As art collections grow in value, collectors are increasingly
using them to secure investment capital. Here’s why.
As the art market has grown in terms of collector interest, activity and valuation, many collectors are increasingly looking at their collections not just as passions, but as investments. In Deloitte’s 2017 Art & Finance Report, over 80 percent of collectors reported that to some degree they thought of their art collections as investments. Given the sums involved, that perspective is understandable: The art market now sees some $60 billion in annual sales, with private clients possessing an estimated $1.5 trillion in artwork. The recent Christie’s sale of Leonardo da Vinci’s Salvator Mundi, while hardly typical, generated over $1 billion of aggregate demand across all bidders before selling for $450 million. The dollar amounts are starting to sound more like terms of corporate acquisitions than purchases of art.
So, not surprisingly, financially sophisticated collectors who have a significant allocation of their net worth in artwork are demanding financial management tools for their collections. Before they buy, collectors are now taking into account an artwork’s ability to store value, to appreciate and to realize value in the future—its liquidity. For these collectors, art is a long-term asset rather than a luxury buy.
Historically, managing liquidity around an art collection has been challenging, in part because the costs of selling artwork—transaction costs alone can be as high as 25 percent—are significant. Practically speaking, the only liquidity path available to collectors was through an outright sale, which many collectors are reluctant to do. They may have an emotional attachment to their art, have a positive outlook on the potential value appreciation of their art or balk at the cost of an outright sale.
Christie’s sale of Leonardo da Vinci’s Salvator Mundi generated over $1 billion of aggregate demand across all bidders before selling for $450 million.
But what if other attractive investment opportunities arise and a collector does not want to sell art to free up capital? There’s a new alternative: They can use their art collection for a secured loan. This financial strategy has grown increasingly accepted, particularly when used to complement a collector’s existing financing sources or when a collector has a long-term intention to sell.
Art-secured financing makes sense for collectors seeking capital to deploy in investments with high expected returns such as real estate, private or family enterprises, private equity or even additional artwork. In general, these are long-term investments with a similar illiquidity profile to the art collection that is being financed.
Deployed wisely, art financing is not an “either/or” proposition. Rather, it can be important component of a collector’s balance sheet and provides opportunistic capital. For such collectors, Athena Art Finance is an independent platform providing clients with art-secured credit as a balance sheet management tool to meet any number of investment capital needs.
THINGS TO KNOW
As the art market grows more professionalized, buyers increasingly view art as an investment.
1. Creating liquidity around an art collection has historically been very challenging.
2. Art lending provides an additive financing source to access incremental investment capital.
3. Athena Art Finance is particularly powerful when used to complement other financing.
Art financing can help meet capital needs for investments with high expected return profiles, often long-term, illiquid investments.
4. Art lending isn’t about affordability. It’s a matter of balance sheet capital allocation.
5. Athena Art Finance offers an independent source for art-secured credit.
TO LEARN MORE, PLEASE CONTACT NIGEL GLENDAY