Deloitte recently released its 2016 Art and Finance Report, which notes a softening in the art market, but also a growing trend toward art-secured lending. Analysts estimate that the art-secured lending market has grown 15%-20% in the U.S. in the past 5 years. Private banks dominate the art-secured lending market with a loan book size of more than $13 billion and a 5 year average annual growth rate of 15%. However, auction houses and boutique lenders continue to capture market share, experiencing 5 year average annual growth rates of 30% and 13%, respectively, and offering borrowers more flexible deal structures and non-recourse loans.
The U.S. dominates the art-secured lending market, primarily because the UCC allows borrowers to remain in possession of the works while the lender simply registers a security interest. Analysts suggest that this favorable legal environment removes the stigma from borrowers looking to monetize their art investment without losing possession of their artwork. Additionally, the rise in art-secured lending has allayed concerns regarding the illiquidity inherent in artworks and encouraged otherwise skeptical investors to consider art as an investment.
Challenges to the art-secured lending market remain. Wealth managers cite to the lack of market-to-market valuation, the resulting difficulty in assessing risk, and the perceived lack of regulation in the market as some of the primary impediments to expanding the art-secured lending market. However, almost 70% of wealth managers surveyed for the 2016 report stated that their institution offers services related to art-secured lending, compared to just 48% in 2014.
Read the complete 2016 Art and Finance Report.