This interview is part of series of artist interview, released every month in our newsletter.
Having worked for many years as a business advisor in the financial industry, Adriano Picinati di Torcello is in charge of coordinating art and finance activities at Deloitte Luxembourg and in the Deloitte global network of member firms. Adriano co-writes Deloitte and ArtTactic’s Art & Finance report, published every 18 months, which compiles information from finance consultants, art professionals, and art collectors regarding the main trends and developments in the global art market. Since 2008, Adriano organises the annual Deloitte Art & Finance conferences, which have been held in various cities around the world, inviting top-notch speakers and art industry professionals to debate the importance of art as an asset class.
Rosemont Art Advisory is honored having attended this year’s edition of the Deloitte Art & Finance conference on “The Place of Technology in Art and Finance” held at the Philharmonie Luxembourg and for this occasion has interviewed Adriano Picinati di Torcello.
According to last year's Art Basel and UBS Global Art Market Report, on the list of motivations for why people buy art, financial investment was just number five coming in after aesthetic, emotional and cultural motivations and such. There are still many people in the industry who are convinced that art should be bought and sold because it is enjoyed and generates a special response in the viewer. However, the Deloitte report states that ‘art collectors appear to be increasingly focused on investment returns’. How would you comment on this?
I think we are aligned. Based on our findings conducted for the fifth edition of the Deloitte & ArtTactic Art & Finance report, a large majority (86 percent) of art professionals said that their clients buy art and collectibles for emotional reasons (passionate about collecting), but also focus on investment value—not only investment return but also art as a means of safeguarding value. This was up from 79 percent in 2016.
65 percent of art collectors surveyed said that they bought art for collecting purposes with a view to investment, which is down from 76 and 72 percent in 2014 and 2016 respectively. This trend could suggest that the financial aspect of buying art is now slightly less important to many art collectors than it was in previous years, although the majority of art collectors still buy art with financial considerations in mind.
From our analysis, we note that for the majority of collectors, buying or collecting an artwork is driven by the emotional benefit of collecting, but also linked to the potential of a value increase and/or store of value, i.e., value protection. This is why collectors are asking for qualitative and quantitative information on the artworks they intend to buy. This is an important point to have in mind when designing and implementing art-related services for private banks and wealth managers.
You have estimated that ultra high-net-worth individuals have now invested around 1.6 trillion dollars in collectible assets, and by 2026 you estimate that this amount will be 2.7 trillion. More and more wealthy people are buying art objects, thereby creating a demand for art and wealth management services.
What are the main risks for the HNWI when buying, managing and selling their art collection ?
Any asset acquisition is subject to certain risks. For art, it is important to understand which risks or issues we can encounter and to stick to the obvious principles: buy well, hold well and sell well. To illustrate those relevant aspects/risks and without intent to suggest an exhaustive list,
Buying
- Need of art market expertise to deal with the lack of transparency, high barriers to entry, large transaction costs, low liquidity, made up of a number of different markets, etc…
- Art acquisitions: access to attractive deals, quickly mobilize financing, prevent conflicts of interest, diversification, stringent controls, governing exposure limits, etc.
- Due diligence: authenticity, provenance, condition of the work, counterfeit art / title to works of art, valuation, exhibition history, rarity of the piece within the artist’s oeuvre, etc.
- Tax, legal, insurance
Owning, loaning & moving
- Inventory
- Transport: specialized shippers, insurances, procedures
- Physical security of art works: specialized storage facilities, insurances, physical checks
- Counterparty risk in case of art works in co-investor’s possession and co-invested capital: regular risk monitoring, reporting, on-site due diligence
- Exhibition place
- Valuation and insurance
- Family governance
- Tax and legal
Selling/donation
- Family governance
- Estate planning
- Valuation and legal
- Losing money on an investment (or market risks)
- Being unable to sell when you need to (or liquidity risks)
- Successful sales / donation
We are faced across all sectors of the luxury industry with more and more transparency and due diligence. The art market with its existing and non existing rules and codes of conduct still remains an unregulated platform. Despite all of the attempts to regulate it, the art market is still very opaque and unregulated; but now that there is a growing interest in art investment, and the fact that art is now considered an asset class, do you see ways in which the market could change?
The market has been a little bit stuck in the “old times” but now – with globalisation and free and open exchange – there is a need to increase transparency to develop the market. This will reinforce trust and support the economic development of the market by attracting new clientele, which in turn will be beneficial for all stakeholders from artists to dealers in the primary and secondary markets, museums, etc.
There is more and more money involved in art, so you do need to reach a certain level of transparency. We have new collectors coming into the market and they have to know to whom they can turn to for good services. Proper qualifications, codes of conduct and best practices all aid the selection of trusted parties. That is why there is so much discussion around self-regulation versus government regulation.
The art market is under major transformations and regulation is one of the trends transforming the market.
How do you apprehend the impact of the technical revolution on the art market?
And how can technology support trust in the art market?
Focusing on technology, it is important to note that for several years now, we have an acceleration of its penetration in the art space through the internet, increasing digitalization of artworks, 3D and augmented reality, virtual reality apps, mobile apps, mixed reality apps, artificial intelligence, blockchain, big data, generative adversarial network, etc. It has many different implications: from new mediums for artists; better data and analytics; an easier way to achieve a global reach and to experience art online and on site; the diffusion of art on a global scale; social media influences on art and the promotion of artists; new tools to increase transparency, traceability, trust, copyrights management, due-diligence, KYC-AML; new business models, among others.
Blockchain is an interesting technology to increase trust but any blockchain is only as good as the data put into it, and so the same vetting of information to ensure erroneous data is not set in ‘digital stone’ is required. Furthermore, blockchain-enabled solutions must reach a critical mass to be effective, i.e. enough players in the artwork’s lifecycle must adopt the blockchain system for it to become valuable.
The art world is rich in data, however, the sharing, accessibility and cleanliness of its data remain fundamental issues. Auction houses’ data may be readily available, but for galleries, collectors and other private organisations, data often remains a closely guarded secret.
What are the challenges to deploy blockchain in the art market to allow fractional investment in artworks?
The 11th edition of the Deloitte Art & Finance conference tried to address specifically that question. Here are some of the challenges that were discussed:
- Is there a desire for fractional investment in art?
- Do you need a blockchain to fractionalise an art asset? A trusted centralised application might do it as well without blockchain.
- In the last 12 months, we have seen the rise and fall of many Cryptocurrencies. Why do you need a crypto coin to implement such a business model?
- Risk of manipulation. Art exchange platforms may create “pyramid” scenarios in which marketplaces solicit more investors to retain past investors and to distribute expected returns to departing investors. Is there a risk of creating Ponzi schemes?
- How to ensure market supervision to avoid price manipulation?
- Liquidity. How will you manage volatility and price inflation? How will you create liquidity? Is there room for two or more marketplaces or will the winner take it all?
- Valuation. Experts struggle around the issue of valuation when offering works for sale. How to solve this issue?
- Security. Hackers develop malware specifically designed to steal funds from blockchain “wallets”. Shall we be concerned about security?
- Matching. How to guarantee the exact matching between a physical object and the registered information on the blockchain?
- Legal/regulation. What legal and regulation framework will apply to fractional investment in artworks?
Now, it is important to keep in mind that any innovation comes with its questions. The momentum around fractional investment in artworks is very interesting and most likely answers to the challenges that will develop gradually.
In your presentation, you mentioned the case of the Picasso painting Buste de mousquetaire (1968), which in April 2018 was bought at auction by 25,000 people as a group from the Swiss online crowd-funding site QoQa. You said that art transactions of this nature will increase. Could you tell us more?
Qoqa put Buste de mousquetaire up for sale last December, offering 40,000 shares in the painting at a cost of $51 each. Over the course of just three days, 25,000 people purchased a piece of the artwork through the platform. Each buyer has been issued a card that entitles them to see the painting, on view in Geneva until October. Where the artwork goes next will be decided by the thousands of proud new owners.
This is a very interesting case study and tends to illustrate a potential interest for fractional investment in artworks with a social component. If we think a bit out of the box, a certain number of interesting applications could be tested around this concept.
Financial resources are necessary for cultural management. Take the case of the Rio museum – 90% of it is gone. It was a case of lack of funds for proper management, apparently.
Could we have a model in which the ownership of a collection/museum is shared and there is a marketplace where shares can be sold and bought, and shareholders have access to the museum?
Now you have opened a really interesting door. Museums that have collections of great value currently keep the monetary value for themselves, so it is not really leveraged or shared. Could we think of a model where they share the ownership of the collections? Let’s say they keep the majority of the control; they keep showing and maintaining the works so investors know that everything is properly managed by experts, but in fact ownership is shared to a certain extent and the museum has more money to support its cultural objectives. Could that approach be considered as social investing? I think it is a debate to be had, especially if it can support government to have a more impactful cultural sector.
Who is your favorite artist and if you were to invite one important artist to your conference who would it be and why?
Very difficult question, you have some many very interesting artists, the choice is potentially very large provided they will be willing to participate. I prefer to pass on this question. :-)))
How do you see the place of art and artists in Monaco?
A lot has already been done around art in Monaco but we can always do more, as art and the artists are essential to a society in my view. Now we notice an increasing interest from cities, regions, and countries in regard to their cultural assets and management because culture starts to be understood as an economic driver and socially influential for a city, region or country.
What will be next year’s conference talking about?
Still confidential. We are working on it and it will be disclosed in due time.
For more information please contact Karolina Blasiak, Rosemont Art Advisor, k.blasiak@rosemont-mc.com or Tel: +33 (0) 607 93 15 92
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Credit Picture - Blitz Photo Agency/Laurent Antonelli