10 January, 2024

In our last article, ‘Key Facts from The 8th Deloitte Private & ArtTactic Art & Finance Report 2023’, one of the points we highlighted was the growing popularity of fractional ownership of art and collectibles. According to the report, the current regulated fractional ownership market for art and collectibles is over US$1 billion and several of the more established fractional ownership platforms have seen their assets doubling annually since 2020. This dedicated section of the report seems to conclude that fractional ownership is set to become a permanent option for collectors of art and collectibles, especially in the domain of wealth management. Since this is central to our mission at London Trade Art, we decided to summarise the report’s key points pertaining to fractional ownership in this article.

Somewhat unsurprisingly, price inflation seems to have played a key role in the accelerated emergence of fractional ownership platforms. Over the past decade, inflation has been weighing on the art market, rendering “investment-grade” art too costly for most investors and collectors to purchase outright. With its mission of “democratising art investment”, fractional ownership has thus become a valid option for those who now have to shy away from these big purchases, but still want to continue investing in fine art. It’s also important to remember that the art market has been renowned for its elitism, traditionally accessible to only wealthy or ultra-wealthy players. Such new collecting and investment models have broadened the market, allowing for a whole generation of younger and/or less wealthy investors and collectors to own a percentage of blue-chip art. 

Importantly, while the focus of the report is on art and collectibles, fractionalisation is not limited to these two products. In fact, it started out and continues to grow in real estate, and is even starting to make its way to the music industry, with companies, such as 360X Music, issuing securitised tokens backed by music royalties. This adoption of fractional ownership in various industries means that, just like shared products/services (think: Uber, Airbnb, Regus, etc.), can become a mainstream mindset within nearly all industries. Particularly, if it becomes more and more regulated, it could be central to every investor’s portfolio diversification strategy. Additionally, financial regulators have begun to regulate multiple initiatives following a global surge in interest in fractional art and collectibles investment over the past three years, hinting at a new era for fractional ownership, which may be closer to reaching mass adoption. More companies are expected to seek regulation in the next few years, which is expected to continue to heighten interest.

One area where experts predict fractional ownership will become increasingly useful is wealth management, though its widespread adoption by banks is still expected to be slow. This is due to the fact that an important proportion of a UHNW family or investor’s global net worth lies in non-bankable assets - assets that are difficult to manage and quantify, such as art, real estate, vintage cars and jewellery. According to Accenture, such assets account for just under 50% of total UHNW wealth, or US$30 trillion globally. By fractionalising, or “tokenising”, these assets, they can be formally included in professionally managed portfolios and add liquidity to the non-bankable asset market. Additionally, this can increase transparency, especially for the next generation of inheritors, and reduce transaction costs related to them. Speaking of inheritance, fractionalisation can allow for these assets to be transferred to heirs at any time, guaranteeing equal distribution if desired. The transparency that goes with this may limit potential disputes and render succession planning less daunting from a tax and legal perspective. 

In order for banks and wealth managers to adopt fractional ownership more significantly, an area that requires clarity is valuation. Valuation of art and collectibles requires specialist knowledge, which wealth managers may not have access to; additionally, they would need to take into account custodial and security issues, such as safe storage and guarantees against theft. However, if wealth managers were to incorporate appraisers, specialist advisors and/or blockchain technologists, this could set them apart from the competition and expand their offerings, making them especially relevant to the next generation, as importantly, 50% of young collectors have expressed interest in fractional ownership investments in 2023 (up from 43% in 2021).

To conclude, upheld by the fact that Deloitte chose to dedicate an entire section to fractional ownership in their recent report, there is little doubt that fractionalisation is beginning to make waves in not only the art and collectibles market but also other industries. The act of splitting assets into equal shares offers a vast array of opportunities, from managing diversified portfolios in a more transparent way to expanding the audience able to buy blue-chip art. We look forward to seeing how interest in fractional ownership progresses over the course of this year. 

All data has been taken from the 8th Deloitte Private and ArtTactic Art & Finance Report: https://www2.deloitte.com/lu/en/pages/art-finance/articles/art-finance-report.html