A snapshot of the last Deloitte Private and ArtTactic Art & Finance Report

The 8th edition of the Deloitte Private and ArtTactic Art & Finance Report brings our readers directly to the intersection of culture and capital. Spanning 438 pages and featuring 54 leading experts who contributed to 31 articles, plus survey results from more than 435 art and finance stakeholders (ranging from art professionals, family offices, wealth managers, to collectors and representing locales across the world), readers will find new insights on a wide range of initiatives and models that tackle the opportunities and challenges facing the art market and the wealth management industry over the next decade. The report also includes a 12-year retrospective look at how the industry has changed. 

Thanks to Jonathan Prince for elevating our report with his artworks.It is clear that – despite continued challenges concerning transparency, regulations and the need for modernization of existing art business practices – the art and finance industry continues to innovate and evolve. It is well-positioned to reap the benefits of the global wealth transfer over the coming decades and a finance industry increasingly oriented to holistic wealth management.

Read on to discover the key findings of the 2023 report and five conclusions to take into advisement.

2023 KEY REPORT FINDINGS
 

Globally, ultra-high-net-worth individuals’ (UHNWIs’) art and collectible wealth is estimated to exceed US$2 trillion. We estimate that UHNWIs’ wealth associated with art and collectibles was US$2.174 trillion in 2022 and predict this figure could grow to an estimated US$2.861 trillion in 2026, due to the increased number of UHNWIs across the world and their increased allocation of wealth to art and collectibles.

Luxury collectible sales reached new heights in 2022 and could signal new opportunities for the art and finance industry. The growth potential of the luxury collectibles market is evident in the surge of auction sales over the last two years, reaching a record high in 2022. We expect to see growing interest in the financialization of luxury collectibles and potential to tap into the much broader and larger luxury goods industry.

Of the stakeholders surveyed from wealth managers and collectors to art professionals, 89% believe art and collectible wealth should be part of a wealth management offering. This marks the highest percentage recorded in the Art & Finance Report’s history. The need to develop a holistic advisory relationship with clients was one of the primary reasons for including art and collectibles into wealth management offerings. This underscores the rising demand for holistic wealth reporting and the crucial adaptation needed to provide clients with a comprehensive outlook of their art and collectible portfolios. Already, 63% of wealth managers have begun integrating art into their wealth management offerings.

A significant share of wealth is associated with art and collectibles, as revealed by family offices reporting an average allocation of 13.4% to art and collectibles (compared to 8.6% for Private banks). While only 53% of private banks reported that their clients expect them to consolidate art and collectible wealth into their overall reporting (down from 73% in 2021), family offices tell a different story, with 61% indicating that their clients had similar expectations (up from 44% in 2021). More than one-fifth of family offices (22%) see a robust appetite for art investment services, which include art funds, managed accounts, impact investment, fractional investment, and more.

There is a shift toward the underlying economics of art ownership. Emotional value remains the key driver for buying art (according to 60% of collectors), but for the first time in 12 years, 41% of collectors said financial value is their primary motivation, overthrowing social value (at 36%) as the second highest motivation.

The younger generation of collectors prioritize financial gain and social impact. NextGen collectors (35 and under) are more open to new art investment models, with a growing interest in art investment funds and fractional ownership, in which the cost of an asset is split between individuals. They’re also making their preference clear with 41% showing interest in social impact investments and seeking purpose-driven strategies (up from 31% in 2021). They are also driven by digital advancements and an innovative approach. These collectors are not just enthusiasts, but strategic investors reshaping the market.

Art-focused estate planning is urgently needed. Only 24% of the surveyed collectors have a long-term plan for their collections, indicating the urgency for wealth managers to have conversations with their clients about art and estate planning. So, how can wealth managers address the challenges of intergenerational wealth transfer? They should start conversations on art and estate planning with their clients without delay. Notably, 60% of family offices possess detailed knowledge of their clients’ art collections for estate planning purposes, compared to 31% of private banks.

The art-secured lending market could reach a market size between US$29 billion and US$ 34.1 billion by the end of 2023. Continued growth of 8% is expected in 2024. Art-secured lending is on the rise despite higher interest rates, with the market expected to grow by 11% in 2023. In uncertain times, liquidity is driving this growth: 80% of private banks and 83% of asset-based lenders identify it as a key factor. The art-secured lending market has gone global, with Asia — especially Hong Kong — and Europe emerging as strategic markets for expansion. In fact, 39% of art-secured lenders regard Asia as a strategic market for growth, a significant increase from 10% in 2021, while 78% see Europe as an untapped opportunity.

Sustainable impact investment in art and culture could become a more attractive investment model, especially for the younger generation. The 2023 G20 summit in India underscored how cultural and creative sectors are key drivers of sustainable socioeconomic recovery, contributing significantly to global economic growth. Our latest report highlights a growing interest among younger generations in sustainable impact investments within the arts and culture sector. This shift is not just driven by a passion for the arts; it's a strategic financial move. In fact, 66% of collectors under 35 and 31% of family offices express a strong interest for socially responsible investment in culture. In response, wealth managers and family offices are expanding their sustainable investment offerings to attract and engage younger clients. The question that arises is whether they could embrace social impact investment products in culture.

In the intersection of art and finance, technological innovation is driving sectors closer together. Witnessing this revolution, wealth managers identify blockchain (58%) and big data analytics (48%) as pivotal to the future of art and wealth services. While only 18% of wealth managers considered blockchain technology impactful in 2019, the majority (58%) now agree. Leading this shift in mindset are the NextGen (collectors under 35). 80% trust blockchain for art and collectibles asset registration, and 79% endorse the rapid development of artwork identification technologies to address current inefficiencies. Additionally, younger collectors express growing enthusiasm for fractional ownership (+7% over two years, reaching 50%). As new platforms emerge, NextGen collectors will have greater opportunity to participate without possessing physical ownership. 81% of wealth managers, 79% of collectors, and 83% of art professionals acknowledge that technology could catalyze transparency in the art market.

There is an urgent need for modernization of business practices. In 2023, a significant 76% of wealth managers, alongside 70% of collectors and 82% of art professionals, called for the modernization of business practices. Strengthening trust and transparency in the art market requires careful consideration of regulations. 50% of art professionals believe that regulation could play a crucial role in restoring trust. But, the debate remains: should it be through self-governance or increased government regulation? Opinions diverge, with 44% of wealth managers leaning toward governmental oversight, while 70% of family offices favor self-regulation. Notably, an increasing number of art professionals (50%, a record high) now perceive regulation as a potential tool for rebuilding trust. Perhaps a hybrid approach could be the solution.