A few years ago, superrich hedge-fund managers like Steve Cohen, Adam Sender and Daniel Loeb entered the art market, and some of them used the kind of tactics they employ in their day jobs — flipping and leverage — to push up the prices of certain contemporary artists. In one famous episode, Sender shopped John Currins painting The Fishermen just after the artist’s 2003 Whitney Museum retrospective opened, reaping $1.6 million for a painting he is said to have bought in 2002 for a sum in the low six figures. Now that we’re in the midst of a global financial crisis, will these megacollectors be forced to curb their free-spending ways? And if so, how will that impact the market?

Most of the hedge-funder aficionados will discuss neither the specifics of their art collections nor what their companies invest in. But by October 2008 the typical fund had fallen by almost 20 percent for the year, according to the Economist, and the industry has suffered a massive pullout of investor money. On November 10, Fortune reported that Cohen’s New York- and Stamford, Connecticut-based sac Capital had returned minus 11 percent for October and minus 18 percent year to date. Loeb’s Third Point llc, in New York, lost at least 5 percent of its value in September, while Kenneth Griffins Chicago-based Citadel was down 40 percent for the year in November in its main funds and had the Standard & Poor’s ratings of two others downgraded. Of course, not everyone had tanked: Sender’s Exis Capital was up 9 percent for the year as of November.

It is difficult to correlate the buying — or selling — habits of these manager-collectors with their companies’ performances. "No doubt guys like Cohen, Loeb and Sender are not buying as assiduously as previously," says one prominent New York art adviser. "The funds are all down. It’s like in the 1980s, except back then people weren’t buying with real cash. It was promissory notes leveraged against real estate values." One Chelsea dealer says he has not yet noticed any hedgies selling off their collections — as Sender did when Exis suffered losses in 2006, unloading $19 million worth of his artworks through Phillips de Pury — but adds that "most haven’t been around the galleries in a while." Certainly, spending large sums on nonessentials like paintings and sculpture could seem frivolous in this economic climate. "To signal that your attention is not 100 percent focused on your investors’ interest, even if you can personally afford to buy art, could suggest a lack of seriousness about the problems being faced," says William Goetzmann, the Yale economist and art market watcher.

Still, these collectors’ trading techniques have made many art professionals wary. One is the New York art adviser Abigail Asher, of Guggenheim, Asher Associates. "The tragedy is that the rapid increase and fall in prices can hurt young artists," she says. Asher suspects this kind of flipping will decrease: "If they aren’t making money, they aren’t going to buy art."

As for the sell side, given the enormous paychecks hedgies have taken home over the past few years, it seems unlikely that many would be forced to dump their art into a weak market. Cohen reportedly made $900 million in 2006 alone, and although he pulled out of a private deal to purchase three Mark Rothko paintings from the French billionaire François Pinault last September, he is reportedly planning an extension to his vast Greenwich manse that is perhaps intended to accommodate his ever-growing collection.

According to Sarah Aibel, the curator for Sender’s collection, it is continuing to make acquisitions. "We will be more thoughtful about what we’ll buy," she says, "[but] we’re not slowing down. It’s a buyer’s market."

"You can’t generalize about [hedge fund managers] as a class of collector," says the New York art dealer Asher Edelman, adding that some "are probably out of the market not because their hedge funds are doing badly but because the hype has lost a lot of its interest."

Is their withdrawal contributing to the market’s decline? Edelman doesn’t believe so. "The premise that the hedge-fund guys have been very important in the past year or two is wrong," he says. "Four years ago they were." Brett Gorvy, the Christie’s co-head of contemporary art, attributes lower sales totals to fewer buyers from Russia and the Middle East rather than to an absence of U.S. financial-industry types. Still the latter have not been as aggressive as in the past. "One major hedge-fund manager told me he bought most of his art when he was making money; he’s not buying art again until he makes money," says Gorvy.

Another thought: When the hedge-fund guys do restart their spending, perhaps they’ll put even more energy into a field with a softer market. Jumping at such an opportunity would be a signature hedge move.

"Hedged Out" originally appeared in the January 2009 issue of Art+Auction. For a complete list of articles from this issue available on ARTINFO, see Art+Auction's January 2009 Table of Contents.