4 minute read
Time for Change - Tim Hunter
Art financing presents an alternative –allowing art collectors to diversify their investment portfolios by raising finance against an artwork; enabling them to invest in other assets; or even collect more art, without the need to reach into their own pockets or dip into other investments.
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Art is a prestigious asset. Yet it also traps cash, which means that, for too long, selling an artwork has been the only way for art collectors to access its monetary value. Tim Hunter, Vice President at Falcon Fine Art, explores how the global rise of art financing provides an alternative route.
Art has an enduring appeal and for those lucky enough to own it and even form a collection it becomes a passion. Often the aesthetic pleasure can far outweigh the monetary value. Nevertheless great art is expensive and collections can tie up large amounts of money, which can present problems.
For too long, the only option for many art collectors, who wish to access the money tied up in their art collections, has been to sell – an unattractive prospect to those who love, and would rather keep, their art. Now there is an alternative.
Selling art
Art is an illiquid asset, as those who have tried to sell it will understand. The dizzying heights of record sales such as Leonardo’s Salvator Mundi last year – which sold for US$450 million – can be misleading, and even those in possession of valuable artworks might have trouble finding the right buyer at the right time. Certainly, the art market can be fickle – dictated by tastes and trends that make sales difficult to predict.
Nor is it just taste that impacts the value of an artwork at sale. Its condition, its exhibition history and provenance are all crucially important to its success in the market.
Of course, a collector might not want to sell at all. Art collecting is first and foremost a passion, and however much a collector might like to tap into the monetary value of an artwork, they may not wish to part with it to do so.
The art financing alternative
Art financing presents an alternative –allowing art collectors to diversify their investment portfolios by raising finance against an artwork; enabling them to invest in other assets; or even collect more art, without the need to reach into their own pockets or dip into other investments. It is a smart wealth management strategy.
Does it sound familiar? It is. Not only is collateralized lending fairly common among other assets (real estate, for instance), the art financing industry itself is well established in the US, particularly in New York. Now, the rest of the world is picking up on the trend. Private banks, family offices and certain auction houses are increasingly providing art financing solutions – or helping their clients access such solutions through external parties.
Furthermore, firms focusing solely on art backed lending are emerging, creating bespoke arrangements on a case-by-case basis. They do not require collectors to be existing clients, they do not ask for other assets and, crucially, do not require the collector to sell.
Art financing has already successfully spread to the UK – where firms such as Falcon Fine Art (FFA) have had a positive reception. Since being established in 2014, FFA has been at the forefront of spreading art financing across Europe – servicing clients throughout the Continent, as well as completing deals in both Ireland and Belgium.
The appetite for art financing, however, does not stop there. Indeed, with Asia accounting for a 40.5% share of world auction sales – quantified at US$10.71 billion according to the latest TEFAF Art Market Report – the demand for art-backed loans is growing. In fact, FFA is looking to complete a series of deals in Hong Kong and Singapore this year.
A burgeoning trend
So why is art financing – an established and popular industry in the US – gaining traction globally?
For one, art financing has become a more widely available offering from select specialist financiers. The ability to offer art financing solutions requires the combination of both art and financing expertise: a rare combination. Art is a complicated asset – it is portable, and fragile, and can be both difficult to value and authenticate – and the art market, is even more complex. Many traditional and successful financiers have found they lack the specialist art knowledge required to evaluate opportunities, often wasting time and money pursuing deals that rarely reach a successful conclusion.
On the other hand, many institutions that do have the adequate art expertise have struggled to create the sophisticated financing structures required for a deal. As such, there are only a handful of institutions with the incentive and capability to provide art financing, and most of those that do exist have stuck to the US, where the market is already established.
Secondly, many collectors who want to finance their artworks, also want to enjoy their art – keeping pieces on their walls throughout the financing period. Previously, this was only possible in certain cases in the US, but now firms such as FFA are able to offer this service in other jurisdictions.
Finally, the availability of art financing spreads as its client-base expands. Certainly, it is not just connoisseurs who are increasingly attracted to it – many family trusts are also exploring such solutions; a sector where FFA has already experiencing increased demand.
With the spread of art finance there is no longer any need for collectors to tie up their wealth in their art collections. They can still enjoy their art, and indeed acquire new works, while managing their assets in the most effective way.
