A Look at Art Finance Over The Decade—With Cynthia Sachs

In April of 2019, Yieldstreet acquired art-based lending company Athena Art Finance. Enter Cynthia E. Sachs, a Managing Director at Yieldstreet and the Chief Investment Officer of Athena Art Finance. Cynthia has over 25 years of asset-based lending and high-yield corporate credit experience across debt origination, structuring, portfolio management and trading (par and distressed). Prior to Athena, Cynthia ran Morgan Stanley’s global proprietary corporate credit platform within its Securitized Products Division and was a Managing Director at Natixis where she ran the Telecom Media & Tech leveraged finance business. On the FinTech side, she created and led Bloomberg’s fixed-income evaluated pricing business, BVAL, from a nascent platform to becoming the global market leader in the bond and loan valuation space. I recently caught up with Cynthia for a brief discussion on all things art finance as we close out the 2010s and look ahead to the 2020s.

What are some of the most significant changes to the art finance industry you have seen over the last decade?

I would say the evolution of art finance has centered around the need for more information and transparency when conducting financial transactions. Athena looks seriously at the unique risks in art finance, and has created proprietary methodologies and data analytics in a way that replicates those used in other mature asset classes. This helps us stay focused and disciplined in making sound investment decisions for our investors.  Historically, there was less desire and need to do such detailed due diligence as art lending was typically done in a fairly unsophisticated way. The main investment thesis had simply been to know if the art was tradeable through the major auction houses – a stamp of approval, if you will – and, if so, there was a loan to do. Now, in terms of sophistication, we have set the benchmark and have added institutional credibility that, quite frankly, hadn’t existing before Athena’s entry into the art lending space. 

In other areas of the market—real estate, banking, healthcare—the last ten years was, in a way, defined by the financial crisis. What effects did this have on the art world?

It has had a very significant impact. Post financial crisis, with increased regulation and extremely low to negative interest rates globally, we’ve experienced a decade long mega event that boosted many less traditional asset classes as investors hunted for higher yields. In many cases, investors rotated out of low yielding financial assets like bonds and ventured into physical assets, like art. This demand shift has greatly impacted valuation growth, particularly in the high-end, blue chip segment of the art market. I’m talking Basquiat, Hockney, and Bradford where we have seen 10-year Compound Annual Growth Rates (CAGR) in the 20-30% context. 

It seems the greater access to data and the ability to analyze it has been a real benefit to the overall industry.  Do you see that growing over the next decade and, potentially, evolving the consumer side of the business?

I do. As technology and data continue to progress, they will only help consumers as more accurate data leads to more confident decision making. The more historical data we have to back test, the more valuable our models become. Leveraging the growth of data and looking into the future is beneficial for all art buyers. It’s just a matter of the depth and breadth of the art market, along with the strength of the global economy, given art is a discretionary, and oftentimes luxury purchase.  I think that once the art market accepts that the combination of data and credit is a healthy evolution, it will naturally lead to higher confidence and more transaction volume. With that, valuations for top artists will continue to get a significant lift. People will be more comfortable investing in art, essentially making historically hard decisions much easier.

When I think back to the last decade, another buzz word that starts with a “T” comes to mind, transparency. The art world is not known for being the most transparent. As the world has become much smaller and more connected, how has this affected the art world? 

People are getting much smarter. The younger generation, that is now investing in art, is accustomed to having transparency with their other assets, as with all the goods and services they purchase on a daily basis. Buyers today demand and expect transparency, and they will require the same for art.  On the supply side, the art market was delayed because of its inherent lack of public data and desire to keep information and transaction details private. It’s now an issue being actively explored and there are many initiatives that will raise the bar to the same level as other industries over time. I think it’s a natural evolution and a healthy one at that. The more transparency you have, the more players you will attract, which will only help to expand the market. 

Speaking of the market players, what have been some of the more significant developments over the last decade in the art market?

One of the most significant developments, in my opinion, actually occurred fairly recently—that being the go-private sale of Sotheby’s, which will be a game changer. Sotheby’s was a leader in the art market duopoly, with Christie’s. Now, under new ownership, it seems they are reevaluating the traditional auction house model and will be looking at the art market from a very different perspective. From what I can tell, Sotheby’s seems to be taking stock in its ubiquitous brand and the overall digital landscape of secondary market trading in a way that will create a new paradigm. I don’t know what this will exactly look like, as it’s in its infancy, but it will absolutely shape how the art market evolves into the new decade.  

How has the art show/event scene changed over the last decade? Where do you see it going in the next 10 years?

A lot of the art shows have a done a good job vetting the gallerists to ensure that only the most credible ones are exhibiting. The fairs that are particularly discerning are where you can feel the most comfortable. In particular, the Armory Show in New York attracts a strong crowd and has grown massively. It feels like there is an Art Basel show at every turn throughout the year. The art market was historically active only a few times per year, dominated by the auction houses in the spring and the fall. Today, art collectors have the ability to transact pretty much all year round. The attraction to these fairs is really quite phenomenal. The sheer number of people that attend, either as a passion or for investment, creates an exciting atmosphere for the art market to transact. As I mentioned earlier, in relation to the post-financial crisis environment, art had been an under-invested asset class. People are now aware of this and are attracted to the fairs to evaluate a massive amount of art under one roof. More importantly, people just love art and get sheer enjoyment out of the experience.  

Lastly, what are one or two trends that art collectors and investors alike should be aware of moving into the next decade?

The market has been cautiously optimistic the last few years, in that when you look at the top artists traded through the major auction houses and galleries, valuations have gone up materially. Collectors and investors alike will naturally take a pause to understand what has transacted and where, in order to feel confident that the market trend will continue. After all, things don’t go up forever. There is likely a looming bubble that will deflate, to some degree, eventually. This sentiment will continue into 2020, which is shaping up to be quite interesting thanks to the upcoming U.S. presidential election, and other global economic uncertainties— including Brexit and the U.S. trade war with China, which I expect will continue to cause some level of uncertainty and volatility in the art market. 
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