The Mugrabis: from Colombian rags to Warhol riches

Hours after Lehman Brothers declared bankruptcy in September, Sotheby's threw open the doors of its London headquarters for the sale of 223 art works by Damien Hirst.

The auction broke records and almost immediately "acquired a nostalgic air", being considered the "last gasp" of the art boom. For many, this gravity-defying feat was a transitional moment. For the Mugrabis, one of New York's biggest art collecting clans, it was "simply another high stakes day at the office".

The Mugrabi trio Jose and his two sons Alberto and David are an intriguing bunch, says The Wall Street Journal. For the past 20 years, they have been obsessively buying post-war art. Having cornered the market in Andy Warhols (their 800-strong collection rivals that of the Andy Warhol Museum in Pittsburgh), their attention turned to Damien Hirst. They now own 150 pieces created by the Londoner.

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The Mugrabis have never made any bones about their quest to "defend" the worth of their chosen artists, and their mission at the Sotheby's sale was straightforward. "We're not looking for bargains here," David Mugrabi told The New York Times. "We want to keep the prices up." There were some sticky moments for the Mugrabis that day in London, but their tactics worked: Hirst's 'Beautiful Inside My Head Forever' sale raised £200m. The triumphant Mugrabis contented themselves with a mere "souvenir": a small canvas with cigarette butts affixed, snaffled up for £121,250.

Mugrabi senior took a circuitous route into the art market. Born into a middle-class Jewish family in Israel, he emigrated to Colombia to join his uncle's textile distribution firm, eventually setting up on his own. By 1984, he'd had enough and Colombia had become dangerous, so he moved to New York. "Art became my refuge." His initial steps were faltering: "What is this for? Who cares?" he said when his wife Mary bought him his first picture. But when he became interested, she recalls, "he moved so fast, I could not keep up". Pop Art became a fixation.

These days the Mugrabis "are regarded as princes of art and commerce". They certainly look the part. Dark and strikingly angular, Alberto in particular "looks as if he could have emerged from a Picasso canvas". They operate out of a small office on Park Avenue and make a point of taking breakfast together each morning at the Four Seasons. When in London, they rendezvous at the Mayfair gaming club Aspinalls. The younger son, David a former Wall Street broker is "the quiet, practical one", says The Wall Street Journal. His brother Alberto is the gregarious jet-setter.

But can the Mugrabis, who recently took a smallish $1m hit courtesy of Bernie Madoff, ride out the falling art market (see below)? As self-styled market-makers, "they're like the casino, not the gambler", notes one gallery owner. Indeed, as The Wall Street Journal points out, if they hit financial trouble and had to liquidate their collection, this would "dive-bomb" Warhol prices and "rattle collector confidence in dozens of other artists". If current declines turn into a full-scale rout, concludes one New York dealer, "it's going to be a hell of a ride down".

Investing in art: a mug's game?

"Art will hold its value better than real estate, better than funds," says Jose Mugrabi. But he admits that "top tier" contemporary works are worth a lot less than they were a year ago. The value of the Mugrabis' billion-dollar collection like that of the Mei Moses art index is down a third on its 2008 highs. Back then, notes Merryn Somerset Webb, investors convinced themselves that the high-end contemporary art market "would remain utterly unaffected by the global meltdown". After all, it was vital to many collectors especially those doubling as tycoons in other businesses to keep prices high by over-bidding at auction. "Say you have five works of art by the same artist valued at £2m each, and borrowings against them of something like £8m, and you need more money to bail-out a failure elsewhere." If you bid up a similar painting by the same artist to £3m, your collection is suddenly 'worth' an extra £5m letting you borrow more. However, no market can be bid up indefinitely and the great contemporary art boom has been revealed as "just another bubble".

The Mugrabis are undeterred. "It's like Warren Buffett said: a down market is where you find bargains," David told The New York Times. But the truth is that most art investment is a mug's game, says Somerset Webb. Fashion-dependent, utterly untransparent and very illiquid, it has always been more "speculative than rational". Unless you happen to get your hands on something by a dead artist (i.e. in genuinely limited supply) that has been recognised as good for decades, "it is pretty much a guaranteed money loser".