Carlyle and Banque Pictet have embarked upon a quest to finance the art market as private equity groups. The goal behind this venture? Generating high returns. The multitrillion-dollar size of the art market has been discussed many times by the financial experts, and it has been described as a bubble that would inevitably burst. Still, the bubble keeps floating above all the risks that are involved in investing/buying/selling in the art market. So far, only Sotheby’s and some private banks have made it their business to provide loans to collectors, whose art acts as debt collateral. This is why Carlyle hopes it can influence and change things around in the economics of the art market, even with the small amount of money being committed.
Carlyle Group LP and Banque Pictet are joining forces to create Athen Art Finance, a venture designed to provide loans to art collectors. They will have $280m in equity capital and bank credit lines that will enable the partnered groups to leverage the equity multiple times. With a carefully constructed plan of business, Athena will be providing loans of up to 50% of the value of the art, and this will be done with dozens of painters who meet certain criteria. Next step for the company involves packaging the loans and distributing them in the market, of course, taking a hefty profit in the process.
It is often a practice of private banks to even advise their clients to keep a part of their wealth in art, relying on the fact that art can hold up its value at times of economic dislocation. Even though the impressive value of art in the world adds up to trillions of dollars, art lending market adds up to only about $7bn, judging by the data Carlyle provided. The founding companies of this venture count on wealthy families, pension funds and sovereign wealth funds to get attracted by their new offer, hoping that they will be suaded by the yields that are potentially higher than those in the fixed income market. Oliver Sarkozy, the person in charge of Carlyle’s investment in Athena, stated that they will introduce more liquidity to the market, thus making the cost of capital for the assets to go down while the value goes up.
Claude Monet, Pablo Picasso, Francis Bacon, Gerhard Richter and Andy Warhol are some of the artists whose work meets the criteria of Athena, among the 80 names in total. One of the major risks in the art market is definitely getting the valuation of the painting right, in order to alleviate this issue, the loans on offer will represent only a fraction of the appraised value of the artwork in question. Already, Athena has around 150 million dollars in requests for loans as soon as it opens for business in the upcoming days. Also, Carlyle has plans to offer financing to buyers at other auction houses. Will this undertaking prove to be successful and really stir things up in the art market, or will it flop and fail to achieve the set goals? Only time and money will tell.
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