Presentation Transcript

1. ART MARKETS: A NEW ERA

   April 2014 CONFIDENTIAL
2. Executive Summary Art as an Alternate Asset Class Global Art Sales and Key Trends Asian Art Market – A Perspective Art Fund Industry Key Challenges for Art Investments
3. Executive Summary Investment in art, which was commonly classified as ‘passion investment’, has been redefined as an attractive alternative asset Art has a low or negative correlation with other traditional asset classes, thereby providing an appealing diversification opportunity In 2012, artwork worth €43bn was traded globally, up nearly 2x from the amount traded 10 years earlier Although sales are still below the peak in 2007, owing to the global recession, average transaction size has grown robustly and remains almost 1.5x that in 2002 Sales of fine & decorative art declined in auction as well as dealers markets in 2012, primarily due to lower volumes However, both sales channels expanded more than 2x in the last decade Buyers are more inclined toward post-war/contemporary and modern art investments which, together, accounted for 73% of global art sales in 2012 Post-war and contemporary art yielded returns of 130% and 121%, respectively, over 1998–2013, exceeding that of the global art index (105%) The global investable wealth of high net worth individuals (HNIs) is expected to increase at a CAGR of 6.8% to US$55.8 trillion (tn) by 2015, primarily driven by growth in the Asia-Pacific region (CAGR of 9.8%) Hence, the Asia-Pacific region would remain the key market for growth Asia has emerged as the growth engine of the global contemporary art market, as the continent is home to 12 of the top 20 cities by art turnover China is the region’s strongest market, with art sales increasing 10x during 2004–12 Southeast Asia is also witnessing increasing traction Southeast Asian art worth US$27mn was auctioned in Sotheby’s fall 2013 auctions, more than double the presales estimate of US$13mn Increasing demand for art investments is driving growth in the art fund industry; more than a third of these funds are based in China Key challenges in the art market are the global economic environment, valuation of art, illiquid market, high cost, volatile performance, risks to title and authenticity, and high barriers to entry
4. Emergence of art as potentially strong alternative asset class improves its popularity During the 25 years to 2011, art (as measured by the Mei Moses World Art Index) had almost zero correlation with US equities and was negatively correlated with fixed income and real estate investment trusts (REITs) ART HAS A LOW CORRELATION WITH OTHER FINANCIAL ASSET CLASSES Source: JP Morgan, ECJ Capital Research
5. Art currently forms an increasing component of HNIs’ investment portfolios Growing economic uncertainty is leading to a rise in the share of alternate investments in HNIs’ investment portfolios Within the alternative investment asset class, investments in art are rising significantly ALTERNATIVE INVESTMENTS CONSTITUTE ~10% OF HNIs’ WEALTH ART ACCOUNTS FOR ~17% OF HNIs’ ALTERNATIVE INVESTMENTS 2007 2013 Q1 * Luxury Collectibles include automobiles, boats, and jets, among others; ** Sports Investments comprise sports teams, sailing, and race horses, among others; * Other Collectibles include coins, wine, and antiques, among others Source: Capgemini, Merrill Lynch, RBC, ECJ Capital Research
6. Diversification benefits, an important driver of investment in art According to the Deloitte ‘Art & Wealth Management Survey 2013’, although non-financial elements dominate, a majority of wealth managers, collectors, and art professionals favor investments in art due to diversification benefits as against investment returns PORTFOLIO DIVERSIFICATION MORE IMPORTANT THAN INVESTMENT RETURNS 43% of Wealth Managers Stated portfolio diversification was one of the strongest arguments for including art and collectibles in traditional wealth management In the long term, the diversification benefit reduces portfolio risk even though the impact of global uncertainties and economic situations trickles down to every asset class, including art 44% of Art Collectors Revealed portfolio diversification was the primary motivation for investing in art Said they are motivated by opportunities for portfolio diversification 59% of Art Professionals Source: Deloitte’s Art & Finance Report 2013, ECJ Capital Research
7. Global art sales on a strong uptrend, approaching pre-crisis level Over the past decade, the value of art sales increased almost 2x, whereas average transaction size expanded around 1.5x GLOBAL ART MARKET EXHIBITING STRONG GROWTH Art market rebounded significantly in 2010 and 2011, approaching the pre-crisis level In 2012, deceleration in China impacted art sales Average transaction size has grown substantially and remains almost 1.5x than that in 2002 Average Transaction Size (€) Source: The European Fine Art Fair (TEFAF), 2013, ECJ Capital Research
8. Sales of fine and decorative art worldwide rising significantly at auctions Despite growth decelerating year-on-year in 2012, auction sales remained strong ART AUCTION MARKET GROWS OVER 2X IN THE LAST DECADE Sales declined in 2012, largely due to lower volumes in developed markets Source: The European Fine Art Fair (TEFAF), 2013, ECJ Capital Research
9. Fine/decorative art sales in dealer sector account for 52% of global sales Dealer sales were estimated at €22.2bn in 2012, down 4% from 2011, but, their share in the global art market grew to ~52% Galleries remain the most important channel; however, art fairs and the event-driven market rose steadily in the last decade DEALER SALES DECLINED, BUT SHARE IN GLOBAL MARKET GREW GALLERY DOMINATES DEALER SALES, 2012 Share in global art sales ~50% ~52% -4.0% Sales of ~€22.2 bn Source: The European Fine Art Fair (TEFAF), 2013, ECJ Capital Research
10. Buyers more inclined toward post-war/contemporary and modern art investments Buyers are increasingly purchasing post-war/contemporary and modern art, making them the most important sales generator Together, they accounted for 73% of total global art sales in 2012 POST-WAR/CONTEMPORARY AND MODERN ART OUTPERFORM MARKET SHARE INCREASING (% OF GLOBAL SALES, 2012) By Transaction Volumes By Value of Art Sales Source: The European Fine Art Fair (TEFAF), 2013, ECJ Capital Research
11. Post-war and contemporary art performing robustly Over 1998–2013, the indices of post-war and contemporary art yielded returns of 130% and 121%, respectively, exceeding returns of 105% generated by the global index POST-WAR AND CONTEMPORARY SECTORAL INDICES OUTPERFORM GLOBAL INDEX Strong demand for post-war and contemporary art driving up higher returns Source: Artprice Global Indices
12. Emerging economies, with rising HNIs, are key markets for growth… Higher growth in emerging economies caused a relatively sharper increase in the number of HNIs and their investable wealth Surging HNIs are likely to drive stronger growth in the sale of luxury goods, including artwork ECONOMIC OUTLOOK FOR MAJOR ART MARKETS SHIFTING WEALTH DISTRIBUTION TOWARD THE EMERGING WORLD The Asia-Pacific region is expected to lead growth in global HNI wealth in the next three years Source: IMF World Economic Outlook, October 2013, ECJCapital Research Source: Capgemini, Merrill Lynch, RBC, ECJCapital Research
13. …and exhibit significant demand for art High demand for art in the Asia-Pacific region (excluding Japan); ~17.3% of passion investment dollars allocated to art Sotheby’s growth in recent years largely driven by new markets outside US and UK COMPOSITION OF PASSION INVESTMENTS SOTHEBY’S MAIN MARKETS Source: The European Fine Art Fair (TEFAF), 2013, ECJ Capital Research
14. Asia emerges as a key global growth center for contemporary art… Asia accounted for ~45% of global revenue (US$2 bn) in contemporary art auctions during 2011–12 Around a decade ago, 80% of the art market was shared between two centers: London and New York ASIA: A MAJOR CENTER OF WORLD ART 12 of the top 20 art cities globally in Asia Top 20 cities by % of contemporary art sales turnover (2012) Source: Art Stage Singapore, artprice.com, ECJ Capital Research
15. …driving increasing cross-border art trading Greater wealth in buoyant economies in the emerging art market has not only improved domestic consumption but also increased imports ART TRADE IN MAJOR ART MARKETS Source: The European Fine Art Fair (TEFAF), 2013, ECJ Capital Research
16. Auction sales expand 10x in China during 2004–12… Auction sales in China increased robustly in the past decade; value expanded to €9.8bn in 2011 from €691mn in 2004, with average transaction size up 5x; growth decelerated in 2012, following the global slowdown CHINA’S ART MARKET: A TIMELINE The economic dynamics and rich cultural heritage of art and antiques have helped create a large market in China Source: The European Fine Art Fair (TEFAF), 2013, ECJ Capital Research
17. …altering the structure of the global art market as a whole China was one of the strongest art markets in the past decade, with its share rising from 9% in 2008 to 30% in 2011 Ending the virtual duopoly held by London and New York for the past 50 years THE CHINESE ART MARKET China’s share in global art market declined to 25% in 2012 largely due to slowing demand and fewer high-quality, high-priced works Source: The European Fine Art Fair (TEFAF), Annual Updates, ECJ Capital Research
18. Art markets in Southeast Asian countries too growing significantly Art auctions in Southeast Asia have constantly grown in the last few years Reflecting wider recognition of the art of Southeast Asian artists and global acceptance of the region’s art TRENDS IN SOUTHEAST ASIAN ART Southeast Asian art worth ~US$27mn was auctioned in Sotheby’s fall 2013 auctions, more than double the presale estimate of ~US$13mn Sotheby’s Hong Kong Autumn 2012 auctions marked a record sale of Southeast Asian art Sales of modern and contemporary paintings amounted to US$15.5 mn, surpassing the pre-sale estimate of US$5.8 mn and achieving the highest auction total in this category As compared with its peers, the Indian art market is at a nascent stage, in terms of buying art Singapore is one of Asia’s key art markets and one of the most versatile cities in Asia, offering art from across the continent Source: ECJ Capital Research, Industry News
19. Growing demand for art investments drives growth in art fund industry… Growth is largely due to the investment community’s increasing recognition of art as an asset class that offers strong potential for price appreciation and diversification benefits GLOBAL ART FUND AND ART TRUST MARKET (AUM) TREND Almost 83 art funds globally have artwork worth ~US$1.62 billion in assets under management 2012 ~69% The US, Europe, Korea, and Brazil AUM of ~1.6 bn China Note: Above AUM is a conservative estimate based on publicly available information; this does not include a few large funds recently announced due to lack of information Source: Deloitte’s Art & Finance Report 2013, ECJ Capital Research
20. …dominated by strong growth in Asia The art fund industry has emerged robustly in Asia, driven by growth in funds and trusts in China Reflecting growing investment interest in emerging markets GLOBAL ART FUND MARKET – FUNDS RAISED ANNUALLY AND NUMBER OF ART INVESTMENT FUNDS BEING LAUNCHED Estimated 83 art funds and art investment trusts in operation in 2012; of these, 58 set up in China since 2009 Source: Deloitte Luxembourg & ArtTactic Art & Finance Report 2013, ECJ Capital Research
21. Art offers potential for high returns along with unique associated risks KEY RISKS/CHALLENGES FOR ART INVESTMENT Performance Influenced by Global Economic Environment Although individual sectors in the art market experienced different trajectories of growth, overall performance is tied to the wider economic environment Challenges in Valuation Trading volumes are extremely small, making it difficult to arrive at an objective valuation Indices such as Mei Moses have a selection bias, as they only account for auction sales Illiquid Market Sellers cannot always offload as required Large bid–offer spreads make arm’s-length transactions difficult Art investment funds typically have a lock-in period of 3–5 years High Costs Buyers can expect upfront payment of up to 25% Sales tax, import taxes, transport costs, and brokerage fee add around 10% to the purchase price Ongoing costs incurred for insurance, storage, and maintenance need to be considered (1–5% of the value of the artwork) Risk of Title and Authenticity Ownership risks in the art industry have evolved over time due to lack of transparency in transactions Although financial institutions have made significant advancements in assessing the value and risks associated with art assets, proper due diligence for authenticity is often a challenge High Barriers to Entry Investment in quality art requires significant funds, which is a deterrent for small investors Source: ECJ Capital Research