Source: Indian Express
The early 2000s were a fascinating period. The economy was galloping at a rate of 7-8 per cent, stock markets were attracting global investors, real estate was booming and disposable incomes were rising. Hawkers of all hues—from those selling soaps to fizzy drinks, exotic cheese to wines, insurance policies to reckless money-making ideas—were busy exploiting opportunities in this exciting environment.
In the middle of this euphoria was brewing an interesting experiment of transforming art, hitherto considered a preserve of the super rich, into an accessible and consumable product for the emerging rich. Neville Tuli was the man behind this movement. A young Punjabi who had moved back into the country after studying at Oxford and the London School of Economics, Tuli was a trained economist with no background in arts. But he believed India’s art and cultural history presented a unique opportunity to build a distinctive growth and development model around it. Materialism through creativity was the motto with which he stormed into the Indian art scene around the mid nineties. Between 1995 and 2000, he curated grand exhibitions, launched a charity platform, HEART, to promote art and its education, published a much celebrated book, The Flamed Mosaic, on Indian contemporary art. In November 1997, he held the country’s first independent auction without any assistance from international auction houses such as Sotheby’s and Christie’s in which Raja Ravi Varma’s The Begum’s Bath was sold for Rs 32 lakh, the maximum an Indian contemporary work had fetched in any auction till then.
By early 2000, Tuli had emerged as the brightest star on the Indian art firmament. In 2000, he launched the Osian’s Connoisseurs of Art Pvt Ltd (OCA), a unique corporate body that housed India’s first indigenous auction house, an archiving, research and documentation centre, a wealth management service, and a film house. OCA soon acquired a film festival, an art journal, picked up sponsorship of a team in Durand Cup Football and in 2006, it launched Osian’s Art Fund, India’s largest art fund thus far. Osian’s corporate journey riding art panned out beautifully over the next few years. In the financial year that ended March 2003, Osian’s total revenue was Rs 20 crore and profits Rs 2 crore. In 2005, the revenues had soared to Rs 100 crore and profits to Rs 10 crore. In 2006, a US-based hedge fund, Venus Capital Management, picked up a 5 per cent stake in Osian’s for around Rs 11 crore, valuing it at around Rs 225 crore. Two years later, a Dubai-based private equity company, Abraaj Capital, picked up 9.4 per cent stake in the company for Rs 80 crore, shooting its valuation to more than Rs 800 crore.
Alongside the riches, Tuli had also built goodwill among India’s art aficionados. Investors in his company, for instance, included industrialists Kumar Mangalam Birla, Gautam Thapar, Shiv Nadar, banker Pramit Jhaveri, well known entrepreneurs Jaithirth Rao and Sanjeev Khandelwal, among others. Equally high-profile individuals, such as former culture secretary Muthusamy Varadarajan, investment banker Pulak Prasad, economist Dr Meghnad Desai and Melinda and Bill Gates Foundation’s director Ashok Alexander adorned OCA’s board.
In the past two years, however, Tuli’s world has turned upside down. His publishing business has shut down, the film festival is in a state of limbo, the football sponsorship is gone, the art fund is in the tank, and OCA itself is in a financial mess. A majority of his original board members have left the company (most of them refused to speak on the issue while a few spoke on condition of anonymity). In 2009-10, Osian’s income was a mere Rs 44 crore and it had piled up losses of Rs 101 crore. According to the provisional figures provided by Tuli, in the year ended March 2011, his income was Rs 52 crore and losses Rs 35 crore.
The failure of the art fund massively dented Tuli’s equity in the market. A closed-ended fund with a lock-in of three years, the much publicised fund had raised a little more than Rs 102 crore from high net worth individuals. Tuli, from various public platforms, said he expected the fund to generate 30-35 per cent returns. “Of course, there were no written guarantees but we were assured the fund will give returns higher than regular asset classes,” says a Delhi-based investor Sharat Jain.
Between 2006 and 2009, India’s flagship stock index Sensex clocked more than 60 per cent in returns, real estate on average locations rose 40-60 per cent in value, while gold went up more than 85 per cent. Two years after the fund matured in 2009, Jain has received only 85 per cent of the Rs 10 lakh principal he had invested in the fund.
Looking back, it seems Tuli tried to achieve too much too fast in a space too small. Within five years of setting foot into the corporate world, he had spread himself thin across many diverse segments, many of which were almost non-existent then. The auction house, itself the first of its kind in India, was the primary revenue generator and was used to foster all the new initiatives. Besides, Tuli was building an inventory at a rate and prices that shocked everyone. A Bloomberg report dated May 24, 2006, cites a scene at a Sotheby’s auction held the previous day: “Neville Tuli, founder of the auction house Osian’s in Mumbai, bought at least four contemporary works in an hour from his front-row seat yesterday, nodding continually until his rivals dropped out.” The report says Tuli paid 310,400 pounds for an untitled Francis Newton Souza painting, bidding it up from a top estimate of 150,000 pounds, and 48,000 pounds, almost seven times its top estimate, for a work by a Sri Lankan artist.
It isn’t just paintings Tuli was betting his money on. A Times of India report published on April 4, 2006, says Osian’s spent close to $5 million to “bring back priceless Buddhist thangkas and buy iconic posters of Marilyn Monroe, Alfred Hitchcock and Walt Disney”. Tuli says he was collecting the art work for the proposed Osianama project, which he describes as India’s first integrated museum complex for film, arts and the environment. His detractors say he was simply indulging himself and also, in the process creating a false euphoria in the market.
In November 2009, Tuli told a publication that Osian’s owned 265,000 pieces of original art work and memorabilia valued at around Rs 800-1,000 crore. Its current value at cost is around Rs 400-500 crore and Tuli admits in liquidity terms it could be even less.
According to various estimates, between 1995 and 2005, arts sales in India had grown from Rs 50 crore to around Rs 800 crore. Indian artists such as M F Husain, Tyeb Mehta, V S Gaitonde, and Souza were selling for several crores of rupees and market pundits were forecasting a massive rally in the coming years. In 2011, the market has grown to a mere Rs 1,200-1,500 crore. “Though there is a lot of potential for art markets to grow keeping in mind the huge wealth creation happening in India, art even today is a fringe segment when compared to other asset classes such as equity, real estate or gold,” says Amit Sarup, president, Religare Art Initiative. Liquidity is the biggest challenge in the art market, observers point out.
Tuli was taking giant steps on this shaky ground. His art fund is a case in point. Between 2005 and 2008, some half-a-dozen art funds were launched but most raised around Rs 20-25 crore with the exception of one that raised Rs 40 crore. In contrast, Osian’s had collected more than Rs 102 crore. “Put together, all these funds raised around Rs 250 crore in a market of around Rs 800 crore. They gave investors hopes of giving around 25-30 per cent returns over three-four years, which meant at the time of maturity, the art funds would have been the biggest sellers in the market. The market wasn’t mature enough to handle big sales at one go. Besides, anybody should have guessed that bulk sales would beat prices down,” says Rishiraj Sethi, director, Aura Art Development Pvt Ltd, a Mumbai-based art house.
The financial meltdown in 2008 worsened this already precarious situation—liquidity dried, investors disappeared from the market, prices plummeted and the virtuous cycle art had entered was ruptured. Most funds could not honour their commitments. But Tuli, thanks to his high profile undertakings, attracted sharpest scrutiny.
Tuli entirely blames the economic crisis for his debacle. He says the art fund couldn’t pay back investors on time because of the “total meltdown in the liquidity of the art market, the massive fall of prices (in excess of 50 per cent) and fall in volumes and confidence across the world and India. This triggered many investors failing to honour their commitments made in 2008.”
Observers, however, say there is more to Tuli’s woes. Besides reckless buying and hoarding of art work and expansion at a furious pace, his peers say that Osian’s business structure was flawed with each segment being intricately involved with the other. It is alleged that his fund bought and sold art work from Osian’s own auction house and his other associates, while he himself played a lead role across all his ventures.
Tuli refuses to be defensive on the issue calling it a case of “false conflict”. “All pioneering activities have to have conflicts of interest otherwise they would never take off, because you need the merger of certain expertise to happen so that a certain threshold of infrastructure is built to share that new market with the public,” he says.
Osian’s pricing strategy and even the calculation of the net asset value of the units of the art fund have drawn criticism. The net asset value was calculated based on an Art Index that Osian’s launched with business daily The Economic Times (ET) in 2006. The index followed the art prices of 51 top contemporary artists whose art work comprised 81 per cent of the then organised market. Critics say it wasn’t a fool-proof methodology but to be fair to Osian’s, there was no other benchmark available, nor were there any regulatory indicators to plug seeming loopholes, a situation that still exists. Osian’s, however, may have violated an ethical boundary in the arrangement. ET’s parent Bennett Coleman & Co Ltd (BCCL) is a stakeholder, albeit small (1.6 per cent), in Osian’s. Besides, BCCL is also one of the largest art collectors in the country and has been actively buying and selling art work for several years. Tuli’s detractors see a serious conflict of interest in this arrangement. Tuli doesn’t agree. “Their (BCCL’s) role was just a platform for awareness building, no interference at all in data collection and analysis,” he says.
Never say die
The allegations and their denials aside, Tuli admits to having made mistakes. “In retrospect, I included too many diverse non-profit making activities placing immense burden on the auction house. When the market melted, Osian’s having a huge debt, suffered the most,” he says.
He is bitter but retains his spunk and is eager to begin afresh. “Osian’s last auction was in June 2010 when I took the decision to start the reconsolidation of all the divisions of Osian’s, stop all activities apart from the research and digitisation of the knowledge base and only when all outstanding financial obligations are fulfilled will we start the auctions with a new specialised yet integrated institutional structure.” He hopes to restart his auction operations by December 2011 and to repay art fund investors by the end of this month.
“We will be making profits by 2012 once the restructuring of activities and debt is complete,” he asserts.