A JV of Carlyle Group and Pictet to deliver "merchant banking" savvy to the art market has been recently been sold. What does this say about the art investment market today?
Chroniclers of the world’s art and investment market are scratching their heads about a recent deal by New York-based investment platform YieldStreet to buy Athena Art Finance from its owners, Carlyle Group and Pictet for far less than what was originally pumped into it.
The development suggests high finance and art do not easily or always gel.
Trade publications artnetnews and The Art Newspaper have made much of how YieldStreet (which is reportedly backed by George Soros) forked out only $170 million for Athena. Carlyle and Geneva-based Pictet had originally put $280 million into it when the organisation was originally founded in 2015.
This news service interviewed former chief executive and founder, Andrea Danese, last year, and he gave an upbeat view of how this business was attempting to apply merchant banking techniques to the art market. Cynthia Sachs recently replaced Danese as the chief executive of Athena. Danese has gone on to follow new opportunities, reports said.
YieldStreet is certainly bullish on a business such as Athena. “True to our investor-first approach, we are constantly looking for unique and attractive diversification opportunities,” Milind Mehere, founder and CEO of YieldStreet, said in a statement earlier in April. “Athena is the leading provider of credit solutions for the global art market and has scaled the business with strong growth and asset performance. Art financing is an attractive asset class with typically low correlation to the stock market and low loan-to-values, providing what we believe is both an exciting and sound new investment option for our investor community of more than 100,000 members.”
So how valid is YieldStreet’s optimism? Well, it may be that it has to tweak the business model somewhat and be more realistic about how much collateral is available and how large any loans can be, at specific interest rates. A senior art advisor in London told this news service recently that the art market doesn’t yet have the depth of liquidity, or pool of available collateral, to make the model work as effectively as Athena’s founders might have originally hoped.
The Athena sale might also be a reality check for the art market, which to outsiders can come across as incredibly glamorous, rich and a bit mysterious. The market can certainly indicate how willing HNW individuals are to spend money – a sort of feel-good barometer. Art has at times also been touted as an inflation hedge rather like gold or forms of real estate, so it can also have a safe-haven appeal.
The sector is opening up. Modern technology has affected art investment, such as by the rise of digital auctions and more information at buyers’ fingertips. Such moves make it less opaque, but pockets of inefficiency remain. Regulators are catching up with a market sometimes known for sharp practice: recent EU anti-money laundering directives have widened the regulatory net into this area.
A number of advisors work in the art investment and collections space. Groups such as Citi Private Bank, to take an example, advise clients. In the US, this publication’s sister news service Family Wealth Report earlier this year honoured Ron Varney Fine Art Advisors for its work in the space. Art advisory is a way for wealth managers to connect with clients beyond talking about stocks and tax plans.
YieldStreet wants to “democratise” art investment and art media pundits wonder how plausible that is when the overwhelming majority of art financing involves private clients borrowing against their own art collections. But technology may prove useful, and it is perhaps easy to see why some Wall Street and City investment whizz kids reckon there’s money to be made. Consider some of the figures: artnetnews has cited data from the European Fine Art Association saying that loans to independent collectors account for up to 90 per cent of the estimated $20 billion art-finance market. The recent Art Basel and UBS report on the total art market gives a global figure of $67 billion, which may be small compared with equities or bonds but is not exactly chump change.
The Athena sale then may not be a great story for its founders in terms of how much money was made, but in capitalism, even real or perceived setbacks yield knowledge about what’s possible. What appears certain is that the art investment market isn’t done with innovation.