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Art finance: see the full picture

31 August 2022

Lisa Seidel

Commercial Director, Capital Markets

Lisa Seidel

Commercial Director, Capital Markets

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As investing in art becomes more popular, art finance has been gaining traction. We explain how it works and its benefits for art investors and collectors alike.

From paintings and porcelain to sculpture and jewellery, interest in art investments has exploded over the past few years.

And as investing in art becomes more popular, the art financing sector has also been gaining traction.

While most wealth managers understand the importance of art and collectibles as a strategic part of their wealth management service, art finance gives another route into this asset class.

Art finance lets collectors release valuable capital from their assets. Packaged together as a fund, it also provides an attractive, diversified opportunity for investors.

What’s the appeal of art investments?

The total global value of art and collectibles is estimated at USD1.7tn. This makes the asset class a similar size to other major private markets, according to research by Nomura.

There are several reasons for art’s growing popularity.

First, the Covid pandemic has fuelled demand as investors seek safe investment havens shielded from stock market turbulence.

Contemporary art also shows low loss rates, experiencing realised losses only about 8% of the time, measured over two years, according to Nomura.

Compared with other financial assets, this makes it an attractive risk diversifier that can improve a portfolio’s downside protection.

Meanwhile, the 2021 Art Market Report, published by UBS and Art Basel, notes both the number and wealth of billionaires have reached all-time highs. Their interest in collecting art has increased coming out of the pandemic.

Separately, politicians have recognised the importance of art and culture in tackling some of today’s big social challenges.

In July 2021, the G20 Ministers of Culture launched a historic G20 Declaration on Culture, positioning culture as a major engine for sustainable socio-economic recovery in the wake of Covid.

Online art marketplaces – such as online-only auctions – have also boosted the number of young buyers in the art market.

Finally, depressed world interest rates have caused investors to look further afield for returns, with some switching to art investment.

Increased demand has brought rising prices. This has sparked a flurry of collectors testing the potential worth of their assets, further boosting the market.

How does art finance work?

Art finance lets art collectors raise cash from their assets via an asset-secured loan.

Items can be stored in a secure facility or at home. In the latter case, appropriate insurance must be taken out and the art financing terms may be more expensive.

Intertrust Group recently worked with Gurr Johns Capital (GJC), the art financing arm of art valuer Gurr Johns, on launching a debt fund.

It focused on lending to collectors of art, luxury items and classic cars with loans from USD1m.

A trio of Intertrust Group offices administered the fund and debt side of the transaction.

Fund services were provided by our Jersey office, backed by a Luxembourg special purpose vehicle (SPV). Our centre of excellence in India helped with the loan administration.

The fund, which launched in May, focuses on loans with a 40-70% secured loan to value, lasting between six months and three years.

Investors in this kind of art fund typically include pension funds, high net worth individuals and family offices.

The future of art finance

Demand for art shows no signs of slowing. I was at the Masterpiece London Art Fair in July and was struck by how busy it was. Many dealers reported brisk sales, including a Lynn Chadwick sculpture that a London-based collector snapped for just under GBP2m.

Across the Atlantic, the GJC fund is setting up an entity in Delaware to tap into the large private wealth market in the US.

It’s unclear how the art market will be affected as interest rates start to rise. However, we expect to see continued strong demand for art finance.

Get in touch to see how our expert team can help you unleash the potential of art investments.

Why Intertrust Group?

  • We are recognised as a leading service provider for esoteric asset classes, such as art finance and sports financing
  • Our broad service spans funds, private wealth and capital markets across multiple jurisdictions
  • Intertrust Group is a publicly listed company with 70 years’ experience providing world-class trust and corporate services to clients around the world