Leverage Your Art
26-06-2015
Artwork is not only bought for appreciation, but is also one class of investment for collectors. Art Finance is a relatively new financial service to accommodate art as a growing asset class. The borrower may leverage their artwork in a similar way to when you obtain a mortgage. Popular among dealers and private collectors, this service eliminates the need to sell the art in order to gain capital. Art Finance is booming in Europe and America and Hong Kong is becoming aware that artworks can be used as an alternative investment. The founder of Macey and Sons Auctioneers and Valuers, Jonathan Macey, says the purchase power would not be affected by economic cycle.
According to the Europe Art Foundation report, there are over 210,000 ultra-high net worth people around the world and the total value of their assets is US$29.7 trillion, of which approximately US$26 billion is invested in art. Art can show personal taste, the value of artworks will remain stable and there is high potential for artworks from blue-chip artists.
Picasso’s Les Femmes d'Alger (Version “O”) realized US$179,365,000, achieving a world auction record for any work of art, during the Looking Forward to the Past Evening Sale in New York in 2015. The seller bought the painting in 1997 for US$32 million, showing the market price has increased by 4 times in 18 years. The market price will continue to increase and reach a new peak in the next 10 years as this art work is a master piece. Macey says, the British royal collections accumulated a large number of eighteenth-century artworks and antiques, and they indirectly led to the development of the local art market, both by acquiring the artworks and supporting artists from hundreds of years ago.
High Potential in the Hong Kong Art Market
Old Masters (15th Century to 18th Century classical painters) have good sales records in both London and New York, but not in Hong Kong. The reason for this is that the Hong Kong art market has still been developing over the last 30 years. Being an art curator has become a fashionable profession in Hong Kong and Macey believe that the art market here will boom in the next 30 years. Macey has opened his business in Hong Kong and many of his clients are local individual and family collectors.
Macey states that the Hong Kong art market has high potential as they will soon establish the M+ museum, and increasing numbers of people are getting involved in the art world. An artwork painted by Sheng Shan Shan; a Chinese artist from America, was recently sold to a passing guest after hanging on the wall for just 5 minutes. [Art Investment requires investors to collect pieces from historical artists, but do the due diligence and understand the seller’s background and portfolio. The holding period should be 3-5 years or above.]
Art Finance is booming in Europe and America
In Europe and America, art investment is expanding into the financial industry with investment banks, such as JP Morgan, keen to run their own art financing business. Even Sotheby’s has established a financing department to provide their customers with loans for their art. A German art lender has advised that they charge 9% interest per annum for the duration of the loan. They will only accept 20th Century artists with 20 years of trading records to ensure the liquidity of artworks. Another lender from London says that the loan value will not be higher than the estimate price of the painting.
According to the report from Deloitte and Art Tactic, there are around 72 active art funds in the market. Due to the circulation of the art market being lower than the stock market, these funds are mostly listed as close-ended, which locks the investor funds in for a year or more with a minimum entry level of HK$ 1 million. Some funds will lend the artworks to museums or gallery’s to earn rental or turn them into a commodity to sell, whilst others will send the artworks to the funds investors for them to display in their home or office.