New to Art Finance? Read below to learn more.
Art Finance is debt-based lending with art as the collateral backing the loan. This is similar to real estate investments on the Yieldstreet platform—investors looking to acquire new real estate will use a property as collateral to help them get a loan.
The Deloitte Art & Finance report gives a number of key insights into the history and potential future of Art Finance. It suggested that about $1.62T worth of art is held privately, and that number is expected to continue to increase. With 88% of wealth managers suggesting that art acquisition should be part of a wealth management strategy, the art market is growing—especially in the US, UK, and now China. And Art Finance is just scratching the surface—the industry has an estimated value between $17–$20B according to the report.
Further, Art Finance is uniquely positioned as an asset with typically low stock market correlation—smart investments in art often weather market downturns well. Blue-chip works by universally appreciated modern artists with strong provenance such as Jackson Pollock or Roy Lichtenstein have a high value and can retain a surprising amount of value, remaining stable during a downturn.
There are three main types of borrowers within art finance: collectors, art dealers, and corporate clients.
Collectors who use art as collateral can have many reasons. For some, it’s a matter of leveraging a current piece to acquire more pieces, paying off the loan over time. Others are looking for sheer liquidity. Collectors are unique. Often art pieces aren’t seen as just an investment, but as an expression of a passion, and can serve as a multi-generational asset.
Another borrower type is art dealers. Banks typically have narrow criteria for issuing loans. A dealer’s lumpy cash-flows and asset/liability mismatches mean they often don’t fit into that narrow criteria. This is where a data analytics approach can help evaluate assets and risks, allowing a more flexible borrower profile.
And lastly, borrowers can also be corporate clients, or trusts and estates, and their borrowing activities can essentially provide them with liquidity.
There are specific criteria for the types of art pieces that can be used as collateral. We generally look for blue-chip art from established artists with established provenance. The targeted maximum loan-to value ratio of 50%. The artwork is evaluated by in-house or independent appraisers. These criteria aim to confirm the value of the collateral and to make sure the loan is protected.
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