Art is capital, but of an illiquid nature. Thus, the possibility to turn art temporarily into money, without having to sell it, is an important option when considering investments in this asset class.
The desire for cash has many different motivations: a private collector might find a piece of art he has always been looking for and want to buy it immediately. Others have to cope with the typical tragedies of death, debt, and divorce. A wealthy entrepreneur could be surprised by back taxes or discover an interesting venture idea. Galleries seek art-secured loans to temporarily pre-finance art fairs all around the globe or to finance their working capital, mainly consisting of works of art kept in art storage facilities. And even artists may need to borrow on their own works of art to buy raw materials and pursue new projects.
A business model specializing in art market clientele and based on international standards has been developed in the European and German market over the last few years: collateralized non-recourse loans on high-value works of art. There are companies internationally to do this, such as Art Capital Group and Emigrant Bank Fine Art Finance. In addition, big banks and private banks provide such financing, primarily for wealthy private customers as well as large auction houses, which offer art-secured lending solutions as a way to promote their core business.
Great value is placed by the bank on absolute transparency for customers in the financing process, while also ensuring discretion and the provision of professional advice. Due to the legal framework in Germany, tangible assets pledged under a German pledge agreement must—in contrast to the British chattels mortgage or the US UCC system—be possessed directly or indirectly by the lender. Nevertheless, generally a loan can be taken out e.g. in Germany and secured by a work of art that is stored abroad. New providers including Athena Art Finance Corp and Westend Bank now follow this model.
Besides providing our clients with information regarding the art lending business we also do advise our clients in the field of art investments. This could either work as an individual diversification of your asset portfolio or contemplate investing in an art fund. Don’t hesitate to contact us, we would be happy to advise you.