SDA Bocconi – November 2013
Art Banking 10 anni dopo Come è cambiato il mondo dell’art advisory nella prospettiva del private banking
© 2013 Deloitte Tax & Consulting SDA Bocconi – Art Banking 10 anni dopo – Nov 2013 2
Agenda
Art and Wealth Management
Wealth Management Survey – Key Findings
1
2
Cases studies 3
© 2012 Deloitte Tax & Consulting
Art and Wealth Management
© 2013 Deloitte Tax & Consulting SDA Bocconi – Art Banking 10 anni dopo – Nov 2013 4
Environmental Changes: Private Banking / Wealth Management
A move from a financial
definition to a more
holistic human definition
(e.g. individuals with
needs and goals)…
$$ €€
…to include a proactive
business acquisition
model in a competitive
environment and signify a
move away from product
distribution to a service
partnership
$$ €€
• Tax optimized solutions
• Vehicles customized to clients
needs
Key drivers the PB can work on
• Tax reporting
• e-Private Banking
• Risk and performance
Broader financial engineering solutions 3
• Diversification of products
• More complex solutions
Increasing expected service level 4
• Evolution of the client behavior
and expectations
• RM mobility
• Redefine wealth from money to
well-being: helping clients
realize a more fulfilling life
• Align life passions with financial
goals
Reporting capabilities 2
Tax and wealth structuring 1
There is a need for new client relationships and new solutions – tangible assets being one of them.
© 2013 Deloitte Tax & Consulting SDA Bocconi – Art Banking 10 anni dopo – Nov 2013 5
Environmental Changes: Distinctions Family Offices / Private
Banking
Asset type • Dealing with diverse assets (e.g. real estate,
art investments, Philanthropy) & family needs • Dealing with financial assets
• Wealthy families across the generations • Individuals (wealthy and retail)
• Total wealth management • In-house portfolio management
• Neutral advice on different products and
services
• Generally oriented to own products
in the interest of the bank
Family Office Private Banking
Client
Advisory focus
Product
• International wealth clients’ needs are becoming more complex, placing very strong service demand on
private banks, including non-banking services such as tax optimization, structuration, succession
planning, art & philanthropy planning
• Family Offices offer a favorable framework to serve clients demand for neutrality, flexibility and
exclusivity
• As they cover different aspects like tangible asset management, intergenerational planning and
philanthropy issues, Family Offices are well-suited potential players in the art & finance environment
Family Offices’ multidisciplinary approach combines the needs of different generations
© 2013 Deloitte Tax & Consulting SDA Bocconi – Art Banking 10 anni dopo – Nov 2013 6
Source: Deloitte Research
Overview of current art banking services
Corporate
Art
Collection
Fine Art:
Painting,
Antiques,
Scuplture
Diamonds
Fine Wines,
Cigars
Archives,
Rare Books
Fine
Jewellery
Art
Philanthropy
Art
Sponsoring
Client
entertainment
Collection
Management
Wealth
Structuring
Art
Investment –
Front office
Art
Investment –
Middle & Back
office
Art Insurance
Product
development
& Research
Investment
banking
(corporate
finance)
Art Secured
lending
© 2013 Deloitte Tax & Consulting SDA Bocconi – Art Banking 10 anni dopo – Nov 2013 7
Art advisory &
philanthropy services
Art financing services
Art investment services
Development of non
financial lifestyle services
Art to be turned into a
working asset
Art a new alternative asset
class
3
2
1
Art-related services grouped in three different categories
© 2012 Deloitte Tax & Consulting
Wealth Management Survey – Key Findings
© 2013 Deloitte Tax & Consulting SDA Bocconi – Art Banking 10 anni dopo – Nov 2013 9
The Deloitte / ArtTactic Art & Finance Report 2013
2nd edition of the Art & Finance Report (1st one in December 2011)
About the industry’s evolution in the last 14 months
The report establishes the perceptions and motivations related to art as an
asset class, as well as the current involvement with art and future
expectations
• Survey of 30 private banks predominantly in Luxembourg, but also in
Spain and Poland
• Survey among 112 art professionals (galleries, auction houses and art
advisors) and 81 important art collectors (up from 48 in 2011)
• Interviews with U.S. and European art funds, as well as public records
on art investment trusts and art funds in China
• Interviews with key figures in the Art & Finance industry
Launch of the Deloitte ArtTactic Art & Finance Confidence Indicator, an
annual barometer for wealth manager sentiment towards art as an
investment, art secured lending and the general economic environment in
the next 12 months
What is it?
Purpose
Methodology
A new tool
© 2013 Deloitte Tax & Consulting SDA Bocconi – Art Banking 10 anni dopo – Nov 2013 10
More awareness of art as an asset class
Source : The World Wealth Report 2012 from Capgemini and RBC Wealth Management states that the total wealth of HNWIs amounts to US$42 trillion.
As an estimate, this would equate to just over US$4 trillion of treasure assets, using the average figure of 9.6% reported by Barclays Wealth, which represents
the share of treasure assets as a percentage of wealthy individuals total net worth
US$4 trillion of
treasure Assets
Wealthy individuals hold an average of 9.6%
of their total net worth in treasure assets
33%
43%
2011 2012
Wealth managers surveyed strongly aware of
the developments taking place with regard to
art as an asset class
% of the wealth managers surveyed aware
of the developments taking place with
regard to art as an asset class
© 2013 Deloitte Tax & Consulting SDA Bocconi – Art Banking 10 anni dopo – Nov 2013 11
Increase in confidence among wealth managers in the
development of the Art & Finance industry
• Increased
confidence among
wealth managers:
the confidence
indicator is up 32%
on the 2011 figure,
from 32.0 to 42.3,
• Economic
uncertainty has
increased client
demand for art and
collectible
investments:
A large majority
(60%) of wealth
managers believe
that we will see
stronger demand in
the future for
‘collectible and
emotional’ assets, as
a result of the current
economic uncertainty
in the world.
© 2013 Deloitte Tax & Consulting SDA Bocconi – Art Banking 10 anni dopo – Nov 2013 12
Financial aspects of buying and holding art are becoming
more important
Art professionals are seeing an
increasing interest in the
financial aspects of buying and
holding art
59% of art professionals said their
clients were motivated by the
opportunities for portfolio
diversification suggesting that
financial motivations are becoming
more important
The emotional value of art is
the strongest motivation for
collectors
83% of the art collectors
surveyed said the emotional
value of buying art was most
important. It is important that
wealth managers recognise
that the strongest reason for
buying and owning art remains
the emotional factor
© 2013 Deloitte Tax & Consulting SDA Bocconi – Art Banking 10 anni dopo – Nov 2013 13
The role of art in wealth management is changing
The increasing value of art is
triggering the need for new wealth
management services
Art is no longer just a client
engagement tool
27%
43%
2011 2012
61%
27%
2011 2012
28% 40%
2011 2012
43% 44%
Wealth managers Collectors
Increasing focus on portfolio
diversification
Succession planning in art is
becoming increasingly relevant
41%
36%
2012 Use
Opportunity to use art collection
as collateral for loans
39%
18%
© 2013 Deloitte Tax & Consulting SDA Bocconi – Art Banking 10 anni dopo – Nov 2013 14
Triangular relationship: wealth manager – client – art
professional
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
© 2013 Deloitte Tax & Consulting SDA Bocconi – Art Banking 10 anni dopo – Nov 2013 15
The Art Fund Industry Landscape 2012
In 2012: 83 art
funds and art
investment trusts in
operation
Global art
investment fund
market =
US$1.62 billion
in 2012, up from
US$960 million
in 2011 58 art funds set
up in China since
2009
Existing art funds
increase funds
under management.
The Fine Art Fund
Group currently has
US$200 million under
management, up
from US$120 million
in November 2011
China’s art
investment boom
slowed in 2012:
US$367 million in
new funds in 2012
(vs. US$506
million in 2011)
The global art Investment fund industry is still a nascent market despite an asset
under management
increase of 69% in 2012
Art and
collectibles funds
– one of the
greatest
beneficiaries of
the Alternative
Investment Fund
Managers
Directive
(AIFMD)
© 2013 Deloitte Tax & Consulting SDA Bocconi – Art Banking 10 anni dopo – Nov 2013 16
Challenges facing the Art Fund Industry
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Lack of knowledge about the art market
Lack of an independent art investment councilorganization that promote guidelines?
Art Fund industry still too small (not enough artfunds)
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 fundviability
What do you feel are the main hurdles for incorporating Art Investment Funds as part of the bank’s current client offering?
2012
2011
© 2013 Deloitte Tax & Consulting SDA Bocconi – Art Banking 10 anni dopo – Nov 2013 17
In what way will online art business affect art as an
investment?
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Leading to a more regulated market
Increasing demand for art investments
Improving valuation
Reduce transaction cost
Creating more market liquidity
Creating more transparency
Information and educating
In terms of art investment, how important do you believe many of the online art businesses will be in...
Collector
Art Professional
© 2013 Deloitte Tax & Consulting SDA Bocconi – Art Banking 10 anni dopo – Nov 2013 18
Data, research and analysis – getting to grips with tools
available for the Art & Finance industry
• Improved technology and online
index providers give users access to
almost immediate information on
changes in indices, as well as tailor-
made sector or specific artist indices
• Managing market and liquidity risks:
new tools and methodologies are
currently being developed to measure
market and liquidity risk more
effectively
• Market sentiment analysis will play
an important role for in reading and
analyzing the potential future direction
of the market
© 2013 Deloitte Tax & Consulting SDA Bocconi – Art Banking 10 anni dopo – Nov 2013 19
Education
• Education is an important tool in the evolution
of the Art & Finance industry
• Education will fuel development in art and
finance activities: a lack of knowledge is often
cited as a reason for the resistance against art as
an asset class; however a number of recent
education initiatives are likely to change this
• Academics are at the forefront of the
development of the Art & Finance industry
• Increasing collaboration between practitioners
and academics to discuss requirements and learn
the results of the academic research is critical to the
development of the Art & Finance industry
• The Annual Art Market Symposium
© 2013 Deloitte Tax & Consulting SDA Bocconi – Art Banking 10 anni dopo – Nov 2013 20
Although there are differences from a region to another and from one sector to another, there is has been general development of the Art & Finance industry in the last 14 months
• Economic uncertainty heightens the need for diversification, art is increasingly considered an alternative asset.
• Client demand drives both wealth managers and art professionals towards an Art & Finance market. New opportunities for these two industries to collaborate.
• Art wealth management: Art investment still a motivation but more holistic art wealth management services aimed at protecting and leveraging the art wealth will become increasingly important (art-secured lending, succession planning, art philanthropy)
• The growth of the online art industry will continue to drive the evolution and development of the Art & Finance industry by providing education and information, increasing transparency in the market, lowering the transaction cost and providing more liquidity.
• Academics and practitioners are coming together to improve the tools and our understanding and measurement of risks and return associated with art as an asset class.
Art & Finance Report 2013 – Key Messages
© 2012 Deloitte Tax & Consulting
Case studies
© 2013 Deloitte Tax & Consulting SDA Bocconi – Art Banking 10 anni dopo – Nov 2013 22
What are Art Advisory & Philanthropy Services?
• Development of non-financial lifestyle services
• Holistic approach to wealth management
• Art research: authenticity, historical analyses,
price research
• Art transactions: purchase and sale,
representation of interests
• Art management: valuation, insurance, storage,
transportation, collection advisory
• Structured solution: inheritance planning, foundations
and trusts, philanthropy
• (Many) banks
• Family Offices
• Independent art advisors
Services
Trends
Players
Given the high expertise required, establishing partnerships with specialists is indispensable
Trend to
outsource
Trend to develop
in-house
© 2013 Deloitte Tax & Consulting SDA Bocconi – Art Banking 10 anni dopo – Nov 2013 23
Examples of Art Advisory Services
Real life examples
Sources: www.hsbcprivatebank.com/plan/design-and-art-advisory.html, http://www.ingprivatebanking.com/artadvisory.html
Situation
Action
Outcome
A client had a collection of
15 unidentified European
paintings which he wanted
to sell prior to the sale of
his home.
Due diligence:
authentication & valuation
of the collection
The collection included five
19th Century Russian
paintings.
HSBC arranged for the
works to be sold at auction:
Several works went for
300% more than their
reserve prices and the
collection was sold entirety.
A client inherited a
highly sought after and
valuable Old Master’s
painting which he
wanted to sell privately
We sold the work via
our network of private
collectors.
Thus the transaction
was handled discreetly
and the client was able
to save associated
transactional charges.
2. Discreet Sale 1. Unattributed paintings
Examples of Players
© 2013 Deloitte Tax & Consulting SDA Bocconi – Art Banking 10 anni dopo – Nov 2013 24
Source: http://www.pwm.db.com/global/en/philanthropic_and_art_advisory.html, http://www.andbank.com/en/private-clients/global-counselling/advising-on-philanthropy-and-art
Philanthropy will become increasingly
structured, as individuals seek more
efficient ways to give.
Reasons why people give to charity:
• having an emotional connection
• taking social responsibility
• creating sustainability
• creating a family history
• Intra-generational wealth transfer
• leaving a local legacy
Services:
• Establish foundations or funds
• Incorporate philanthropic pursuits directly into overall wealth strategy
• ensure the tax treatment most beneficial to charitable objectives
Relationship managers can help
clients to explore these reasons.
Rising demand for philanthropy advisory
Examples of Players
Currently, there are big
intra-generational
wealth transfers.
To prevent rash sales
of family collections,
foundations are an
interesting solution.
© 2013 Deloitte Tax & Consulting SDA Bocconi – Art Banking 10 anni dopo – Nov 2013 25
What are Art Financing Services?
• Growing demand from UHNWIs to turn their art collection into
working assets
• Art used as collateral
• Term loan: Borrow against art
• Acquisition financing
• Revolving lines of credit
• Dealer inventory financing
• Bridging loans, advances & auction guarantees
• Arranging loans to museums and exhibitions
• (Few) commercial banks (e.g. Emigrant Bank)
• Specialized asset-based lenders
• Auction houses
Services
Trends
Players
The number of banks involved in art financing is still very limited but there is an increasing interest to offer the service
© 2013 Deloitte Tax & Consulting SDA Bocconi – Art Banking 10 anni dopo – Nov 2013 26
Examples of Art Financing Services
Source: https://www.privatebank.citibank.com/our_services/individuals_families/wealth_advisory/artFinance.htm, http://www.emigrantbankfineart.com
Examples of Players
“When our mother passed away, I wanted to
keep her art. My brother didn’t, so the
executor borrowed against the art and used
the funds to make a distribution to my
brother.”
Real life examples
“I have a client who wanted to open an
investment account. She has lots of
assets, including art, but she’s fairly illiquid.
I helped her arrange an art loan to improve
her cash position.”
“My client is interested in a new investment
opportunity, but he doesn’t want to liquidate
his portfolio holdings.
I helped him borrow against his art instead.”
“When my client’s mother passed away, he
wanted to keep her art.
His brother didn’t, so he borrowed against
the art and used the funds to make a
distribution to the brother.”
Inheritance
Liquidity
Investment
opportunity
Partnership
“When our mother passed away, I wanted to
keep her art. My brother didn’t, so the
executor borrowed against the art and used
the funds to make a distribution to my
brother.”
UBS Wealth Management Americas
“We had no way of solving for certain ultra-high-net-worth
client requests where art was part of the collateral
equation.” … “We have significant investor appetite.”
They outsourced art loans to Emigrant
© 2013 Deloitte Tax & Consulting SDA Bocconi – Art Banking 10 anni dopo – Nov 2013 27
What are Art Investment Services?
• Art as a new alternative asset class
• Development of collectible investment funds
• PSF as a potential new business model
• Art investment research
• Portfolio management
• Monitoring and selection of art funds
• Structuring of art investment funds, funds of
art funds and art investment clubs
• Securitization of art collections
• Depositary of art collections
• Chinese banks were first to have own funds, European banks
are following
• Banks/FO: introduction of funds on request of clients
• Credit Suisse leading in research and portfolio management
Services
Trends
Players
New business opportunities: link wealth management and investment funds activities
Front-office
Back-office
© 2013 Deloitte Tax & Consulting SDA Bocconi – Art Banking 10 anni dopo – Nov 2013 28
Examples of art-related investment services
Source: http://www.businesslife.co/BusinessNews.aspx?id=collas-crill-is-lead-counsel-on-new-jersey-art-fund, http://www.berenberg-art.com/en/services.html,
http://skatesartinvestment.com/2012/07/11/abbey-house-rapid-growth-continues-as-company-prepares-to-list-artbusiness-magazine/
Examples of Players
“When our mother passed away, I wanted to keep her art. My brother didn’t, so the
executor borrowed against the art and used the funds to make a distribution to my
brother.”
Berenberg Art Capital Fund Limited
• The fund was authorised as an Expert Fund
by the Jersey Financial Services
Commission on 1 October 2012. .
• Berenberg Art Advice GmbH, Germany, will
act as the investment advisor of the fund.
• The fund will be closed-ended, and have a
life of seven years, subject to three times one
year extensions.
• It will invest in around 200 exclusive works
of art
• The fund will invest in five different
categories of art work: Old Masters,
Impressionist, Modern Art, Contemporary Art
1960-1985 and Contemporary Art after 1985.
General
Information
Investment
China Minsheng Bank was the first Bank to establish own
art funds
Abbey Art Fund is a Polish fund with 90 mature investors
© 2013 Deloitte Tax & Consulting SDA Bocconi – Art Banking 10 anni dopo – Nov 2013 29
Free Port – Q3 2014 in Luxembourg
© 2012 Deloitte Tax & Consulting
Art & Finance Team
© 2013 Deloitte Tax & Consulting SDA Bocconi – Art Banking 10 anni dopo – Nov 2013 31
Overview of our services
Started in 2011. Based in Luxembourg
Based on our information and network,
Deloitte is so far the only “Big Four”
offering Art & Finance services
Our aim is to be at the crossroads of a
multiplicity of clients and of a wide
range of expert services
2 long term objectives
Center of excellence
Art & Finance cluster
© 2013 Deloitte Tax & Consulting SDA Bocconi – Art Banking 10 anni dopo – Nov 2013 32
Our clients / prospects – 3 global sectors with strong interconnections
Type of clients Targeted group Location
Financial sector
Art-related companies
Cultural sector
• Worldwide
• Worldwide
• Private Bankers
• Wealth managers
• Family offices
• Private investors
• Art / collectible funds promoters
• Art insurances
• Art trading companies
• Worldwide
• Large public museums
• Private museums
• Public investors (government, city, etc.)
• Private investors (individuals or
companies)
• Companies selling art (auction houses,
art fairs, galleries)
• Digital Art companies (online platforms,
data dissemination companies, etc)
• Art logistics companies
• Arts & Media companies
© 2013 Deloitte Tax & Consulting SDA Bocconi – Art Banking 10 anni dopo – Nov 2013 33
The Art & Finance services are build on 4 pillars
NON EXHAUSTIVE
• Strategic planning
− Feasibility study
− Business plan
• Implementation
− Promotion and marketing
strategy
− Awareness and promotion
plan
• Management
− Process and organisational
review
− Financial health check
− Education & Learning
− Plan to develop earned
income
− Communications and
marketing planning
2 Museum strategy
• Direct tax consulting for
estate planning & tax
optimization in the art field
• VAT services
• Collection finance: using art
as collateral
• Philanthropic planning
• Art investment consulting
(research, advise on
selecting art, educate staff
and clients);
• Forensic & Anti-Money
Laundering services
• Implementation of art-
related investments
services (feasibility
assessment, review of
depositary function related to
art funds, etc.)
3 Financial sector art-related
services
• Strategy & Operations
− Market and competitors
analysis
− Master plan & Business plan
− Organizational structure
review and improvement
• Finance
− Review of cost / revenue
structure
− Revenue generation
strategies
− Capital raising
• Marketing
− Image positioning & branding
− Marketing & Communications
• Education & Learning
1 “Traditional” consulting
for art-related companies
• Art investment
− Art investment research
(quantitative and qualitative)
• Set-up
− Structuring of art funds
− Selection & due diligence of
art funds
− Regulatory audit services for
collectible investment funds
• Art enhancement
− Assistance in the selection of
third party service providers
• Education & learning
− Courses for financial
professionals
Art fund development /
coordination
4
• Public & private
museums
• Public and private
investors
• Wealth managers,
private bankers, family
offices, law firms
• Private investors
• New or established Art-
related companies
(trading platforms,
auction houses,
galleries)
Clie
nts
• Art / collectible fund
promoters
• Family offices, banks, private
investors, institutional
© 2013 Deloitte Tax & Consulting SDA Bocconi – Art Banking 10 anni dopo – Nov 2013 34
Contacts
www.deloitte-artandfinance.com
© 2013 Deloitte Tax & Consulting SDA Bocconi – Art Banking 10 anni dopo – Nov 2013 35
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