Heightened appreciation of art as an asset class
“For wealth managers, competition is no longer the main motivation for including art in traditional wealth structuring: the key driver is client demand”, explains Adriano Picinati di Torcello, directeur at Deloitte Luxembourg coordinating the Art & Finance practice.
In the light of the current economic situation, investors are seeking to diversify their portfolios, looking at tangible assets alongside equities and bonds. This is a trend the private wealth management industry cannot ignore, considering that clients are sitting on an estimated US$4 trillion of treasure assets.

As many as 43% of the wealth managers surveyed said they were strongly aware of the developments taking place with regard to art as an asset class, up from 33% in 2011. A majority (60%) of wealth managers believe that we will see even stronger demand in the future for ‘collectible and emotional’ assets. The Deloitte ArtTactic Art & Finance Confidence Indicator - an annual barometer for wealth managers’ sentiments towards art as an investment, art secured lending and the general economic environment in the next 12 months - confirms this positive outlook: from 2011 to 2012, the indicator rose by 32% up to 42.3.

The increasing value of art is triggering the need for new wealth management services to protect, enhance or monetize this value
As a consequence of changing client demand, the role of art in wealth management is evolving and moving from client entertainment to art wealth management services, with only 27% of the wealth managers seeing client entertainment as a primary motivation in the future.
In addition to that, private banks will increase their focus on art and philanthropy in the next two to three years, confirming that this is clearly a growing area of interest for wealth managers. With significant sums involved in the intergenerational transfer of wealth (financial and non-financial assets) that is taking place, wealth managers will increasingly have to offer advice regarding art legacies and the most effective way of preserving their emotional, financial and cultural value.

However, not only wealth managers but also other stakeholders, such as governments and collectors, are reacting to the evolving art and finance industry. One example is Luxembourg’s new freeport dedicated to fine art, wine and collectibles, which is scheduled to open in the third quarter of 2014 and is likely to act as an impetus for the financial services industry in Luxembourg to consider art as part of their service offering.
Another example is the rising tendency for collectors to use their art collection as collateral for loans: 41% of collectors state that they would use their collection for this purpose. When asked their motivation for using art as collateral, 36% of collectors would use it to invest in other business activities, 39% to buy more works of art and 18% to refinance other loans.

Global art investment fund market increasing, mainly driven by China
Despite the significant drop in art market sales in China, the Chinese market gave the main impetus for the growth of the global art investment fund market in 2012, which managed to register an increase of 69%, reaching a conservative estimate of US$1.62 billion at the end of the year. Last year, an estimated amount of 83 art funds and art investment trusts were in operation, among which 58 have been set up in China since 2009.
While none of the banks surveyed in 2011 was looking at adding art investment funds to its investment platform in the next two to three years, the latest survey suggests that 18% believe it is likely or very likely that they will include art investment funds as part of their bank’s product platform in the next two years.

Global online art industry developing at a quick pace
The strength of the traditional art industry cannot be appreciated without the recent hub of activity in virtual space: the art world is moving towards the Internet. More than 300 online art ventures have been launched in recent years, covering segments such as data, information and research, social communities, auctions and galleries, business-to-business and consumer-to-consumer art transaction platforms. This is a development from which the industry can only benefit, as Thierry Hoeltgen, partner and co-leader of the Art & Finance practice at Deloitte Luxembourg, confirms: “New online transaction platforms add liquidity to the art market and will broaden the scope and depth of art market data available, which in turn will improve transparency and facilitate more accurate art valuations.“

Convergence is as key development
Clients consider art as both a passion and a financial investment. What emerges from the report is a gradual convergence in the motivation and interests of key stakeholders in the art market and wealth management community as regards art as an asset class. As Vincent Gouverneur, partner and co-leader of the Art & Finance practice at Deloitte Luxembourg alongside Thierry Hoeltgen, explains:“Client demand is opening up possibilities for closer collaboration between wealth managers and art professionals: wealth managers should consider integrating art into their service offering to meet clients’ needs, and collaborate with art professionals who are requested to provide services that focus on the financial aspects of transacting and owning art.”

The complete version of the report, which has recently been presented at the 6th annual Art & Finance conference in front of an audience of 200 professionals, can be downloaded from the Deloitte Luxembourg website, at www.deloitte.com/lu/whitepaper/art-and-finance-report/2013.