We live in very different times and one of the signs of this changing landscape is the general acceptance of art as a financial asset. The latest research from Deloitte and ArtTactic reveals that 85% of wealth managers believe art and collectibles should be part of their client offering. In 2014, the equivalent survey revealed that only 53% were on board.
One question is, what exactly does it mean to “be part of a wealth management offering”? This essentially means that art should be treated the same as other assets. It can be protected, for example through estate planning, insurance and hedging strategies, and enhanced, for example through regular valuations and keeping abreast of available tax breaks that can also benefit public institutions. There is a growing belief that art could be better monetized, for example through asset-backed lending, a growing field.
The reason for art’s rising status as an asset is simply due to the price levels at which it can now be traded, making it a more significant part of a wealthy individual’s portfolio. And there’s plenty of room to grow: Deloitte and ArtTactic estimated wealth associated with art and collectibles to be $1.5 billion out of their $191.6 billion net worth in 2020 .
So there has been an increase in the number of companies offering data, ratings and research, as well as trading tools that are based on such analysis. Auction houses, including Sotheby’s, are stepping up their business in these areas, with obvious benefits for their auction supply chain. Clearly these are targeting the higher echelons of the market, although recent hires such as Art Basel’s Noah Horowitz show a tendency to lend to galleries and other art businesses, historically wary of the idea of tap into the credit markets. Sotheby’s owner Patrick Drahi has also borrowed heavily on his New Bond Street building in London, according to the Telegraph.
Meanwhile, Sotheby’s alumni Amy Cappellazzo, Yuki Terase and Adam Chinn have founded a new consultancy firm that promises clients “creative financial services akin to merchant banking”. Token art, NFTs and other blockchain-backed systems are fueling the frenzy. The relative transparency and rapid turnover of these sales adds to available data, reducing mismatches, improving liquidity and, the theory goes, increasing the value of the art as new capital flows in.
In my opinion, it’s still quite a leap of faith. On the blue chip side of the market, the supply of good labor is limited and the supply-demand ratio seems to have already reached its limit. In the more mass market promised by NFTs, collectibles and the like, logic would dictate that prices would come down to more realistic levels. The volatility of these works, strongly correlated to cryptocurrencies and therefore also to stock markets, is still too risky – insurance companies are in “wait and see” mode. Their status as bankable assets therefore remains unconvincing.
Such concerns also surround the highly speculative market for new contemporary artists. There will be a few lucky winners, but in my opinion, this is still an insider’s market. There are still too many people whose interest is to keep the information just for themselves and for a privileged few. Art may be a better asset than people thought, but it’s still a questionable investment.