By Ivan Lindsay.

Anyone working in mining, metals, diamonds, oil and gas, timber or up-market property is now dealing with the Russians on a regular basis. The marriage of Russian resources to Western consumers is creating huge fortunes and some of this excess capital is helping drive the already overheated Western art market and create the Russian art market.

In the Western art market the Russians are buying the big names that they are familiar with from the Pushkin museum in Moscow and the Hermitage museum in St Petersburg. These museums are full of the great aristocratic and mercantile collections that were nationalised in 1917. They are further enhanced by some of the estimated three million art objects that Stalin ‘rescued’ from Germany at the end of WWII, a holding that the German government valued at US$65 billion in 1997, and a sensitive subject that has soured European politics ever since.

That the Russians are rapidly rediscovering their passion for art will come as no surprise to anyone familiar with Russian history. Peter the Great (1672–1725) and Catherine the Great (1727–1796) toured Europe buying on a vast scale. The old aristocratic families such as the Yussopovs, Sheremetevs, Demidovs and Worontsovs were avid collectors, as were the businessmen, Pavel Tretyakov, Sergei Schukin and Ivan Morozov, the last two being early patrons of Picasso and Matisse.

Recent acquisitions by Russians include paintings by Cranach, Canaletto, Breughel and Botticelli and above all Picasso. In May 2006 an unidentified Russian walked into Sotheby’s, New York and bought Picasso’s seminal portrait of his muse, Dora Maar au chat for a cool US$95,000,000, reputedly outbidding Steve Wynn, Leslie Wexner and Paul Allen. At various times the buyer has been believed to be Boris Ivanishvili (Georgian mining), Roustan Tariko (banking/vodka), and Alexander Abramov (steel). Rumour has it that the buyer didn’t know enough about auction buying protocol to know that he needed to register for a paddle number or discuss credit terms and Sotheby’s staff nervously watched him bidding wondering who he was and if he would pay up.

But what the Russians really want is their own heritage and the Russian paintings market is one of the fastest growing art markets, along with the Chinese and Indian markets. The hottest areas of Western art, such as contemporary, traditionally correct very sharply when they turn, and it would appear we are getting near that point. It is worth remembering that only ten artists from any movement or decade stand the test of time and there must be at least a hundred contemporary Western artists who are currently being proclaimed as great masters.

Buying the top paintings by the best Western artists is always a sound financial strategy but this requires deep pockets at today’s valuations; buying lesser examples by the famous artists must be avoided as those paintings only have a good value in a bull market. Examples of great paintings and their recent prices include Gustav Klimt’s Portrait of Adele Block Bauer, which was recently acquired by Ronald S. Lauder for US$135,000,000 and Picasso’s Garcon a la Pipe, which made US$104,100,000 at Sotheby’s in 2004. Van Gogh has sold for US$82,500,000, Renoir for US$78,000,000 and the late Lord Thomson bought Rubens’s Massacre of the Innocents for US$76,700,000 at Sotheby’s in July 2002. In contrast, great examples of Russian art can be had for US$5,000,000 and sometimes with luck and hard work at under US$1,000,000. Either Western art is overvalued or the Russian art is undervalued and it is the opinion of this writer that Russian art is at the beginning of a bull market.

There will be corrections along the way because of the volatile nature of Russia but investing in Russian art is really about taking a view on the long-term future of Russia. Prices will further accelerate when Western buyers start to show an interest. For a Western collector who is tempted it is difficult to know where to start. There is little published in English and until recently Sotheby’s and Christies tucked their Russian pictures into general 19^thand 20^thcentury sales. Now both companies have dedicated Russian sales in London and New York twice a year, each selling over a thousand lots.  Independent advice should always be sought when buying both at auction and from dealers because of problems with authenticity.

Russian art can be crudely divided into a few categories. The 19^th century realist painters such as Isaac Levitan (world record price (WR) US$3,250,460), Ivan Shishkin (WR US$1,420,092) and Ilya Repin (WR US$1,876,388) are the equal of their European counterparts as can be seen by spending a morning in the Tretyakov museum in Moscow. The first quarter of the 20^thcentury is dominated by the Russian Impressionists and the Avant Garde movement. Examples of the Impressionists are Konstantin Korovin (WR US$1,912, 338) and Petr Konchalovsky (WR US$1,829,547). Examples of the Avant Garde are Malevich (WR US$17,052,500), Goncharova (WR US$9,778,656) and Larionov (US$4,469,936). The prices of the Avant Garde are more in line with Western prices because these artists mainly escaped from Russia after the revolution and are thus better known in the West.

The first half of the Soviet period, 1918–1950, is dominated by the political kitsch demanded by Stalin. When Stalin died in 1953 a golden period known as the ‘Krushev Thaw’ lasted until 1980 which produced the Moscow School and is dominated by artists like the Tkachev brothers, Arkadi Plastov, Geli Korzhev, Vladimir Stozharov and Aleksei Gritsai. Interest in these artists is just beginning and good examples can be had for under US$500,000. As supplies of the earlier schools dry up interest will move to this period. Other areas developing are the ‘Non conformist’ art of the later Soviet period and Russian contemporary art. Sotheby’s had its first dedicated sale of ‘Non conformist’ art in February 2007 raising US$5,170,000 selling 80% of the 113 lots. Russian contemporary art is evolving too fast to try and cover here and the best course of action would be to talk to some of the specialist Moscow galleries such as Regina or Marat Guelman.

Although new collectors are appearing in each sale the market is still dominated by a few major buyers. Viktor Vekselberg, who controls the Renovo group with his partner, Leonid Blavatnik, buys through his US$200,000,000 Aurora Fine Art Investment Fund and has been acquiring Repin, Konchalovsky, Aivazovsky and Vereschagin. When Sotheby’s tried to auction the Forbes collection of nine jewel-encrusted Fabergé eggs in April 2004 Vekselberg pre-empted the sale and bought them all for US$110,000,000. Russia’s richest woman, Yelena Baturina, wife of Moscow’s mayor Yuri Luzkov, dominates property construction in Moscow and has a liking for Imperial porcelain. Pyotr Aven of Alfa bank and Vladimir Semenikhin (construction) are both passionate collectors of Konchalovsky.

Recent developments have been the entry of President Putin into the market and the emergence of some major players from former Eastern Europe. When the extensive collection of the late cellist, Mstislav Rostropovich, came up at Sotheby’s in September 2007, a catalogue landed on Putin’s desk. Reputedly he called up Alisher Usmanov, Russia’s eighteenth richest man with a fortune of US$6 billion (according to Forbes 2007 Rich List), and asked him to buy it. The Russian Federal Cultural Agency then ‘encouraged’ Sotheby’s to let Usmanov pre-empt the sale with an US$80,000,000 bid. Mikhail Svydkoi, Federal Culture Agency chief, told reporters that the Russian government gave Sotheby’s guarantees that ‘the transaction would be in the interest of the Russian Federation’ and no doubt in Sotheby’s interest too. Usmanov is best known in England for his acquisition of the mansion Sutton Place, where previous owner Paul Getty famously installed a telephone for his guests, and Arsenal football club. Usmanov, who survived six years in a Tashkent labour camp in the 1980s, is a tough customer known as the ‘hard man of Russian business’, a title for which presumably there is stiff competition. The collection of 450 items is now in the Constantine Palace in St Petersburg where Putin likes to entertain.

There is a collector in Slovenia who doesn’t like his name in print whose holdings of paintings are now estimated to top the US$1 billion mark. Vasil Bojkov, Bulgaria’s richest man and owner of TSK Sofia football team, has over 3,000 Bulgarian paintings and a collection of antiquities that is now believed to be the finest in the world, surpassing that of the Ortiz Patino family of Switzerland.

2007 can be seen as the year that the Russian market came of age. A Fabergé egg made US$16,000,000 selling to a private Moscow museum, and Sotheby’s and Christies combined Russian sales totalled US$324,900,000 with an annual growth of 45%. Russian painters are as original and accomplished as anything in Western art and for a collector who is interested in exploring the wilder side of the art