Collateral

The art of securitisation

At OMNIA, art functions as backup for our private equity investments, and for the art owner there is an entire unleveraged private equity portfolio protecting the art. And with low yields and limited investment options available, art and collectibles are one of the alternative assets that are increasingly considered a store of value – a motivation that remains significant among collectors and art professionals. You can read more about our asset solutions on omniaas.com.

For more than 20 years, artworks have been sold at auction houses, such as Sotheby’s and Christie’s, within 15% of the valuation and skewed in an upward direction according to registered auction history. Thereby, fine art has proved to be a stable asset class, which makes securitisation of art better than securitisation of properties in many cases.

ART VS REAL ESTATE 

It is interesting to compare art as an investment with that of real estate, which is often mentioned as one of the safest investments. Numbers from 2015 shows the average 20-year returns in commercial real estate is 9.5%, residential and diversified real estate investments is 10.6% and real estate investment trusts (REITS) average annual return is of 11.8%.

However, artworks sold for over USD 10 million have generated a 27% compound annual growth rate, or a 1,000+% return over ten years.

From a rating and securitisation perspective, the lower the loan-to-value, the lower volatility and quicker sale without the need for fire sale, and the better the collateral. Within all those terms, fine art might be a better match than real estate, which currently enjoys top rating. Maybe we will see this change in the near future.

INCREASE VALUE WITH THE RIGHT VALIDATION PARTNER

Our authentication partner, Analysis & Research (AA&R), offers technical investigations of paintings through their fully equipped and state-of-the-art laboratory, and they have decades of combined experience working with paintings from the medieval to the mid-twentieth century, European Old Masters to the Russian Avant-Garde and American abstract art.

MAKING ART INVESTMENTS EVEN SAFER

Although art per definition has an element of subjectivity to it, and we once in a while see spectacular sales, art as an investment is much less volatile than one might think. As mentioned earlier, we see that appraisers generally get remarkably close to the final auction price.

There is a great amount of data collection that is accessible on art – today, you can retrieve just as much data on art as you can on real estate. We see the yearly Art & Finance Report from Deloitte, and a company like Pi-eX, which has built a proprietary database of auction sales results and developed a systematic methodology for analysing liquidity, performance, volatility and volatility hedges. Pi-eX strives to provide valuable market-focused information to art collectors and investors to better understand liquidity, performance and volatility in the fine art market.

Another interesting aspect providing further security for art investments is the possibility of financial products like futures auction sales (CFS derivate), where art sellers hedge part of the risk by letting investors take a speculative short-term position in the fine art market, and auction guarantees, where the financial market and not the auction house takes the risk. This is possible due to the before-mentioned great amount of auction data available to the market.