In response to rising interest among younger generations, banks like J.P. Morgan are delving into art financing. “We see among younger generations that around owning art, financial motives are becoming more important,” said Sam Cook of J.P. Morgan Private Bank. “Art is more than passion for them.”
Cook is head of specialty lending solutions at the international arm of the US private bank, which in the Benelux focuses on a limited group of wealthy individuals - the (ultra) high net worth individuals. A certain part of that global group will travel to Maastricht this weekend, when Tefaf, the world-famous art fair, kicks off for its 37th edition.
Cook will also be in Maastricht for a few days, he told Investment Officer, because clients of his employer are increasingly interested not only in the cultural, aesthetic and emotional properties of art, but also in its financial potential. Sometimes - for instance, when it comes to younger collectors - they even pay particular attention to this, he observes. Of course, this is interesting for a financial institution.
J.P. Morgan Private Bank, by the way, is also a major sponsor of Tefaf, next to Axa and Bank of America. Similarly, Delen Private Bank is a major sponsor of the Brafa, the Brussels Fine Art Fair.
Increasing values projected
The value of private art collections worldwide was estimated at 2,174 billion dollars, according to the 2023 edition of Deloitte’s biennial Art & Finance Report. Last year was a tough one, due to rising inflation and interest rates in particular, but growth in the post-Covid years 2021 and 2022 was exuberant. Especially in the blue-chip art segment, record prices were paid then. Therefore, with lower inflation and lower interest rates on the horizon, market experts believe that 2024 and subsequent years will show renewed growth, to a total value of some 2,900 billion dollars by 2026.
In parallel with that growth, art is increasingly developing into a serious asset class, an excellent addition to the traditional portfolio of (private) investors. “On average, this then involves, say, 10 percent of the portfolio with outliers upwards,” Cook said.
What function does art serve in a portfolio? “We find that more and more clients want to have the conversation with us about that question. How do the risks of art relate to the other assets? What is the spread of those risks? How important is the volatility of the art market? How do you deal with the illiquidity of this type of investment?”
Not an art advisor
J.P. Morgan Private Bank is obviously not an art advisor, Cook said. “We recognise the passion and emotion involved in art, but we focus on the financing issues surrounding art: how can we contribute to investor objectives with new solutions?”
In which, in particular, lending with art as collateral is an increasingly popular option. The aforementioned Art & Finance Report estimates that market at 29.2 billion euro to 34.1 billion (figures at the end of 2023), an 11 per cent growth from a year earlier. There was also steady growth (of around 10 per cent a year) in the period before that.
Museum quality
“Whether collectors want to expand their collection, put money into a business or invest in some other way, there are plenty of opportunities to liquidate art holdings, at least when it comes to museum-quality art,” said Cook.
The art then becomes the collateral for a loan, with all kinds of conditions possible. “These will depend entirely on the motives of the collector or investor. Someone who attaches great emotional value to a work of art might be reluctant to put that work in safekeeping or lend it to a gallery. Someone whose main focus is the financial return will have less trouble with that.”
The crux is to properly assess the situation and then come up with an appropriate solution.
“Every case is unique,” said Cook. “Each time we note that we have to be flexible in finding the right solution. What does the customer want to achieve, and in what timeframe, and what options can we as a private bank offer then? We talk to more and more customers about that. A large part, about 80 percent of this whole market, is currently situated in the United States, but I see this catching on in Europe and the Middle East as well.”