2 September, 2020
According to the Hiscox Online Art Report 2019, an increase in millennials (aged 35 and below) had bought art in the last 12 months and 79% said they had bought art more than once (up from 64% the previous year). In addition, 46% of millennial art buyers surveyed said that they would consider fractional ownership of art as a form of investment, whereas 51% of younger art buyers (aged under 30) expressed interest. New buyers (defined as having collected art for three years or less) also showed appetite for this art investment model. This begs the question: Could fractional ownership encourage and act as a gateway for a new wave of younger buyers to invest in the art market? And, if so, does it make for a profitable investment option?
Overall, figures contained within the Hiscox Online Art Trade Report 2019 as well as Deloitte Luxembourg and ArtTactic Art & Finance Report 2019 point to a generational gap when it comes to fractional ownership, seeing as only 29% of art buyers over the age of 50 claim that they would consider using this investment model.
Moreover, in 2018, global online sales increased by 11% year-on-year, with 43% of art collectors (40% of whom were new buyers) buying from online platforms. While there was only a 4% growth in online sales in 2019, Covid-19 has also been rapidly driving sales online, as we have seen through the recent success of online auctions by both Sotheby’s and Christie’s. It would appear that the new generation of art collectors and buyers are not only leaning more toward the digitalisation of the art market but are also keen on online platforms incorporating new, innovative technology.
Evidently, it is important to offer a digitalised, cutting-edge art investment option that will attract a new, younger generation of buyers. However, in order to better bridge the gap between art and finance and limit this generational divide, it is essential that we accurately communicate the advantages of fractional ownership.
What are the benefits of fractional ownership to art investors, collectors or corporates?
Splitting artworks into art shares or cryptographic tokens that can be purchased by multiple art buyers undeniably resolves many of the inefficiencies we can observe in the current art market. One clear benefit of this model is that low-net worth individuals and small investors, who have so-far found it difficult to make meaningful purchases in art, are now able to own a fraction of an expensive, blue-chip artwork to expand and diversify their investment portfolios. This leads to a direct democratisation of the art market, redefining traditional models around the purchase and sale of artwork.
Additionally, from a practical perspective, the maintenance costs of an artwork are often split amongst all fractional owners as well as potential dividends generated by the lease or promotion of the artwork. In the case of corporates or finance professionals, engaging in the fractional ownership of art can also enhance corporate social responsibility (CSR). Like other investors, corporates may also benefit from capital gains thanks to the circulation or sale of the co-owned artwork(s).
Moreover, it is important to highlight that by assigning provenance using art shares or tokens, which can be managed through a public blockchain, issues like corruption, counterfeit and hacking can be prevented. Blockchain, and other such innovative technology can thus guarantee publicly verifiable provenance of artworks, while reducing the need for intermediaries.
How does fractional ownership affect art institutions and artists?
According to Dr. Shermin Voshmgir, Director of the Institute for Cryptoeconomics at the University of Economics in Vienna and author of “Token Economy”, fractional ownership could also serve to increase art investment demand, and in return, raise art prices and encourage new art production.
In other words, fractional ownership does not only have benefits for investors but also industry professionals and artists. Through this model, museums and galleries are able to raise money without having to take out high-interest loans to purchase new artworks. Instead, they can sell shares of artworks they currently own and have more money to spare which they can then put toward expanding their current collections. In addition to increasing fundraising capacity and purchasing power, joint ownership can also help establish stronger ties between institutions, and importantly, ensure that artworks are kept in the public domain.
In fact, in the UK, the Heritage Lottery Fund and Art Fund have actively encouraged co-ownership to improve access to artworks by funding joint purchases. Tate was one of the pioneers of international art co-ownership on an institutional level when it purchased Bill Viola’s Five Angels for the Millennium in collaboration with the Whitney Museum, New York, and the Centre Pompidou, Paris, in 2002.
"The general public doesn’t care much who owns something, they just want to see it. So for museums to give up single ownership is not a radical idea. It’s healthy for institutions and our audiences."
- Kathy Halbreich, director of the Walker Art Centre in Mineapolis, as quoted by Jason Edward Kaufman, ‘The Days of Single Ownership are Over’, Art Newspaper, No. 147, May 2004, source: Tate, ‘Inside Installations: Mapping the Studio II’
However, the more partners are involved in a fractional ownership deal, the more problematic logistics can become, especially for art institutions. In the case of Viola’s Five Angels for the Millennium, its acquisition involved negotiations across three different legal systems, two based on common law (UK and US) and based on civil law (France). This solidifies the need for a certificate confirming co-ownership of the artwork(s), as the one drafted by international law firm Withersworldwide for London Trade Art. Additionally, it is necessary to have a regulated and highly-detailed contractual Co-ownership Agreement, which specifically outlines which institution may display it when and shared responsibilities for its maintenance.
Similarly, by working with professional partners, such as London Trade Art, and with strong legal requirements in place, living artists have the possibility of crowdfunding their work, selling shares of upcoming works of art and potentially boosting its value through word of mouth and trading.
In conclusion, fractional ownership is undeniably changing the dynamic of art investment and allowing for a wider expansion of the art audience, namely the younger generation and new buyers or investors with lower budgets. One of the main advantages of using this model is that it encourages transparency and traceability through innovative technology, allowing return on investment to be easily tracked. It can also be used by art institutions to help them maintain and expand their collections, just as it can benefit artists who wish to build their reputations. In short, fractional ownership can be a good art investment and it can most certainly offer a way to become part of an art world community and encourage a wider appreciation of art as a cultural heritage. Therein, lies its greatest strength.
Sources:
Deloitte, Deloitte Luxembourg and ArtTactic Art & Finance Report 2019, 2019: https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Finance/gx-fsi-art-and-finance-report-2019.pdf
Hiscox, Hiscox Online Art Trade Report 2018, 2018: https://www.hiscox.co.uk/sites/uk/files/documents/2018-04/Hiscox-online-art-trade-report-2018.pdf
Hiscox, Hiscox Online Art Trade Report 2019, 2019: https://www.hiscox.co.uk/sites/uk/files/documents/2019-04/hiscox-online-art-trade-report--2019.pdf
Hiscox, Hiscox Online Art Trade Report 2020, 2020: https://www.hiscox.co.uk/sites/uk/files/documents/2020-07/Hiscox_online_art_trade_report_2020-new.pdf
Jacqueline O’Neill, “What You Need to Know About Art Tokenisation and Investment”, 2018: https://medium.com/blockchain-art-collective/what-you-need-to-know-about-art-tokenization-and-investment-13523d3b5f1d
Tate, ‘Inside Installations: Mapping the Studio II’: http://www2.tate.org.uk/nauman/themes_1.htm