As recently reported in the International New York Times, art financiers are among the latest specialists in recent years hoping to carve out a niche and not only survive, but thrive, on the backs of some of the world’s most affluent art collectors. In recent years, art collectors are increasingly using their art as collateral and then reinvesting the funds in either additional art or other assets.
From the mega banks and the specialist lenders to the boutique lenders, it seems that everyone is active in art finance these days. And for good reason. Art finance is regarded as a wise way to use one’s capital such that by leveraging one’s art, the work can stay on the wall, while creating greater liquidity among collectors. In particular, it has been observed by some art financiers that ultra-high-net-worth individuals are using their art to generate liquidity and often they are not using the loan to acquire additional art.
Indeed, art collecting has become increasingly financialized these past several years – a 2014 “Art & Finance Report” by Deloitte and ArtTactic revealed that 76% of surveyed art collectors acquired art and collectibles as an investment strategy in 2013, up nearly 25% from 2012.
With a rapidly expanding art market, one may ask then what is the issue?
When the primary reason for acquiring art is adding value to one’s investment portfolio, buyers seem to focus on a narrow range of established artists. Buyers and values can significantly drop for less proven artist names. As recently observed, the more the art market becomes financialized, the greater the risk that demand will become narrowly concentrated on a few expensive group of names, namely, Andy Warhol, Jean-Michel Basquiat, and Gerhard Richter. Of course, artists will always “fall in and out of fashion” as driven by collectors’ specific tastes at the time.
Only time will tell if this will actually happen as the art market continues its financialization trend.