Art & Finance report 2016
Monday 25 April 2016
Interest in art and finance services globally on the rise
Wealth managers throughout the world are realizing the importance of art and collectibles as part of a wealth management offering. 78 percent think that art-related services should be included as part of their wealth management services. This is according to the Art & Finance 2016 report1 published by Deloitte Luxembourg with ArtTactic. For the first time since the launch of the report in 2011, there seems to be an alignment of the wealth management industry with collectors and art professionals, with 70 percent and 77 percent respectively also recognizing this need.
73 percent of the wealth managers surveyed in 2016 (up from 58 percent in 2014) said their clients wanted to include art and other collectible assets in their wealth reports in order to have a consolidated view of their wealth. “The financial component of art collecting seems to become a primary driver for developing art wealth management services. The key interest is not the investment or yield-seeking aspect of it; rather it is more the preservation of the capital allocated to art and collectibles,” states Adriano Picinati di Torcello, Art & Finance Practice Director, Deloitte Luxembourg. “72 percent of art collectors around the globe buy art for passion with an investment view, while only 6 percent indicated that they buy for a mere investment purpose. 22 percent of the collectors surveyed buy art only with the aim of collecting. Although the emotional value remains their primary motivation for acquiring art, the financial component should not be underestimated.”
The overall Art & Finance Future Indicator shows that in the next 12 months wealth managers will continue to invest in art-related services, but most likely at a slower rate. They will rather focus on services aimed at preserving the proportion of their clients’ wealth that is allocated to art such as estate planning, philanthropy and art-secured lending, than on art investment funds, where the Future indicator is at its lowest level since Deloitte and ArtTactic started this report.
1The report surveyed more than 120 art professionals (galleries, auction houses and art advisors), around 50 private banks and 14 family offices as well as over 90 art collectors from Europe, the United States, Latin America, Middle East and Asia between November 2015 and January 2016.
The US art-secured lending market is growing significantly with an estimated loan book size of between US$ 15 billion and US$ 19 billion
With an increasing amount of capital tied up in art and collectible assets, art-secured lending can be seen as an effective way of enabling art collectors to access the equity value in their artworks without having to sell them. The Art & Finance 2016 report estimates that the US art-secured lending market stands at US$ 15 billion to US$ 19 billion, measured by the value of loans outstanding. Within the three market segments, private banks are dominating with an estimated loan book size of between US$ 13 billion and US$ 15 billion. The US has been leading the global market development for art-secured lending for some years, supported by low interest rates, and an attractive legal environment provided by the Uniform Commercial Code (UCC). “The latter essentially allows the art collector to keep possession of the artworks while the loan is still outstanding—which is quite different to Europe, where banks and specialist lenders often have no choice but to take possession of the collateral in order to perfect their security interest. Our Deloitte colleagues from the US have estimated that the US art lending market has grown by 15 to 20 percent annually over the last five years (measured by value of loans outstanding),” explains Picinati di Torcello. Growth is mainly driven by private banks responding to clients who increasingly view their art collection as a source of capital in a low interest-rate environment.
The majority of wealth managers, arts professionals and art collectors believe that threats to the art market are best addressed from within the art industry itself rather than through government intervention
Whilst the private banking and wealth management industry is undergoing and still adapting to increasing industry regulation, the art market is increasingly coming under scrutiny for the apparent lack of regulation. According to the report, 76 percent of the art professionals surveyed are in favor of a self-regulation of the art market. 62 percent of wealth managers said that the unregulated nature of the art and collectibles market remains the biggest challenge for incorporating art in their service offering, as also pointed out in the previous Art & Finance report.
When it comes to issues that constitute a real threat to the reputation and functioning of the art market, there is a consensus on a number of common themes across different stakeholders (collectors, art professionals, lawyers, and wealth managers). These concerns notably include price manipulation, conflicts of interest, lack of transparency, and secret commissions, with nearly three out of four wealth managers, collectors, and art professionals sharing these views. There is clearly strong awareness and agreement on what the problems are, what is less obvious is how to best address these in a coherent and coordinated manner.
Global increase in wealth and a neutral-to-positive art market outlook suggest an increasing need for wealth management services dedicated to art
With a growing population of ultra-high-net-worth individuals, the report estimates an increase in wealth allocation to art and collectibles in the next 10 years. This suggests that the client demand for servicing this particular asset class will continue to rise. Although the global contemporary art market contracted in 2015, the direction of the art market in 2016 is difficult to foresee as there are an increasing number of macroeconomic factors that could have an impact on the global art market in the coming 12 months. The outlook for six out of eight regional art markets analyzed in the report remains neutral-to-positive, which suggests solid growth in these markets over the coming year. The Chinese and Russian markets are the only ones to have a negative outlook for 2016.
The complete version of the report, which has recently been presented at the 9th Art & Finance conference organized by Deloitte in conjunction with the Van Gogh Museum Amsterdam, can be downloaded from the Deloitte Luxembourg website, at: http://www2.deloitte.com/lu/art-finance-report
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