At the end of November, Deloitte published the eighth edition of its Art & Finance Report, coproduced with the London-based art market research and data intelligence company ArtTactic (whose other work includes the Online Art Trade Report in partnership with Hiscox). The Art & Finance Report aims to provide insights on “generational wealth transfer, sustainable and social impact investing, and the role of art and collectibles in a well-rounded portfolio of the future”; as such it’s aimed at advisors, wealth managers and their High Net Worth clients.
That’s a relatively small number of players; 435 art and finance stakeholders (collectors plus art professionals, family offices, and wealth managers) contributed to the data. But they exert a disproportionate influence – not just on the structure and direction of the art market, but also on national and international policies and goals.
Most notably there’s the question of philanthropy and visible private investment replacing government spending on art and culture; the report could usefully delve into the non-financial returns expected from this kind of investment, but perhaps predictably steers clear of talk of reputation management and branding in favour of straight reporting and analysis.
So we learn that the value of art and collectibles held by Ultra High Net Worth Individuals is estimated at $2.2 trillion in 2022 and could grow to more than $2.8tn in 2026. That doesn’t represent growth in the value of those holdings so much as a simple increase in the sheer number of UHNWIs and their choice to put more of their wealth into art and collectibles.
In 2023 art and collectibles represented 10.9% of the wealth of HNWIs, and an average of 89% of wealth management pros, collectors and art professionals say art and collectibles should be part of a portfolio (or at least a “wealth management offering”). That’s the highest percentage since the launch of the Art & Finance report 12 years ago, when 65% said art should figure in the mix. Clearly some kind of message is getting through, and the report summarises it as “asset diversification is set to drive further demand for art-related assets”.
And what do the buyers want from their art-related assets? Well, “emotional value” remains their prime driver, according to 60% of collectors; but financial value (41%) surpassed social value (36%) for the first time in 12 years as the second most important motivation for collectors.
And younger collectors seem even more motivated by financial benefits – 83% said returns were a key motivation. That compares with 50% in 2021.
Indeed, this year’s survey shows that younger collectors do differ markedly from previous generations, a conclusion that’s supported by most art world surveys (notably the UBS/Art Basel reports). For instance, younger respondents to the Art & Finance Report see risk management as a key service that advisors should offer (70% young collectors vs 45% older collectors). They don’t want to lose what they’ve got.
Overall, though, art doesn’t actually seem to making them much money. Obviously the returns will vary according to exactly what art is bought, sold or held. But as the report notes: “The anaemic 14-year annual growth rate of 0.6% in the art market has failed to outpace inflation, with global art market sales shrinking in real terms since 2008”.
This suggests that HNWIs are choosing to put their money into other assets such as luxury goods. And indeed “luxury collectible sales reach new heights in 2022” as evidenced by a surge in’ auction sales. So “we expect to see growing interest in the financialisation of luxury collectibles and potential to tap into the much broader and larger luxury goods industry (valued at $1.5 trillion) … Luxury market stakeholders should start integrating this financialisation into their business strategy”. Which basically means that ‘wealth managers’ and other financial advisors should do more recommending of luxury goods (we couldn’t actually find a definition for ‘luxury goods’ but we’d imagine the term covers expensive/collectible watches, jewellery, furniture and the like – stuff which probably shouldn’t cost so much from the viewpoint of utility.
That might play against some broader trends. The G20, which took place in India last September, reaffirmed the cultural and creative sectors (CCS) as a major engine for sustainable socioeconomic recovery and a key driver of growth in many countries. Broader investment currents, such as increasing focus on ESG-compliant investments, could also be filtering down to the cultural space.
So sustainable impact investment in art and culture could and should become an important investment model, especially for the younger investor: but in fact the Deloitte/ArtTactic survey reports only a slight increase in interest here – just 24% of collectors identified sustainable impact investment in the arts as the most attractive investment model (it was 28% in 2021). At least their advisors seem better clued-in; for art professionals and wealth managers the figure was 30% (23% and 21% respectively in 2021).
There are a lot of good facts and reasonable conclusions in this report, but some questions remain unanswered. Three-quarters of wealth managers may offer art services now, compared with a quarter in 2011, but just how effective are those services? Are those advisors making their clients much money?
From the graphic above (included in the report) it seems art per se isn’t making the collectors much richer, even though more say financial motivation is increasingly important. Instead, art may represent a useful diversification, in particular to hedge against inflation (though in gross terms it isn’t doing too well at that).
And there may be returns that are similarly useful and potentially powerful, but they will be indirect – collateral for loans, for instance. The report says its conservative estimate is for loans with art as security to total somewhere between $29.2 billion and $34.1 billion in 2023, up 11% from last year.
Or there’s the kind of reputational gain you get from running a private museum or loaning your collection to a show. As public spending on arts and culture declines, there are new opportunities for all kinds of public, private and philanthropic investment in culture. In this year’s survey, 41% of young collectors and 30% of older collectors said social impact investment in art and culture was among the primary motivations for their involvement in the art and collectibles market, with 50% of young collectors and 45% of older collectors seeing ‘art philanthropy’ as one of the most important services that could be offered by the wealth management business.
“A better understanding of the relationship between responsible finance and culture” is described by the report as “essential”, but then Deloitte Private is very much in that business … Overall, most of the gains from owning art surely comes from non-monetary returns. The report could have gen us more on that.
Our other key takeaway is the need for the art market needs to modernise its business practices. So says 76% of wealth managers, 82% of art professionals, and 70% of collectors. The key areas of concern are transparency and provenance, related issues of authenticity, forgery and attribution, and international standards around professional qualifications in the art market.
There’s little agreement about the value of self-governance versus more regulation in restoring trust and credibility, though. Perhaps technology and especially increased use of blockchain tech can help to allay concerns.
The Deloitte Private and ArtTactic Art & Finance report can be downloaded free from this page.