Art is a prestigious, secure, and profitable investment. It is also often expensive, and accessing its trapped capital has traditionally required selling, and losing, the artwork. Not anymore. Clemence Petit, Business Development Manager at Falcon Fine Art, describes how sophisticated art financing allows collectors to capitalise on the value of their artwork without the need to sell.
Prestigious and cherished – with historical as well as aesthetic worth – fine art can have extraordinary value as an asset. What’s more, it has the enviable ability to become more valuable as time passes – something yacht investors, who often see their assets decrease in value over time, will appreciate. Moreover the art market – valued at US$63.8 billion in 2015 – is robust, and continues to set new records. The record-breaking sale at auction of Picasso’s Les Femmes D’Alger in 2015 – which sold for a cool US$179 million – has been well-documented, but last year also saw the sale of Modigliani’s Nu Couché for nearly the same amount (US$170 million). 2015 also witnessed the eye-watering private sales of two of the most expensive artworks ever sold – Gauguin’s When Will You Marry, painted in 1892, and de Kooning’s Interchange – each selling for around US$300 million.
Parting with art
That said, these paintings are exceptions. While some of the most prestigious and coveted artworks will never have difficulty selling, not everything will observe the same level of appetite. Indeed, while strong and globalising – as buyers from the Middle East and Asia turn their attention to Western art – the art market can also be fickle. Art collecting – while certainly a sound investment strategy – is chiefly dictated by passion and taste, which, of course, makes the market harder to predict. What’s more, fine art is often purchased for its status and prestige. The market is thus swayed by fashion, with even an artwork’s provenance – where it has previously been displayed – impacting its value. This means collectors face a conundrum: while the investment potential of art as an asset cannot be denied, what happens if they need to access the liquidity of an artwork at a poor time to sell?Moreover, what if it is a good time to sell but the collector suspects that holding on to the artwork as the price increases could be wiser? Or, if it is a good time to sell but the collector, quite simply, does not want to part with an artwork they love?
To sell or not to sell?
The solution? Not selling. Art financing offers a different way for art collectors to access the liquidity of an artwork, allowing them to monetize their art by using it as collateral. Doing so provides collectors with the flexibility to choose when (or if) to sell their artwork, while still accessing the capital it is worth. Crucially, art financing allows investors to diversify investment portfolios. The desire to add to an art collection can be catered to through the money raised by art. Indeed, the money raised can be used for a range of investments – previous Falcon Fine Art clients, for instance, have even used the capital raised to purchase a yacht. As such, an investor need not reach into their own pockets, or dip into other investments.
Keeping the art
Certainly, art financing is a popular initiative across the US, where it is a well-established industry, and Europe is picking-up on the trend. Private banks and family offices are increasingly providing art financing solutions – or helping clients access such solutions through external parties – although a collector must, of course, already be a client. Similarly, auction houses will provide solutions that enable collectors to monetize their art, but generally only while it awaits a sale. Finally, there are firms emerging across the continent that focus solely on art financing solutions, creating bespoke arrangements on a case-by-case basis. They do not require collectors to be existing clients, they do not ask for other assets and, crucially, do not require the collector to sell. What’s more, while, for the most part, art financing still requires collectors to party temporarily with their artwork by placing it into storage, some of the more specialised art financing firms have created solutions that allow collectors to keep their artworks on display in their homes during the financing period. Falcon Fine Art – launched in late 2014 – is pioneering such an approach across Europe. Clearly, while fine art is a cherished asset of potentially immense – and often appreciating – value, it can be a tricky asset to manage and even harder to monetise. Thankfully, the rise of art financing removes that conundrum – ensuring collectors can invest in art and still access its liquidity whenever they need to, without the need to sell a single piece.