12 December, 2023
At the beginning of the month, Deloitte released the 8th edition of their biennial Art & Finance Report, which looks at emerging trends and sentiment in the art and finance sector, as well as significant developments in the art market. In this article, we highlight some of the key findings from the report.
Starting with the total wealth held in art and collectibles by UHNW individuals, it is predicted to grow to US$2,861 trillion in 2026 (compared to US$2,174 trillion in 2022), due to the increased number of UHNWIs globally and an increased allocation of wealth to such assets. Interestingly, for the first time in twelve years, financial value is the second highest motivation for buying art, despite emotional value remaining the key driver. More specifically, 83% of younger collectors said that investment returns were a key motivation (up from 50% in 2021); 61% said that portfolio diversification was important (up from 51% in 2021); and just over half (51%) said that they saw art as a safe haven in times of uncertainty (up from 34% in 2021).
From an art investment perspective, the fine art market exceeded the S&P 500’s performance between January 2022 and July 2023, according to Artnet’s Index for Fine Art. Fine art returns grew a nominal 4.2% against a 6.6% loss for the S&P 500 during the same period.
Overall, according to a recent report by Sotheby’s and ArtTactic, blue-chip art seems to be the strongest in the face of economic turmoil. The US$1 million+ auction market grew by 20.8% in 2022, making up 74% of total fine art sales (by value) based on sales at the top three auction houses: Sotheby’s, Christie’s and Phillips. On the other hand, the modern and contemporary auction market witnessed a 9% year-on-year decline in sales in the first six months of the year. This serves as proof that wealthy buyers continue to focus more on high-value works by established artists (blue-chips), perceiving them to be safer investments and a greater store of value in uncertain times. And, they seem to be proven correct in their thinking, as despite increased inflation and interest rates, art prices, especially in the high-end category, suffered less than other asset classes, demonstrating its ability to partially serve as an effective hedge.
Regarding the role of technology, there is a strong consensus among stakeholders (76% of wealth managers, 82% of art professionals and 70% of collectors) that more modernity needs to be brought to the art market. This particularly relates to issues of transparency, authenticity, provenance, forgery and attribution. Interestingly, 63% of wealth managers stated that the lack of international standards and professional qualifications was a dominant issue. More internationally-minded regulations could be one solution, as is the application of secure technology for tracking certification and provenance through smart contracts. In fact, 64% of wealth managers said that technology could be a catalyst for incorporating art and collectible assets into their existing wealth management.
For the first time in the Deloitte Art & Finance Report, an entire chapter is dedicated to the topic of fractional ownership, which indicates that this relatively new model is starting to gain weight in the art market and expected to rise in the years to come. Currently, the regulated fractional ownership market for art and collectables is over US$1 billion. Several of the more established platforms have seen their assets doubling annually since 2020. In particular, over the last three years, global interest in fractional art and collectables investment has significantly increased, especially among new gen collectors. Moreover, the interest among younger collectors is much higher this year than that of older collectors, with 50% (up from 43% in 2021, versus 14% of older collectors) saying that they have an interest in such investments. Of note, many wealth managers also stated that they see fractional ownership as a significant future tool for succession and inheritance planning, possibly allowing for the transfer of non-bankable assets (e.g., real estate, fine art, jewellery, etc.) to the next generation at any time. It can be particularly useful for families or individuals who wish to split their assets equally between heirs in a more transparent way. Banks and wealth managers have yet to fully implement this technology, which requires an increased level of service, but this may well become a way of differentiating themselves and reaching a larger group of clients.
To conclude, despite the economic and political turmoil we have continued to experience in 2023, Deloitte’s recent Art & Finance Report paints a more reassuring picture of the state of the art and collectibles market, particularly in the high-end category, than expected. It is hard to know what to expect in 2024, but, overall, we are seeing a higher degree of acceptance of innovation and technology, which will hopefully continue to boost the market.