The 2017 Art & Finance Report, produced by Deloitte Luxembourg and ArtTactic highlights trends at the nexus of art and investing. The report breaks down the art market in six sections: The state of the global art market, art and wealth management, art secured lending, art as an investment, art and technology and risk management and regulation.
Here are the key highlights:
The States of the Global Art Market: The report notes that more wealth is expected to allocate to investments in art, but a more sophisticated and dynamic approach to managing art-related wealth will be required. The world’s ultra-high-net-worth population grew in 2016 and is expected to grow an additional 43% by 2026, which bodes well for investment in luxury items like art. A survey of wealth managers indicates that luxury investments have become more popular in recent years.
Much of the wealth growth will occur in China, and the study also notes that the Chinese government attaches great importance to the development of cultural projects. According to the Asian Institute of Art & Finance, the government has emphasized the healthy and regulated development of culture and art.
Art and Wealth Management: A survey of wealth managers and art professional indicates that there is a trend to include art in investment portfolios. The survey showed that 88% of wealth managers in 2017 believed that art and collectibles should be included in a wealth management portfolio. A large majority of art professionals responding noted that while clients invest in art for emotional reasons, there is an increased emphasis on art as an investment. The report noted that private banks and family offices are increasing their focus on art advisory services.
Art Secured Lending: The art secured lending market in the United States grew by 13.3% in 2017. The report also noted that art lenders believe that regulation would create new opportunities to expand the art market as banks and wealth managers would become more involved.
Art as an Investment: Lack of transparency has made it difficult to gauge the size of the art investment space and analyze its viability. Lack of mark-to-market valuation is another challenge. Wealth managers say that performing due diligence and assessing viability of art funds are obstacles to growth. However, new investment products are being developed to address many of the shortfalls associated with art investment funds.
Art and Technology: As with all industries, technology is playing a bigger role in the art world. Art-technology start-ups (ArtTechs) are building digital business models that support traditional models instead of replacing them. The report notes that online art sales continued to grow, $3.75 billion in 2016, a 15% increase from 2015 and now 8.4% of the overall market.
The industry is looking at new technology to solve age-old problems. The report notes that blockchain technology could revolutionize the industry by resolving question over provenance (origin and history) and improving transparency, copyright and ownership issues.
Risk Management and Regulation: A broad swath of wealth managers, art professional and collectors acknowledge the need to modernize business practices in the art world to meet the demands of transparency and trustworthiness of a developed marketplace.
Wealth managers and art professionals both cite authenticity, forgeries, attribution and undisclosed conflicts of interest as issues the sector needs to address. However, while wealth managers believe that greater governmental regulation is needed to address these issues, more than three quarters of art professionals and collectors prefer a self-regulated approach to establish trust and credibility in the art market.
All stakeholders noted that the lack of transparency in the art market as a major challenge going forward.