Art collectors are increasingly looking for ways to monetize their collections without having to dispose of their art. The art-secured lending market is becoming more widely accepted by both lenders and art collectors. Given the growing activity of art-secured lending within the art world this practice bears its collection of risks which a leading professional service firm, can help with. Main drivers of growth in the last few years have been:
- appreciating value of art
- growth in the contemporary art market
- asset-rich clients with limited cash flows
- improving liquidity and transparency of the art market
The US has been the leader in the art secured lending arena notably because of a favourable legal environment provided by the Uniform Commercial Code (UCC) which notifies third parties that the collateral is encumbered. In the absence of a similar code, European based lenders are finding innovative ways to provide art-secured loans using insurance products, freeports, registering of security interests over chattels and also the ability to leverage against works of art in exchange for the right to place their star pieces on loan with major art institutions and museums.
The art-secured lending market remains dominated by private banks1 servicing primarily their existing clients who already have assets under management (AUMs) with the bank and do not lend purely on the credit worthiness of the borrower. Leading auction houses have moved into the art-secured lending space. Sotheby’s Financial Services is the largest such player in the world1 and in addition to providing finance primarily as a tool to attract consignments, this is also treated as a standalone business. New specialized boutique lenders usually backed by private equity or family offices are emerging in the US and Europe and offer more bespoke services of a smaller scale.
1 Source: Deloitte Luxembourg & ArtTactic Art & Finance Report 2016
Article written by Victoria Kisseleva, Deloitte UK. Should you wish further informations on this topic, please contact us.