Stored Away: There's So Much Art Available For Market
Art comes with a variety of drawbacks: works can deteriorate, be of questionable provenance/authenticity, and might be offered fraudulently. In addition, there are other considerations to take into account such as pricing, valuation and liquidity. Navigating the reefs and shoals of such a space requires experts.
“We don’t lend ourselves but provide information to lenders,” Van den Oever said. “We charge a fixed fee for our digital art valuation and risk assessment, a fixed fee for full due diligence services, and a monthly service fee for our SaaS delivery.”
So what are the main segments of the market?
Within the current art-based lending market, about 80 to 90 per cent of it is done through private banks, with firms such as JP Morgan, Citigroup, UBS, etc); such lending comes typically at around LIBOR+ 1.5-3.5 per cent, Van den Oever said. “That market is growing massively.”
There are specialised asset-backed lenders, such as Athena and the Fine Art Fund. The capital provided comes from a private equity-style model where the aim is to make returns more in the region of LIBOR+10 per cent or thereabouts. The reason why this margin is bigger for banks than these specialists is that they are set up specifically for the purpose of this market, while banks are offering the lending levels as part of an add-on to other services and often as a way to tie in a client and win their wider business.
The auction houses such as Sotheby’s and Christie’s are a third type of player who will offer lending services to clients; this is asset-backed and tends to be relatively expensive. Family offices and private equity shops tend to be relatively opportunistic in this space.
The art market has been fairly opaque in the past and not widely or deeply regulated, although change has come with the EU’s Fifth Anti-Money Laundering directive, among other changes, Van den Oever said.
Banks are moving out of investment banking and looking for new ways to add value; data services and transparency are improving. Organisations such as Artnet provide more data on transactions and pricing so that the situation is less opaque than before. However, there is still some way to go before reaching a fully accepted, international yardstick of the art market.
One statistic stood out when Van den Oever mentioned how much art often does not see the light of day – not even appearing on an owner’s wall. Citing figures from UBS this year, he noted that just over 30 per cent of collections are in storage, and out of sight. Van den Oever and colleagues reckon the share might be even larger than that.
Art investment and advice on it is a complex field, and not everyone has been able to make the business catch fire as much as hoped, but what is clear is that this market has more room at the top, particularly as and when the global economy bounces back.