With the international art market gathering momentum, art as a tangible asset class is drawing more attention of wealth managers; they are emphasizing on the concept, providing the thrust to a new domain of professional services, blending finance and art. This, in fact, remains one of the key findings of the latest ‘Art & Finance’ study report, released by Deloitte Luxembourg done in collaboration with ArtTactic. It throws light on the development of this specialized branch over the past year or so.
Meanwhile, the auction market of India continued its upward trajectory, with sales going up almost 27 percent, according to the latest survey by the research agency. After managing to reverse the broader negative market trend, the recent sales for Sotheby’s, Saffronart and Christie’s produced an encouraging season of extremely positive results, especially for Christie’s and Sotheby’s with impressive sales and volume growth, among the highest in the last several quarters. This is clearly indicative of the increasing appreciation of art’s core asset value in India and internationally.
For new-age wealth managers, competition is not any longer the prime or sole motivation to include art in conventional wealth structuring: rather client demand is the key driver,” Deloitte Luxembourg’s Adriano Picinati di Torcello, who coordinates the Art and Finance practice explained. Vincent Gouverneur, their partner and co-leader (Art & Finance practice) concurs to state: “Client demand is rapidly opening up newer possibilities for closer collaboration between art professionals and wealth managers who must integrate the former into their service mix so as to meet clients’ needs. Art professionals can provide specialized services, which cater to the financial aspects of transacting as well as owning art.”
In the backdrop of the current challenging economic situation globally, astute investors are looking to diversify and safeguard their portfolios. For this, they are keen to add tangible and reliable assets, moving beyond equities and bonds - a trend that the wealth management agencies cannot really ignore, taking into account clients are sitting on a whopping treasure assets estimated to be $4 trillion. Clients treat art as a passion plus a secure financial investment, marking a gradual convergence in the key art market stakeholders’ motivation and interests. The global wealth management community has to regard it as an important asset class, with no less than 43 percent of the top wealth managers, who were surveyed, revealing they were indeed strongly aware of the new developments regarding art’s prominence as asset, up from just 33 percent a year ago. A majority (60 percent) of them see stronger demand in the near future for a class of ‘collectible & emotional’ assets.
The Art & Finance Confidence Indicator courtesy Deloitte ArtTactic, seen as a barometer for international wealth managers’ grasping of trends like art as an investment class, art-secured lending as well as the broader economic environment in the year ahead – confirmed this positive and proactive outlook: the indicator zoomed by 32 percent up to 42.3 percent. The report estimated that the art investment fund market value rose to $1.62 billion in 2012, up from just $960 million a year ago. What is the fallout of the rising value of art?
Art’s role in wealth management fast evolving
The rapid churn on the art & finance scene is triggering the demand for new wealth management services to protect, enhance or monetize this value. As a direct consequence of changing client needs, the role of art in wealth management is fast evolving and moving from client entertainment to art wealth management services; only 27 percent of the wealth managers seeing client entertainment as a main motivation.
Private banking institutions and art
Private banking institutions are more likely to focus on art and philanthropy in the next few years, underlining the fact that it’s a growing area of activity for wealth managers. With significant sums at stake in the intergenerational transfer of wealth – both financial & non-financial assets - taking place, wealth managers will need to give advice regarding art legacies, increasingly as well as effective ways to preserve their cultural and emotional value apart from financial one.
Collectors and governments set to provide push
Not only wealth managers but also other stakeholders such as collectors and governments are reacting to the evolving industry. The rising tendency for collectors to use their art collection as collateral for loans is evident: 41 percent of collectors state that they would use their collection for this purpose. When asked their motivation for using art as collateral, 36 percent of collectors would use it to invest in other business activities, 39 percent to buy more works of art and 18 percent to refinance other loans.
Online art developing at a fast pace
The traditional art industry’s strength can’t be appreciated sans the recent hub of activity witnessed in virtual space: the art world globally is going online. Hundreds of art ventures launched on the Internet in recent years cover segments like data, information, market research, auctions and galleries, social communities, B2B and consumer-to-consumer driven art transaction avenues online that infuse liquidity into the market, broadening its scope and depth, in turn, improving transparency.
Here are other important observations regarding the global art market:
• In spite of the drop in art market activities in China, the market there acted as the primary impetus for the global art investment fund market growth in the period under study, logging an increase of almost 70 percent reaching a conservative estimate of $1.62 billion at the end of 2012.
• An estimated 83 art funds and art investment trusts were operating Last year, a, among which 58 set up in China alone since 2009. Meanwhile, the key findings of the latest TEFAF Art Market Report suggested that sales in China, the engine of global growth, dropped by 30 percent in 2012.
• However this was counterbalanced by a rise of 5 percent in US sales. The country regained its leading position with 33 percent (up 4 percent) whereas China dropped to 25 percent (down 5 percent). The UK remained third with 23 percent. The report underlined the fact that political and economic uncertainties led to in many asset markets, with art no exception, though well-known artists recorded strong performances. Overall, sales in the private retail/dealer sector dropped by just 4 percent and so also the transactions’ volume in the global art market
Where is India in all this vast churning? The country’s share in art market (worth more than $60 billion) is estimated to be $250 million or even less than a percent. But it’s on a marked upswing, rising by leaps and bounds in the last decade or so. Dr. Rana Kapoor, the founder, MD and CEO of Yes Bank, stated in a recent column in the Economic Times that its vast scope for growth makes this indeed an opportune time for creating a knowledge-based approach wherein financial institutions, the art industry and the government can create infrastructure so as to propagate the concept of art as a long-term viable investment.