This report is not an art market report, began Adriano Picinati di Torcello, director at Deloitte Luxembourg and global Deloitte art & finance coordinator during a preview focused on the key takeaways of the report. “We’re really talking about the art and finance industry.”
This year’s report--the eighth edition, noted Picinati di Torcello--features input from more than 430 participants, such as private banks, family offices, art professionals and collectors around the world, as well as external contributions from the financial sector, including Morgan Stanley, JP Morgan, Goldman Sachs, Citi and Royal Bank of Canada. And the number of participants grows every year, he added.
The report is split into eight different sections: wealth and the global art market; art and wealth management survey; art wealth protection, estate planning and philanthropy; culture and social impact investment and sustainability; art-secured lending; art and investment; art and technology; risk management and regulation.
Picinati di Torcello and Anders Petterson, managing director of the research company ArtTactic, provided more details on the report’s findings during an interview with Delano.
9 in 10 say art should be part of wealth management services
Today’s world is one of heightened geopolitical and economic uncertainty, said Petterson, and the question all that brings is: What impact will this have on the art market as a whole?
In 2022, ultra-high net worth individuals’ (UHNWI) wealth associated with art and collectibles is estimated to have reached $2.17trn. This figure could grow to $2.86trn in 2026, noted the report, due to an increasing number of UHNWIs and more allocation of wealth to art and collectibles.
89% of participants recognise that, yes, art should be included into wealth management services
“When we started the art and finance report, the purpose was to understand: should art be included into a wealth management service offering? And this was one of the key questions we had in all our surveys,” explained Picinati di Torcello. “The result of this year’s is that, on average, 89% of participants recognise that, yes, art should be included into wealth management services. And this is the highest reading for the 12 years, over the eight reports.”
This figure is up 24 percentage points from the first survey in 2011 (65%), and can be explained by client desire for new products and services, a push towards a holistic wealth management offering, technological and regulatory developments and more interest in the financial attributes of fine art and luxury collectibles.
“Year by year, there’s a confirmation that art and collectibles--and now luxury assets-could be integrated into wealth management service offerings,” said Picinati di Torcello. “Something that is important to keep in mind is the transformation on the wealth management side. Because there’s increasing competition, there is a need to also upscale services. So there’s also an increasing demand for clients to add services and products, to move into alternatives.”
Financial motivations for buying art become more important
One section of the report addresses collectors’ motivations and explores reasons for buying art. “We have to keep in mind that emotion remains really the key driver to buy art. It’s not just about investment, it’s about art,” Picinati di Torcello. “But what is interesting compared to two years ago is that now, financial motivation has become the second--before it was third.”
For 60% of collectors, emotional value is the main driver for buying art. This year’s report found--for the first time in 12 years--that financial reasons have moved into second place, with 41% of collectors saying that their primary motivation for buying art was financial value, pushing social value into third place (cited by 36% of collectors).
When it comes to art ownership, younger collectors seem more motivated by financial reasons, with 83% of saying that investment returns were a key motivation (up from 50% in 2021). 61% said that portfolio diversification was important (compared to 51% in in the last report) and around half (51%) said they saw art as a “safe haven” during uncertain times (up from 34% in 2021).
Art-secured lending up 11%
The market for art-secured lending--using art as collateral for loans--has evolved over the last decade, said Petterson. “This year, we estimated the market size to be between $29.2bn and $34.1bn. It was about 11% higher than in 2022. This is obviously an interesting market because despite higher interest rates and tighter financial conditions, this market still remains pretty active. And I think it’s kind of a reflection of collectors themselves, thinking about efficiently how to manage the assets they have, to be able to borrow against these assets, use it for other purposes, whether it’s for business or to acquire other art--I think that’s now becoming the norm.”
It’s not only about auctions, but it’s also how you finance the purchases, how you provide bridge financing and so forth
Major auction houses, like Sotheby’s or Christie’s, are now offering lending services to clients. “It’s not only about auctions, but it’s also how you finance the purchases, how you provide bridge financing and so forth,” he added. “That market has been active and growing gradually. The prediction for next year is that there might be a slight slowdown in growth. It’s also interesting to see that the private banks, I think, are tightening their lending slightly, but actually, the asset-based lenders are predicting still strong growth.”
“I think the market overall is likely to continue to be an important aspect, an element of the art and finance industry,” said Petterson. The US market is maturing, meaning that there may be fewer opportunities there, but there are new opportunities in Asia and Europe. “I think both Asia and Europe are now moving into a point where people are saying these are strategic locations for future growth.”
“There’s going to be a potentially global shift--and if not a shift, at least a harmonisation of this market--likely to be taking place over the next five to 10 years.”
“Incredible traction” in luxury collectibles landscape
Despite market uncertainty and a weaker H1 2023 for auction markets, Petterson said that he expected to see a “rebound” in the second half of the year. “I think this resilience in the art market is something that is playing into this notion about art as a store of value, even in times of uncertainty. And this is something that comes back again and again, during this report, regarding how people view art as an asset class,” he said.
One new aspect in this year’s report was a focus on the broader “luxury collectible landscape,” and not just looking at fine art. “There is an incredible traction, particularly in the auction market now, where the auction houses have broadened their spectrum of sales to include everything from watches, jewellery, clothing, handbags--anything in the luxury collectible sector,” said Petterson.
And it’s a much larger market than the fine arts market. This could “broaden the audience” and invite more people to enter the market. “And by bringing these collectibles into the fine arts domain--such as Sotheby’s or Christie’s--they have the ability to elevate the status and, obviously, the prices of these items.”
“For the industry as a whole, I think this is an opportunity to start to think about the collectible landscape beyond fine art,” said Petterson. “And I think that’s probably where the larger groups of audiences are going to start to come in. Partly because it’s more affordable--not to say that luxury collectibles are collectible, but it’s often an easier entry level. And it feels less opaque, it feels more transparent.” There are indices with massive amounts of information tracking these items, for example, compared to the “unique assets” seen in the fine arts market.
Picinati di Torcello posed a few open questions around the growth of luxury collectibles: if it becomes easier to buy, for example, a Ferrari or a Rolex, what will be the impact on the fine arts sector? Will they compete? If luxury assets are now being considered as alternative capital assets, how should these be included into wealth management strategies?
Two sides to skewness in the art market
We’ve seen lots of multi-million dollar lots sold at major auction houses over the last year, from the sale of the Paul G. Allen collection for more than $1.6bn at Christie’s in November 2022 to Christie’s 21st Century Evening Sale and 20th Century Evening sale on 7 and 9 November 2023 (which together totalled over $860m). So how is this top-heavy dynamic impacting the art market? Is there a risk that this may hinder growth of the ecosystem?
“The pool of buyers are heavily concentrated around a very small number of artists,” said Petterson. “On one hand, it gives credibility to art as an asset class because you’re seeing the values of these relatively few artists increase in value over time. But at the same time, that imbalance in the market has wider implications.” These include the potential lack of redistribution of wealth within the art market, for instance.
“Without the prices, without what we’re seeing at the top of the market--it’s almost the haute couture of the fashion world--this is what gets visibility, this is what media talks about. It’s one of the reasons why people are taking interest in art in general. So it acts as a very important barometer for the broader market.”
“There’s two sides: one is on a consumer level, or on a collector level, it is the accessibility,” said Petterson. “By moving prices into a range in the market in which most people cannot participate, you do exclude a larger portion of the population.”
In a sense, it serves a purpose: it is driving global demand and interest in art. And it trickles
“But these are exactly the opportunities that fractional ownership and tokenisation are addressing--they are about finding ways of democratising access to the market. But those platforms wouldn’t exist unless the market was working. So in a sense, it serves a purpose: it is driving global demand and interest in art. And it trickles.”
“But I think what we’ve tried to illustrate is that it probably doesn’t trickle enough, in the sense that we have a heavy concentration in the market, among few artists, few collectors, few key stakeholders in the market,” he continued. “Young artists need to start somewhere. They do not start at Sotheby’s and Christie’s. They need to have a career and a ladder approach, which allows them to gradually move from being an emerging artist, step by step.”
If the market is so “skewed” towards the top end, “there’s a risk that you undermine--or make it very difficult--for the broader ecosystem to thrive and also for artists in general.”
Fractional ownership on the rise
The increasing number of projects around fractional investment and fractional ownership is one of the topics covered in the report. “What we’ve seen in the recent past is a certain number of initiatives moving into the space,” said Picinati di Torcello. “What is interesting is that some of them are regulated by financial regulators, which is something that we have never seen in the past.”
Fractional ownership could even be combined with technology and social impact investment, said Picinati di Torcello. Say, for example, an institution needs €50m to buy an artwork, but doesn’t have the money. Instead of launching a crowd-funding mechanism, where every person contributes €10, could we--thanks to fractional ownership--have a mechanism where you have a “crowd ownership approach?”
Fractional ownership has the capacity to really dynamite, if I may say so, most of the services around art and finance
“Fractional ownership is really at the beginning. We are testing the market. What we can see is that some projects have demonstrated that there’s a demand for it. This is not limited just to art; it also covers also collectible and luxury assets,” said Picinati di Torcello. “It’s something that is global--it happens in the US, in Europe and in Asia. It has the capacity to really dynamite, if I may say so, most of the services around art and finance. You can also use fractional ownership in terms of estate planning, in terms of philanthropy, in terms of social impact investment, and so on and so forth.”
“In terms of appetite, we can see that the next generation is the one that is more interested by that.” The report found that curiosity in fractional art and collectibles investment has accelerated, especially amongst next generation collectors (50% vs 14% for older collectors).
Technology as a catalyst for “democratisation”
“The art market, in general, over the last two decades, has been slow in terms of adapting to technology,” argued Petterson. “But the pandemic--in 2020, 2021--really fast forwarded the market significantly. On a very simple level, the way people were starting to interact with art, whether it was through social media or online sales, radically changed the distribution channels for the art market in terms of when and how they sell art and how they think about audiences. I think this is really important in terms of future engagement and in terms of how they cultivate the next generation of collectors.”
For Petterson, the industry today is much more prepared for this transition compared to just a few years ago. “Technology has been a real catalyst, whether it’s thinking about distribution, audience engagement, but also the investment side.”
Museums now offer virtual visits; artists engage with their communities online; Sotheby’s and Christie’s have millions of followers on Instagram and, for instance, draw hundreds of thousands of viewers to livestreams of their auctions. “We’re not even talking bidding here, we’re just talking people watching an auction. And I think this kind of creates some kind of aspiration--like I want to be part of this,” he said. “I think that feeds into new models about democratisation.”
The next generation and their demands
We’re in the midst of a massive wealth transfer, noted Petterson, and private banks and wealth managers will need to start thinking about how to move a legacy of art from one generation to the next.
Picinati di Torcello had a few insights to share on the next generation. “First of all, they have a different interest in terms of investment, social impact and fractional investment than older collectors. So they’re coming with new needs and new demands.” They’re also digital-savvy, are part of the sharing economy and are more keen on getting tools from professional advisors. “So that means it’s an opportunity to develop new services in terms of wealth management, but also to bring new types of info and risk management tools.”
“The second is, they will be the receivers of these old collections made by parents. And of course, tastes can be different. That means that from a manager’s point of view, you really need to include them in what we call the governance of the collection, to ensure a smooth transition or smooth transfer of those collections from one generation to another.”
On the topic of technology. “They’re much more into blockchain and AI and all those types of things. And they will be a driver for change in art and finance,” said Picinati di Torcello. “It’s also a cultural change. They want to change the way business is done; they want to do things that are different; they want to interact differently.”
Experience and “storytelling”
Looking at the next generation, it’s about experience, he continued. It’s about the way they transact, when buying a fancy car, an artwork or another collectible item, or how they experience an immersive art exhibit, for instance.
Enjoying the experience provided by collectible goods and their “storytelling aspect”--whether they be artworks or luxury assets--are ultimately where these emotional connections are created, said Petterson. That’s where “we are distinct from a financial asset, in the sense that there are stories, there are lives behind these, which I think is the unique aspect of any collectible.”
“Art and finance works only because of artists,” Picinati di Torcello concluded. “One of your questions was, ‘Should we only look at the top end?’ No. We need to look also at the emerging artists, because they are the ones that will become, at one point, rising stars and stars in the art world.”
Find the 2023 Art & Finance Report here.