An arts investment firm based in London is to launch a dedicated $120 million art-lending business for the UK and European market.

Willstone Management, which is owned by Olyvia Kwok, the London-based dealer and former St James’s gallerist, is rolling out the structure, called Willstone Management Capital Partners, on the eve of the 2013 Frieze London art fair. Willstone has obtained finance capital of over $100 million from a pair of New York hedge funds. It also seeks additional money by raising funds from qualified professional investors in the UK.

Willstone was founded in Miami, Florida, and began offering investment portfolios to American and Latin American clients in 2009. It creates investment portfolios of $1 million upwards for short-term and medium-term arbitrage investors. Such portfolios will typically include two items, and Kwok aims to sell the lesser element in a portfolio within three months and the larger element within a year.

The launch comes at a time when, according to Artvest Partners, the global art-lending market (where works are used as collateral on loans) is worth around $7 billion. To date, New York has been the principal global hub for art lending, primarily because New York is the world’s largest market for art, and in particular contemporary art, Willstone said in a statement yesterday.

“The fund will enable the art world to liquidate some of the capital that is held in stock, thus enabling galleries to invest that capital in their businesses. Similarly, private collectors may wish to retain ownership of particular pieces while unlocking some of their capital gains to date,” Kwok said.

“Based on my discussions with numerous dealers, gallery owners, and auction houses, I believe there is a crying need for such a service. Willstone Management Capital Partners is the first fund of its kind on any meaningful scale and provides a platform for us to raise further capital from qualified UK private investors,” Kwok said.

Kwok said she has identified two types of potential borrowers from the fund. The first category consists of gallery owners and art dealers who will use loans to increase their buying power. These borrowers frequently have all or most of their capital tied up in their businesses and are not good candidates to obtain loans from traditional bank providers. The second category of borrower consists of private collectors and entrepreneurs who have an immediate need to raise cash, but who would prefer not to sell their artworks outright.