Art & Finance Report 2014 Key Findings€¦ · Art Market offers diversification opportunities...

Art & Finance Report 2014

Adriano Picinati di TorcelloDirector, Advisory & Consulting, Deloitte LuxembourgAnders PettersonManaging Director ArtTactic Ltd.

18 September 2014

Key Findings

The Deloitte / ArtTactic Art & Finance Report 2014

3rd edition of the Art & Finance Report (1st one in December 2011)

About the industry’s evolution in the last 18 monthsThe report investigates the perceptions and motivations among wealth managers,art professionals and art collectors related to art as an asset class. It’s abarometer for the Art & Finance industry.

• Survey of 35 private banks and 14 family offices• Survey among 122 art professionals (galleries, auction houses and art

advisors) and 90 important art collectors• Interviews with U.S. and European art funds, as well as public records on art

investment trusts and art funds in China• Interviews with 11 key opinion formers in the Art & Finance and Venture

Capital industry

Legal Matters: A new section in the report on the legal trends and challengesfacing the art market and the Art & Finance industry. Opinions from the toplawyers in the field.

What is it?

Purpose

Methodology

New this year

2Art & Finance Report 2014 - Key Findings

Agenda

Global wealth and the art market

Art and wealth management survey – Key Findings

Art as an investment

The online art industry

Legal Trends and Challenges

Summary


Global wealth & the art market


Growth Drivers

Global wealth trends 2012 - 2013

Global $27,770 billion199,235 +7.7%+6.3%

$$

North America $9,680 billion70,485 +9.0%+7.9%

Europe $7,675 billion58,065 +10.4%+8.7%

Latin America $2,110 billion14,150 -3.4%-4.1%

UHNWI Population & Wealth

Asia $6,590 billion44,505 +5.4%+3.8%

Middle-East $880 billion5,300 +23.9%+15.3%

Source: Wealth-X and UBS – World Ultra Wealth Report 2013Source: Deloitte Luxembourg & ArtTactic Art & Finance Report 2014


5

Art market trends 2000 -2014

Post-Lehman Collapse

Start of the Chinese art market boom

Record year for Post-war and contemporary

Start of the US & European art market boom

Chinese art market correction

0,2 0,2 0,2 0,2 0,4 0,6 0,7 0,6 0,6 0,71,6

2,21,5 1,8

0,80,3 0,2 0,3 0,2 0,20,3 0,5 0,6 0,4 0,4

0,40,3

0,5 0,4

0,50,5 0,6 0,7 0,6

1,2 1,11,5

2,2 2,30,9

2,21,7

1,92,1

2,0

0,3 0,3 0,4 0,4

0,60,9

1,3

2,2 2,6

0,8

1,72,1 2,7

3,4

2,7

$1,27 $1,28 $1,52 $1,40

$2,39$2,82

$3,97

$5,62 $5,91

$2,88

$5,82$6,27 $6,64

$7,68

$5,98

$-

$1,0

$2,0

$3,0

$4,0

$5,0

$6,0

$7,0

$8,0

$9,0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 1stHalf

Bill

ions

Christie’s and Sotheby’s Auction Sales by Category 2000 -2014 (US$)

Chinese Art Old Masters Impressionist & Modern Contemporary

Source: Deloitte Luxembourg & ArtTactic Art & Finance Report 2014


US & EUROPE: Wealth and Art Market Trends and Outlook

$9,680 billion70,485

+9.0%+7.9%

Allocation to Treasure assets

UHNWI Population & Wealth 2012/13

9%

North America

$7,675 billion58,065

+10.4%+8.7%


6-14%

Europe

Auction sales trend2012-2013

Confidence trend2012-2013

Market direction 2014/2015

24%

18%

62%

38%

0%

WEA

LTH

AR

T M

AR

KET


Outlook 5yrs

+3.9%+5.0%

Outlook 5yrs

+2.3%+3.7%


7Art & Finance Report 2014 - Key Findings 7

CHINA: Wealth and Art Market Trends and Outlook

$1,515 billion10,675

-4.1%-5.1%



17%

China

Auction sales trend2012-2013

Confidence trend2012-2013

Market direction 2014/2015

59%

9%

45%

52%

3%

WEA

LTH

AR

T M

AR

KET


Outlook 5yrs*

+5.9%+8.5%

*Asian growth outlook

8Art & Finance Report 2014 - Key Findings 8

Art market risk factors

Market speculation Geo-political risksArt market infrastructure risksObject specific risks (authenticity, defective title etc.)


Wealth Management Survey


Key Findings

Massive Wealth held in Art Assets & Spending on Art continues to gather pace

* The Wealth Report 2014 by Knight Frank

US$1.5 trillionand growing

Among Collectibles : Art is seeing the biggest jump in popularity*

A net balance of 44% of wealth managersbelieve their clients will continue to buy art inthe future*(Europe 46%, Latin America 86%, NorthAmerica 34%)



Collector motivations should drive services around art and wealth management

Why do you buy art?

The wealth management industry should look at developing art related services that satisfies the emotional, social and financial needs of their clients

Which of the motivations are most important when buying art?

40%

44%

60%

83%

47%

37%

61%

78%

0% 20% 40% 60% 80% 100%

Investment Returns

Portfolio Diversification

Social Value

Emotional Value

2014

2012

Source: Deloitte Luxembourg & ArtTacticArt & Finance Report 2014

More collectors are buying art for passion withan investment perspective


Wealth managers, Art collectors and art professionals are increasingly convinced about the role of art in a wealth management offering

• Wealth industry is increasingly focusing on client-centric value propositions to cultivate loyalty

• Wealth managers say that their clients are increasingly demanding help with art related issues

Do you think art and collectibles should be part of a wealth management offering?

Wealth managers Art collectors Art Professionals

55% 62% 76% Demand for art related services

11%38%33%

2011 2012 2014

• Wealth managers also say that wealth protection and diversification are highly relevant to include art in wealth management Source: Deloitte Luxembourg & ArtTactic Art & Finance Report 2014


Strong engagement with art from Private banks and family offices

Which of the following services do you offer?

22%

22%

11%

22%

78%

67%

56%

67%

44%

11%

9%

30%

22%

43%

39%

17%

61%

83%

39%

43%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Art / Collectibles investment funds

Art advisory (buying / selling art)

Art valuation

Art lending / Finance (using art as a collateral forloans)

Art philanthropy / Individual giving to the arts (gifts,donations, etc.)

Art collection management

Estate planning (Incl. Inheritance and successionplanning)

Client entertainment (private views, art fairs,museum exhibitions)

Client education (seminars, conferences on art / artmarket)

Sponsorship

Private Banks Family Offices

81%

Do you currently offer some kind of art-related service?

57%

73%

Private banks

Family Offices



Services related to the artworks are more likely to be provided by a third-party providerWhich of the services do you offer in-house or 3rd party?

Triangular relationship: wealth manager – client – art professional

Collaboration between wealth managers and art professionals


More strategic focus on art as an asset class among wealth managers

Services in the area of art protection are most likely to develop the faster

• Art and Estate Planning

70%

• Art & Philanthropy

42%(63% of the family offices and 36% of the private banks)

• Art lending

40%

Confidence - Which services will you focus on in the next 12 months?


Growing demand for using art as a collateral

Banks offering art secured lending

22%36%27%

2011 2012 2014Clients demands of art secured lending

46% 48%41%

2011 2012 2014

£6bn £15-20bn

Art Lending Market

*Source: , Robertson Taylor W&P Longreach

Today’s estimate*

Future estimated potential


Art professionals demands of art secured lending

42%66%53%

2011 2012 201417Art & Finance Report 2014 - Key Findings

Wealth managers need to listen to their clients’ needs to develop their art wealth management offeringWhich of the following “art and wealth management services” do you feel would be most relevant?



Lack of regulation remains the key issue for wealth managers

72% 83%

2011 2012

61%79%

Transparency: Lack of information and research

Expertise: Difficult findings the right external expertise

Key challenges in offering art related services

57%

2014

70%

2011 2012 2014

50% 54%57%

2011 2012 2014

A certain level of regulation in the art market would not only be helpful for the Art & Finance industry, but also for the art market as a whole



Freeport Luxembourg - competence centre for the Art & Finance industry

Freeportshave the potential to become important hubs for the art and wealth management industry

Regional competence centres for tangible valuable assets

What type of services would be useful as part the Freeport eco-system?

57%

37%

41%*

Would you advise existing clients to use a Freeport?

Would you use a Freeport to manage clients art and collectible assets ?

Would you create a new or expand on an existing art and collectibles service offering as a result of freeports?

* 53% were PBs and FOs in Lux

Source: Deloitte Luxembourg & ArtTactic Art & Finance Report 201420Art & Finance Report 2014 - Key Findings

Art as an investment


Art performance & the art fund industry

Art Market offers diversification opportunities despite underperforming equities in 2013

• Mei Moses® World All Art Index (All Art-W) reports a negative performance in 2012 (-3.28%) and 2013 (-1.3%). However some collecting categories generated positive performance in 2013

• The 10 year CAGR for All Art-W was 7%, just below S&P500 total return of 7.4%. However, post-war and contemporary art return was 10.5% and Chinese works of art was 14.9%

• Low correlation or negative correlation with S&P for the last 10 and 40 years



Mixed confidence in the future of the art fund industryGlobal art investment fund market 2011 – 2014 1st half

• The global art Investment fund industry consolidates around existing art funds that can demonstrate track record for investors

• Modest growth in the USA and Europe as existing art funds raise new capital

• The Fine Art Fund Group accounts for ~ 60% for AUM Europe and US

• Europe accounts for ~ 80% of US and Europe AUM

• Stricter regulations on trusts introduced in China in 2014


Wealth managers remain still very cautious

67%

56%

39%

61%

44%

78%

78%

83%

53%

60%

63%

67%

70%

77%

77%

80%

52%

55%

58%

70%

70%

69%

78%

82%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Lack of knowledge about the art market

Lack of an independent art investment council organization that promoteguidelines?

Art Fund industry still too small (not enough art funds)

Unregulated market

Lack of track record for this asset class / art funds

Valuation – lack of mark-to-market valuation

Lack of liquidity

Due diligence - Difficult to assess the art fund viability

2014

2012

2011

Issues such as due diligence, lack of liquidity, valuation, lack of track records and unregulated market weigh negatively on these types of investment products



….but the majority of art professionals and art collectors believe the art fund industry will expand in the next 2-3 years

55%

57%

68%

57%

51%

62%

50%

52%

54%

56%

58%

60%

62%

64%

66%

68%

70%

2011 2012 2014

Art ProfessionalsArt Collectors

• New art fund art advisory models could become service platforms for the wealth management industry

• Art funds incorporating both the social, emotional and financial aspects of investing in art could become models of the future


Do you believe the Art Fund industry will expand in the next 2-3 years ?


The online art industry


The impact of technology and the online art market on the Art & Finance industry

Trends in the online art industry

M&A activity picks up as the online industry matures

+Strategic partnerships:

+M&A activity: acquires

acquires

Investments:

$6m series B $18.5m series B $47m series A/B



In what way will online art business affect art as an investment?

• Online art businesses crucial in democratizing and broadening the existing collector base, which is likely to lead to improved market liquidity.

• Online art businesses can help improve the valuation of art and collectibles:

• Online art businesses are likely to drive down transaction costs as competition increases

• Art professionals and collectors divided over importance of online in creating more art market transparency

• Online information and education important for the art and finance industry

38%

33%

55%

73%

43%

48%

40%

31%

37%

47%

51%

52%

56%

64%

0% 20% 40% 60% 80%

Increasing demand for artinvestments

Leading to a more regulatedmarket

Creating more transparency

Information and educating

Improving valuation

Reduce transaction cost

Creating more market liquidity

2014 Combined

2012 Combined

How important do you believe online art businesses and new technology will be in the following?


What online business models do you believe will succeed in the future?

• Opportunities in data, research and analysis as art market is increasingly looking for better tools when making informed decisions

• Online art businesses can help improve the valuation of art and collectibles

• Online art and collectibles auctions expected to grow in the e-commerce race

• Disintermediation shows untapped potentialOnline information and education important for the art and finance industry

• Art Professionals show particular interest towards the future of online Dealer-to-Dealer (B2B) platforms for exchanging inventory

30%

31%

33%

48%

52%

64%

68%

74%

89%

37%

17%

34%

43%

52%

55%

65%

73%

89%

0% 20% 40% 60% 80% 100%

Online Consumer-to-Consumerexecution platforms (C-2-C…

Online Art fairs

Online Art Investment Exchanges/ stock markets for art

Online Galleries

Online Dealer-to-Dealer executionplatforms (B-2-B network)

Online Communities / SocialMedia / Forums

Online Education

Online Auctions

Online Information, Data,Research and Analysis

2014

2012

Which online business models do you believe will succeed in the future?Source: Deloitte Luxembourg & ArtTactic Art & Finance Report 2014


Legal matters


Legal trends and challenges facing the Art & Finance industry

Legal Trends

• Regulatory structure: Art market falls short of meeting the legal expectations of an asset class

• Protecting investors: French Financial Market Authority regulates art investment fund products to protect investors

• Auction guarantees raises questions around transparency and market distortion

• Authentication: Absence of clear authentication processes and authentication bodies can make the acquisition of genuine art extremely hard to establish.

• Due diligence and carefully drafted warranties in sale and purchase agreements of artworks can afford some level of protection to the unsuspecting investor in today's art market.

• Art secured lending and allowing the borrower to keep possession of the art work




In summary…

• Wealth creation drives art market growth, a global art buying trends indicate a continuous accumulation of wealth in art and collectibles and an opportunity forwealth managers to provide art and wealth management services

• As competition in the global wealth management industry increases, there is an increasing focus on client-centric value propositions, including art-relatedservices for UHNWIs. Wealth managers can provide access to exclusive social networks

• More collectors are buying art for passion with an investment perspective

• Wealth management industry is taking a more strategic view on art as an asset class: Art and wealth management is currently the area where we see the strongest interest, boosted by the rapid rise in the value of art and the increasing accumulation of art and collectible wealth

• Services in the area of art protection are most likely to develop the faster: Art and Estate Planning - Art lending - Art & Philanthropy

• Art secured lending market will continue to grow as more providers are entering the market and as the insurance industry starts providing new products to insure unwanted risks

• The art investment fund market remains a niche sector of the art and finance industry and may have to rethink its current model

• Freeports have the potential to become important hubs for the art and wealth management industry

• Lack of regulation remains a key obstacle: the overriding challenge for the development of the Art & Finance industry remains the unregulated nature of the art market, combined with a lack of transparency and difficulties in sourcing and finding the right art-related expertise

• Authenticity issues and defective title raise the need for an international art market register and traceability of artworks

• New tools created by technology-driven companies and online market places will undeniably play an increasingly important role in the art and finance industry in terms of higher transparency, lower transaction costs and increased market liquidity

Art & Finance Report 2014 – Key Messages



Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.

Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and deep local expertise to help clients succeed wherever they operate. Deloitte's approximately 200,000 professionals are committed to becoming the standard of excellence.

Copyright 2014 ArtTactic Ltd, All rights reserved. Any unauthorized use or disclosure is prohibited. This report has been prepared and issued by ArtTactic Ltd. The information herein was obtained from various sources; we do not guarantee its accuracy or completeness

*Neither the information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any works of art related to the artist in this report. This research report is prepared for general circulation and is circulated for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. You should seek specialist advice regarding the appropriateness of buying or selling any works of art or the strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investors should note that income from buying works of art, if any, may fluctuate and that each work of art’s price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance. Foreign currency rates of exchange may adversely affect the value, price or income of any security or related investment mentioned in this report

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