo sits in storage, a hapless victim of Brexit.
Update III - the Financial Times has more on the story here.
Update IV - another reader writes:
You continue to argue that we have the best heritage protection system in the world. If a key objective of the system is the long-term preservation of the UK's heritage I just don't think this is supported by the evidence.
I calculated the outcomes for all of last year's deferrals. We should remember that most object are exported without ever being considered by the Committee. They recommend a deferral only where in their expert view pretty tough criteria one what is important enough to save are met.
In 9 cases objects were purchased through matching offers with a total value of about £6.5 million. In 6 cases, with combined values of about £37 million, no effort was made to raise matching funds and items were exported. The fairly shocking figure is that in four cases, with a combined value of around £71 million, efforts to raise matching funds looked like being successful and the owners either rejected the offer or withdrew their application when it became clear that one would be made.
Each year is different, but it has consistently been the case that the system is quite good at saving items of local interest and modest value, but does not prevent the export of items of international significance and consequent higher values in more than 90% of cases . A very small proportion of objects valued at £10 million or more are saved. This is because UK institutions have very modest funding and major UK philanthropists are largely a figment of the government's imagination. It therefore takes an extraordinary effort - most often led by the Art Fund - to raise the amount needed to save something of international significance. They know that if they launched a campaign for everything important most campaigns would end in failure, making it harder to get people to buy into the next campaign. When it comes to expensive works, they therefore only launch a campaign in rare cases for very special things.
Last year for the three most expensive export barred items they launched a campaign for, the exporter waited until it was clear they would succeed and then withdrew or just dishonoured their commitment to accept an offer. This happened in relation to more than 90% by value of what they raised money for - the Pontormo case is not unique - it is becoming the norm. The system was already failing to a very large extent in relation to major, and therefore expensive, items. The increasing tendency for exporters to game the system - let people try to raise money and then pull out if they succeed - means the system should now be assessed as being altogether broken. Reform is needed - at the very least to make the commitment to accept a matching offer legally binding and irrevocable once a hearing has taken place.
One last though. It seems to me quite important the V&A and/ or National Trust do make the effort to but the two Clive of India items bought by Qatar 10 years ago, which started the trend for buyers to renege on their promise to accept a matching offer. They have now been barred again - but if no matching offer is made this time it will send a further message to exporters that they might as well dishonour their commitments and have another go after 10 years.
First, I don't argue that the UK has the best heritage protection system in the world. I argue that it has the best export licence system in the world. The best heritage protection system would be one that refuses point blank to let any heritage item ever leave the country. They probably have something similar in North Korea. But there the rights of private owners do not count for much either.
Second, the 'truly shocking' case of the four works worth £71m having their export licences withdrawn is, I would suggest, not shocking at all. Yes, it's a shame that some organisations had their fundraising work dashed. But the point is that those four paintings have stayed in the UK, and for free.