Global wealth linked to art and collectibles is projected to grow by nearly a third to 2.861 billion dollars by 2026 from the level of 2.174 billion in 2022, according to the Deloitte Luxembourg Art & Finance Report 2023.
The increase highlights the growing importance of art in the wealth management sector, driven by the rising number of Ultra-High Net Worth Individuals, or UHNWIs, and their increasing investment in art and collectibles.
The report is a comprehensive 438-page study that incorporates insights from 55 experts and feedback from 435 stakeholders in the art and finance sectors. It reveals that 63 percent of surveyed wealth managers now include art in their offerings, indicating a significant shift in the management and perception of art-related assets.
“We observed an encouraging transformation in the wealth management sector,” said Adriano Picinati di Torcello, global coordinator art and finance at Deloitte, in a press release. “The increasing recognition of the sector’s importance is a positive sign toward a more inclusive, sustainable, and ambitious approach to arts and culture.”
Art market vulnerable
The value of art in wealth management also is being recognised by criminals and money launderers. The Financial Action Task Force (FATF), the world’s top anti-money laundering (AML) body, in February warned that the art market has become vulnerable to money laundering and the financing of terrorism. It called on art dealers and governments to up their efforts to fight illicit funding in these markets.
The FATF report, which included a number of Luxembourg case studies, emphasised the need for art market professionals to strengthen their customer due diligence and anti-money laundering measures, and to file more suspicious transaction reports. It also noted that art dealers in the US and EU are increasingly falling under the scope of anti-money laundering legal frameworks.
The Deloitte report recognises that AML regulation is increasing but notes that the adoption of more transparency and regulation is “not happening fast enough”. In particular, it highlighted the growth of technology and the increased application of “fractional ownership” in the art market as factors driving overall growth in the market.
Compliance with AML and Know-Your-Customer (KYC) requirements are regarded as “obstacles to further growth” when it comes to integrating art into wealth management, Deloitte concluded. “Recent developments around AML regulation and the role of technology are likely to have played a positive role in changing wealth managers’ perceptions.”
In addition to providing industry insights, Deloitte as a consultancy also offers industry stakeholders services that enables them to outsource their AML and KYC compliance activities. These services are also advertised in its report.
‘Essential to wealth management’
Overall, Deloitte notes a substantial change in stakeholder attitudes toward art and collectibles in wealth management services. Currently, 89 percent of stakeholders view these as essential to wealth management, up from 65 percent in 2011. This shift is attributed to a growing recognition of the financial attributes of fine art and luxury collectibles and a trend towards more holistic wealth management strategies.
A crucial aspect of the report is the focus on generational wealth transfer, emphasising the need to understand the diverse preferences of different generations, especially NextGen collectors. These younger collectors are reshaping the future of the art and wealth management industries, with a strong inclination towards social impact investment in art and culture, Deloitte observed.
Art-secured lending
In terms of art-secured lending, the report anticipates growth in this market in 2023, despite rising interest rates, with Asia and Europe identified as emerging strategic markets. The report also underscores art’s role as a partial hedge during uncertain times and highlights the increasing interest in fractional ownership models, particularly among younger collectors.
Art-secured lending could become a 29 billion dollar market by the end of 2023. Asia and Europe have become strategic markets for these activities. Some 39 percent of art—secured lenders said Asia, and Hong Kong in particular, will be a strategic growth market, compared to 10 percent in 2021.
Europe is seen as an untapped market for art-secured lending, with 78 percent of lenders viewing it as an opportunity, compared to 70 percent in 2021.