Come è cambiato il mondo dell'art advisory nella prospettiva

SDA Bocconi – November 2013

Art Banking 10 anni dopo Come è cambiato il mondo dell’art advisory nella prospettiva del private banking

© 2013 Deloitte Tax & Consulting SDA Bocconi – Art Banking 10 anni dopo – Nov 2013 2

Agenda

Art and Wealth Management

Wealth Management Survey – Key Findings

1

2

Cases studies 3

© 2012 Deloitte Tax & Consulting

Art and Wealth Management


Environmental Changes: Private Banking / Wealth Management

A move from a financial

definition to a more

holistic human definition

(e.g. individuals with

needs and goals)…

$$ €€

…to include a proactive

business acquisition

model in a competitive

environment and signify a

move away from product

distribution to a service

partnership

$$ €€

• Tax optimized solutions

• Vehicles customized to clients

needs

Key drivers the PB can work on

• Tax reporting

• e-Private Banking

• Risk and performance

Broader financial engineering solutions 3

• Diversification of products

• More complex solutions

Increasing expected service level 4

• Evolution of the client behavior

and expectations

• RM mobility

• Redefine wealth from money to

well-being: helping clients

realize a more fulfilling life

• Align life passions with financial

goals

Reporting capabilities 2

Tax and wealth structuring 1

There is a need for new client relationships and new solutions – tangible assets being one of them.

http://www.iconspedia.com/icon/small-business-icon-21901.html

http://www.iconspedia.com/icon/small-business-icon-21901.html


Environmental Changes: Distinctions Family Offices / Private

Banking

Asset type • Dealing with diverse assets (e.g. real estate,

art investments, Philanthropy) & family needs • Dealing with financial assets

• Wealthy families across the generations • Individuals (wealthy and retail)

• Total wealth management • In-house portfolio management

• Neutral advice on different products and

services

• Generally oriented to own products

in the interest of the bank

Family Office Private Banking

Client

Advisory focus

Product

• International wealth clients’ needs are becoming more complex, placing very strong service demand on

private banks, including non-banking services such as tax optimization, structuration, succession

planning, art & philanthropy planning

• Family Offices offer a favorable framework to serve clients demand for neutrality, flexibility and

exclusivity

• As they cover different aspects like tangible asset management, intergenerational planning and

philanthropy issues, Family Offices are well-suited potential players in the art & finance environment

Family Offices’ multidisciplinary approach combines the needs of different generations


Source: Deloitte Research

Overview of current art banking services

Corporate

Art

Collection

Fine Art:

Painting,

Antiques,

Scuplture

Diamonds

Fine Wines,

Cigars

Archives,

Rare Books

Fine

Jewellery

Art

Philanthropy

Art

Sponsoring

Client

entertainment

Collection

Management

Wealth

Structuring

Art

Investment –

Front office

Art

Investment –

Middle & Back

office

Art Insurance

Product

development

& Research

Investment

banking

(corporate

finance)

Art Secured

lending


Art advisory &

philanthropy services

Art financing services

Art investment services

Development of non

financial lifestyle services

Art to be turned into a

working asset

Art a new alternative asset

class

3

2

1

Art-related services grouped in three different categories


Wealth Management Survey – Key Findings


The Deloitte / ArtTactic Art & Finance Report 2013

2nd edition of the Art & Finance Report (1st one in December 2011)

About the industry’s evolution in the last 14 months

The report establishes the perceptions and motivations related to art as an

asset class, as well as the current involvement with art and future

expectations

• Survey of 30 private banks predominantly in Luxembourg, but also in

Spain and Poland

• Survey among 112 art professionals (galleries, auction houses and art

advisors) and 81 important art collectors (up from 48 in 2011)

• Interviews with U.S. and European art funds, as well as public records

on art investment trusts and art funds in China

• Interviews with key figures in the Art & Finance industry

Launch of the Deloitte ArtTactic Art & Finance Confidence Indicator, an

annual barometer for wealth manager sentiment towards art as an

investment, art secured lending and the general economic environment in

the next 12 months

What is it?

Purpose

Methodology

A new tool


More awareness of art as an asset class

Source : The World Wealth Report 2012 from Capgemini and RBC Wealth Management states that the total wealth of HNWIs amounts to US$42 trillion.

As an estimate, this would equate to just over US$4 trillion of treasure assets, using the average figure of 9.6% reported by Barclays Wealth, which represents

the share of treasure assets as a percentage of wealthy individuals total net worth

US$4 trillion of

treasure Assets

Wealthy individuals hold an average of 9.6%

of their total net worth in treasure assets

33%

43%

2011 2012

Wealth managers surveyed strongly aware of

the developments taking place with regard to

art as an asset class

% of the wealth managers surveyed aware

of the developments taking place with

regard to art as an asset class


Increase in confidence among wealth managers in the

development of the Art & Finance industry

• Increased

confidence among

wealth managers:

the confidence

indicator is up 32%

on the 2011 figure,

from 32.0 to 42.3,

• Economic

uncertainty has

increased client

demand for art and

collectible

investments:

A large majority

(60%) of wealth

managers believe

that we will see

stronger demand in

the future for

‘collectible and

emotional’ assets, as

a result of the current

economic uncertainty

in the world.


Financial aspects of buying and holding art are becoming

more important

Art professionals are seeing an

increasing interest in the

financial aspects of buying and

holding art

59% of art professionals said their

clients were motivated by the

opportunities for portfolio

diversification suggesting that

financial motivations are becoming

more important

The emotional value of art is

the strongest motivation for

collectors

83% of the art collectors

surveyed said the emotional

value of buying art was most

important. It is important that

wealth managers recognise

that the strongest reason for

buying and owning art remains

the emotional factor


The role of art in wealth management is changing

The increasing value of art is

triggering the need for new wealth

management services

Art is no longer just a client

engagement tool

27%

43%

2011 2012

61%

27%

2011 2012

28% 40%

2011 2012

43% 44%

Wealth managers Collectors

Increasing focus on portfolio

diversification

Succession planning in art is

becoming increasingly relevant

41%

36%

2012 Use

Opportunity to use art collection

as collateral for loans

39%

18%


Triangular relationship: wealth manager – client – art

professional

Client demand is

opening up

possibilities for closer

collaboration between

wealth managers and

art professionals:

wealth managers

should consider

integrating art into their

service offering to meet

clients’ needs, and

collaborate with art

professionals who are

requested to provide

services that focus on

the financial aspects of

transacting and owning

art


The Art Fund Industry Landscape 2012

In 2012: 83 art

funds and art

investment trusts in

operation

Global art

investment fund

market =

US$1.62 billion

in 2012, up from

US$960 million

in 2011 58 art funds set

up in China since

2009

Existing art funds

increase funds

under management.

The Fine Art Fund

Group currently has

US$200 million under

management, up

from US$120 million

in November 2011

China’s art

investment boom

slowed in 2012:

US$367 million in

new funds in 2012

(vs. US$506

million in 2011)

The global art Investment fund industry is still a nascent market despite an asset

under management

increase of 69% in 2012

Art and

collectibles funds

– one of the

greatest

beneficiaries of

the Alternative

Investment Fund

Managers

Directive

(AIFMD)


Challenges facing the Art Fund Industry

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Lack of knowledge about the art market

Lack of an independent art investment councilorganization that promote guidelines?

Art Fund industry still too small (not enough artfunds)

Unregulated market

Lack of track record for this asset class / art funds

Valuation – lack of mark-to-market valuation

Lack of liquidity

Due diligence - Difficult to assess the art fundviability

What do you feel are the main hurdles for incorporating Art Investment Funds as part of the bank’s current client offering?

2012

2011


In what way will online art business affect art as an

investment?

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Leading to a more regulated market

Increasing demand for art investments

Improving valuation

Reduce transaction cost

Creating more market liquidity

Creating more transparency

Information and educating

In terms of art investment, how important do you believe many of the online art businesses will be in...

Collector

Art Professional


Data, research and analysis – getting to grips with tools

available for the Art & Finance industry

• Improved technology and online

index providers give users access to

almost immediate information on

changes in indices, as well as tailor-

made sector or specific artist indices

• Managing market and liquidity risks:

new tools and methodologies are

currently being developed to measure

market and liquidity risk more

effectively

• Market sentiment analysis will play

an important role for in reading and

analyzing the potential future direction

of the market


Education

• Education is an important tool in the evolution

of the Art & Finance industry

• Education will fuel development in art and

finance activities: a lack of knowledge is often

cited as a reason for the resistance against art as

an asset class; however a number of recent

education initiatives are likely to change this

• Academics are at the forefront of the


• Increasing collaboration between practitioners

and academics to discuss requirements and learn

the results of the academic research is critical to the


• The Annual Art Market Symposium


Although there are differences from a region to another and from one sector to another, there is has been general development of the Art & Finance industry in the last 14 months

• Economic uncertainty heightens the need for diversification, art is increasingly considered an alternative asset.

• Client demand drives both wealth managers and art professionals towards an Art & Finance market. New opportunities for these two industries to collaborate.

• Art wealth management: Art investment still a motivation but more holistic art wealth management services aimed at protecting and leveraging the art wealth will become increasingly important (art-secured lending, succession planning, art philanthropy)

• The growth of the online art industry will continue to drive the evolution and development of the Art & Finance industry by providing education and information, increasing transparency in the market, lowering the transaction cost and providing more liquidity.

• Academics and practitioners are coming together to improve the tools and our understanding and measurement of risks and return associated with art as an asset class.

Art & Finance Report 2013 – Key Messages


Case studies


What are Art Advisory & Philanthropy Services?

• Development of non-financial lifestyle services

• Holistic approach to wealth management

• Art research: authenticity, historical analyses,

price research

• Art transactions: purchase and sale,

representation of interests

• Art management: valuation, insurance, storage,

transportation, collection advisory

• Structured solution: inheritance planning, foundations

and trusts, philanthropy

• (Many) banks

• Family Offices

• Independent art advisors

Services

Trends

Players

Given the high expertise required, establishing partnerships with specialists is indispensable

Trend to

outsource

Trend to develop

in-house


Examples of Art Advisory Services

Real life examples

Sources: www.hsbcprivatebank.com/plan/design-and-art-advisory.html, http://www.ingprivatebanking.com/artadvisory.html

Situation

Action

Outcome

A client had a collection of

15 unidentified European

paintings which he wanted

to sell prior to the sale of

his home.

Due diligence:

authentication & valuation

of the collection

The collection included five

19th Century Russian

paintings.

HSBC arranged for the

works to be sold at auction:

Several works went for

300% more than their

reserve prices and the

collection was sold entirety.

A client inherited a

highly sought after and

valuable Old Master’s

painting which he

wanted to sell privately

We sold the work via

our network of private

collectors.

Thus the transaction

was handled discreetly

and the client was able

to save associated

transactional charges.

2. Discreet Sale 1. Unattributed paintings

Examples of Players


Source: http://www.pwm.db.com/global/en/philanthropic_and_art_advisory.html, http://www.andbank.com/en/private-clients/global-counselling/advising-on-philanthropy-and-art

Philanthropy will become increasingly

structured, as individuals seek more

efficient ways to give.

Reasons why people give to charity:

• having an emotional connection

• taking social responsibility

• creating sustainability

• creating a family history

• Intra-generational wealth transfer

• leaving a local legacy

Services:

• Establish foundations or funds

• Incorporate philanthropic pursuits directly into overall wealth strategy

• ensure the tax treatment most beneficial to charitable objectives

Relationship managers can help

clients to explore these reasons.

Rising demand for philanthropy advisory

Examples of Players

Currently, there are big

intra-generational

wealth transfers.

To prevent rash sales

of family collections,

foundations are an

interesting solution.


What are Art Financing Services?

• Growing demand from UHNWIs to turn their art collection into

working assets

• Art used as collateral

• Term loan: Borrow against art

• Acquisition financing

• Revolving lines of credit

• Dealer inventory financing

• Bridging loans, advances & auction guarantees

• Arranging loans to museums and exhibitions

• (Few) commercial banks (e.g. Emigrant Bank)

• Specialized asset-based lenders

• Auction houses

Services

Trends

Players

The number of banks involved in art financing is still very limited but there is an increasing interest to offer the service


Examples of Art Financing Services

Source: https://www.privatebank.citibank.com/our_services/individuals_families/wealth_advisory/artFinance.htm, http://www.emigrantbankfineart.com

Examples of Players

“When our mother passed away, I wanted to

keep her art. My brother didn’t, so the

executor borrowed against the art and used

the funds to make a distribution to my

brother.”

Real life examples

“I have a client who wanted to open an

investment account. She has lots of

assets, including art, but she’s fairly illiquid.

I helped her arrange an art loan to improve

her cash position.”

“My client is interested in a new investment

opportunity, but he doesn’t want to liquidate

his portfolio holdings.

I helped him borrow against his art instead.”

“When my client’s mother passed away, he

wanted to keep her art.

His brother didn’t, so he borrowed against

the art and used the funds to make a

distribution to the brother.”

Inheritance

Liquidity

Investment

opportunity

Partnership

“When our mother passed away, I wanted to

keep her art. My brother didn’t, so the

executor borrowed against the art and used

the funds to make a distribution to my

brother.”

UBS Wealth Management Americas

“We had no way of solving for certain ultra-high-net-worth

client requests where art was part of the collateral

equation.” … “We have significant investor appetite.”

They outsourced art loans to Emigrant


What are Art Investment Services?

• Art as a new alternative asset class

• Development of collectible investment funds

• PSF as a potential new business model

• Art investment research

• Portfolio management

• Monitoring and selection of art funds

• Structuring of art investment funds, funds of

art funds and art investment clubs

• Securitization of art collections

• Depositary of art collections

• Chinese banks were first to have own funds, European banks

are following

• Banks/FO: introduction of funds on request of clients

• Credit Suisse leading in research and portfolio management

Services

Trends

Players

New business opportunities: link wealth management and investment funds activities

Front-office

Back-office


Examples of art-related investment services

Source: http://www.businesslife.co/BusinessNews.aspx?id=collas-crill-is-lead-counsel-on-new-jersey-art-fund, http://www.berenberg-art.com/en/services.html,

http://skatesartinvestment.com/2012/07/11/abbey-house-rapid-growth-continues-as-company-prepares-to-list-artbusiness-magazine/

Examples of Players

“When our mother passed away, I wanted to keep her art. My brother didn’t, so the

executor borrowed against the art and used the funds to make a distribution to my

brother.”

Berenberg Art Capital Fund Limited

• The fund was authorised as an Expert Fund

by the Jersey Financial Services

Commission on 1 October 2012. .

• Berenberg Art Advice GmbH, Germany, will

act as the investment advisor of the fund.

• The fund will be closed-ended, and have a

life of seven years, subject to three times one

year extensions.

• It will invest in around 200 exclusive works

of art

• The fund will invest in five different

categories of art work: Old Masters,

Impressionist, Modern Art, Contemporary Art

1960-1985 and Contemporary Art after 1985.

General

Information

Investment

China Minsheng Bank was the first Bank to establish own

art funds

Abbey Art Fund is a Polish fund with 90 mature investors


Free Port – Q3 2014 in Luxembourg


Art & Finance Team


Overview of our services

Started in 2011. Based in Luxembourg

Based on our information and network,

Deloitte is so far the only “Big Four”

offering Art & Finance services

Our aim is to be at the crossroads of a

multiplicity of clients and of a wide

range of expert services

2 long term objectives

Center of excellence

Art & Finance cluster


Our clients / prospects – 3 global sectors with strong interconnections

Type of clients Targeted group Location

Financial sector

Art-related companies

Cultural sector

• Worldwide

• Worldwide

• Private Bankers

• Wealth managers

• Family offices

• Private investors

• Art / collectible funds promoters

• Art insurances

• Art trading companies

• Worldwide

• Large public museums

• Private museums

• Public investors (government, city, etc.)

• Private investors (individuals or

companies)

• Companies selling art (auction houses,

art fairs, galleries)

• Digital Art companies (online platforms,

data dissemination companies, etc)

• Art logistics companies

• Arts & Media companies


The Art & Finance services are build on 4 pillars

NON EXHAUSTIVE

• Strategic planning

− Feasibility study

− Business plan

• Implementation

− Promotion and marketing

strategy

− Awareness and promotion

plan

• Management

− Process and organisational

review

− Financial health check

− Education & Learning

− Plan to develop earned

income

− Communications and

marketing planning

2 Museum strategy

• Direct tax consulting for

estate planning & tax

optimization in the art field

• VAT services

• Collection finance: using art

as collateral

• Philanthropic planning

• Art investment consulting

(research, advise on

selecting art, educate staff

and clients);

• Forensic & Anti-Money

Laundering services

• Implementation of art-

related investments

services (feasibility

assessment, review of

depositary function related to

art funds, etc.)

3 Financial sector art-related

services

• Strategy & Operations

− Market and competitors

analysis

− Master plan & Business plan

− Organizational structure

review and improvement

• Finance

− Review of cost / revenue

structure

− Revenue generation

strategies

− Capital raising

• Marketing

− Image positioning & branding

− Marketing & Communications

• Education & Learning

1 “Traditional” consulting

for art-related companies

• Art investment

− Art investment research

(quantitative and qualitative)

• Set-up

− Structuring of art funds

− Selection & due diligence of

art funds

− Regulatory audit services for

collectible investment funds

• Art enhancement

− Assistance in the selection of

third party service providers

• Education & learning

− Courses for financial

professionals

Art fund development /

coordination

4

• Public & private

museums

• Public and private

investors

• Wealth managers,

private bankers, family

offices, law firms

• Private investors

• New or established Art-

related companies

(trading platforms,

auction houses,

galleries)

Clie

nts

• Art / collectible fund

promoters

• Family offices, banks, private

investors, institutional


Contacts

www.deloitte-artandfinance.com

http://www.deloitte-artandfinance.com/




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Come è cambiato il mondo dell'art advisory nella prospettiva