If you are serious about art collecting, you need to be serious about insurance too, because events such as theft, weather damage and accidental damage are a perennial problem. Underinsurance is also an issue, especially as may collectors do not have a clear idea of what their collections are worth.Including your fine art and collections within your property programme may lead to uninsured – or seriously underinsured – assets, unnecessarily high deductibles, or incorrectly rated premiums. The bottom line is that anyone whose collection is worth more than a few thousand dollars needs to look beyond their regular home insurance for protection. Here are some brokers and insurers offering specially tailored art insurance.
If you want to enter the art market at higher price points than you can afford on your own, art funds offer an attractive solution – and as art gains ground as a viable asset, it’s no surprise that these funds are on the rise. But how do you decide who to entrust with your money? According to Enrique Liberman, president of the Art Fund Association, art funds can roughly be grouped into three categories: “the good, the bad and the ugly.”It’s no secret that some of the earliest art funds went spectacularly up in smoke: take Fernwood Art Investments, for instance, which closed its doors after four years, prompting litigation by a minority group of the company’s equity investors.
As it feels pressure to increase its profits, Sotheby’s has dramatically increased the amount it can borrow in order to offer credit to clients. GE Capital, Corporate Finance is serving as administrative and collateral agent on $1.335 billion in senior credit facilities for Sotheby’s. The new facilities include a $485 million credit line increase that will be used for growth in Sotheby’s finance business. GE Capital Markets served as joint lead arranger and joint book runner“We’ve counted on GE Capital to provide us with the right financing when we need it,” said Michael Gillis, senior vice president and treasurer of Sotheby’s. “We value our long-term relationship and their ability to customize financing solutions for us.”“We know how important it is for Sotheby’s to have the right capital in place to keep growth and operations moving forward,” said Bob McCarrick, chief commercial officer at GE Capital, Corporate Finance. “We strive to provide optimal flexibility and availability of financing for our customers.”
Due diligence vital when purchasing contemporary art
Most buyers are aware of the need for due diligence when purchasing older works of art but even when buying contemporary art, it is important to take every precaution to ensure the work is not forged or stolen. That is the view of Celia Lloyd Davidson, London-based art specialist at law firm Withers LLP. “People still need to work with the provenance and title organizations when they are buying because there can be a tendency to forget that the same caveats are in place also for contemporary art,” she says. “Even if you are dealing with big name artists, you still need to make sure you do the due diligence. Organizations like the Art Loss Register are able to help clients on those sorts of things, but it’s something that it’s easy for people to overlook. ”She says that when making a purchase you need to make sure you see representations and warranties of title even if you are buying a name that is very familiar to you. For some artists there are no catalogues raisonnés and there is a lack of available research, and this can create gaps for people who are unscrupulous to move into.“However, that shouldn’t be an issue provided that the due diligence is done in a proper way and that you take full legal advice when you are making a significant investment,” she says.When buying older works, especially rare animal products or pre 20th century antiquities, there are further factors to consider. “For materials like ivory there can be issues with regulatory compliance, as there are advanced certification requirements set out through international treaties. There’s also the issue of knowing exactly what the provenance is in an international market,” she says. “For all art moves, you need to make sure the paperwork is in place – and that could include things you wouldn’t necessarily think of – for example, if it’s a modern piece, who is going to maintain it if it’s an installation work, and will you need a specialist to supervise that installation for you?” She adds that when it comes to transport insurance, you need to make sure there is no gap in the chain. “It’s easy to take certain things for granted but if you haven’t got all the contracts in place that’s where there could be a costly gap in terms of who takes responsibility for liabilities,” she says. “You need to ensure that everything is covered in an art transaction, and there are no surprises.”
The financier at Masterpiece – an interview with Tim Hunter, Falcon Fine Art
While Masterpiece is the dealer’s domain, it attracts a whole host of fascinating and important players. Certainly, art financiers play a crucial role – pumping liquidity into the art market, and facilitating purchases across the industry. Tim Hunter, Vice President of art financier Falcon Fine Art – a co-partner of Masterpiece – discusses the art financing industry, the fair, and the potential impact of Brexit. While well-established and popular in the US, the art financing industry remains in its infancy on this side of the pond. Can you describe the different kinds of art
Dr Tim Hunter, Falcon Fine Art
financing available? Hunter: Straight, simple, art financing – what we offer at Falcon Fine Art (FFA) – is a service for collectors whereby they can free-up money that is tied-up in their art collection, without the need to sell. It is a medium-term service – between one to five years – and doesn’t leverage any assets other than the art collection itself. In some situations a collector may plan to sell an artwork but requires some liquidity in the interim period – often known as a bridge loan or an advance prior to a sale. The specialists in this area tend to be auction houses, and the loan is often tied into a sale at the end of the financing period. Thirdly, there are some financiers that will enable a collector to leverage their artwork over a shorter period of time – between 1-12 months, for instance. This is often provided for situations where the collector needs liquidity quickly, but in exchange must pay much higher interest than they would for medium-term financing. Banks in general don’t offer specialised art-backed lending. However, certain banks might consider providing solutions to an existing client with a range of assets. In general, these offerings leverage not just the art collection, but also other assets that a bank might have under management.
With the number of storage facilities on the increase, how do you choose the best place to keep your art? Nick Brett, CEO of AXA ART, warns that not all storage facilities are equal. “One off the perks of the job is that you do get to go out and see art in situ,” he says. “I’ve been to many different storage facilities in my time, and some are absolutely fantastic, whereas others are very messy, with poor housekeeping and cigarette butts outside the back door. You have to be very careful when making your choices. ”In order to ease the process, AXA ART has led a market wide initiative called GRASP (global risk assessment platform) which is used to rate storage facilities objectively. The scheme has been running for nearly seven years and has become widely used and recognised within the fine art insurance industry. “The market takes it very seriously, as do the storage facilities, because they know if they get a good score they’re going to attract business – so this is really a win-win situation that’s helping to drive standards up. “When considering where to store your art, you can always ask the facility if they have had a rating from GRASP, and if they have they will tell you. ”Another important factor to consider when storing art is that of accumulation: each insurer will only have a certain amount of business they are willing to write per storage facility, in order to protect themselves against massive losses focused on one location. “There are now some places where it is getting harder to find capacity,” warns Brett. “If you’re a prudent insurer you don’t want to have too many eggs in one basket and you always want to be able to be sure you can afford to pay a claim.“We have a maximum exposure we are comfortable with for any one location and once the number gets to a certain limit we speak to clients and tell them we are full at that location, but we can suggest other locations that are of a similar quality and hopefully not too far away.”Fortunately, the number of storage facilities is on the increase, giving collectors more choice than ever for the safe storage of their art. Just be sure to pick wisely, choosing a facility with a good GRASP rating, and one for which your insurer has spare capacity.