The Art and Finance Industry - Where Are We Now? A Deloitte Report Investigates

October 16, 2019

It has been 18 months since the last edition of the Deloitte Art & Finance Report in 2017, a report which aims to act as a barometer for the emerging art and finance industry and highlights the main trends and developments in the art market. According to the report published in 2019, the art market has experienced positive growth in the meantime.

However, the recent results from the major auction houses show that auction sales slowed by 20 percent in the first months of the year, potentially signaling that the art market is heading for a period of weaker growth. Potential reasons for this could be the uncertainty surrounding Brexit and the US trade war with China.

The report also highlights the lower correlation between the growth of the art market and growth in global wealth, which might be the result of the lack of transparency that threatens the art market’s reputation. It suggests that greater transparency and trust could be achieved through the rapid pace of technological changes, such as the blockchain technology, more data, better data analytics and artificial intelligence, as well as regulation. The report also highlights the growing interest and opportunities associated with social impact investment in the cultural and creative sectors.

Figure 1 Deloitte Art Finance Report 2019
Figure 1 Deloitte Art Finance Report 2019

The Relationship Between the Global Art Market and Wealth

Deloitte reports that the anemic global art market growth in the past 10 years stands in stark contrast to growth in wealth; financial wealth more than doubled and global art market sales only saw a nominal increase of 9% over the same period. It highlights the lack of transparency as the main obstacle preventing the art industry reaching a broader audience.

While the art market showed a steady growth despite the decline in global wealth in the first half of 2018, the trend slowed down in the second half of the year with the negative trend continuing into 2019. Yet, the Post-War & Contemporary art auction market, which accounted for 40.7% of total auction sales in the first half of 2019, defied this negative trend, with sales rising by 2.7% to $2.26 billion. At the same time, Chinese & Asian art market sales fell by 17% in 2018, continuing to fall even further in 2019.

The art market confidence in the Post-War & Contemporary art auction market, on the other hand, saw a drop of 29% between May and September 2019, according to the ArtTactic Confidence Indicator. This negative sentiment reflects the increasing political and economic uncertainty facing the US, UK and China, coupled with heady valuations in the art market. Consequently, the overall perception of risk in the art market increased by 1.4 percent over the same period, suggesting speculative behavior is still prevalent.

At the same time, the report shows a strong consensus among wealth managers about the importance of art being part of a wealth management offering, collectors increasingly seeing art and collectibles as part of their overall wealth and the shift towards more financially motivated art ownership models. Therefore, the report suggests that a more strategic approach to art and wealth management is required. The most significant changes in perception among collectors and art professionals include the increasing demand for services regarding art valuation, estate planning, art philanthropy and education.

Figure 45 Deloitte Art Finance Report 2019
Figure 45 Deloitte Art Finance Report 2019

Deloitte Art & Finance Report 2019 - The Impact of Technological Advancements

The report shows that 77% of wealth managers cited the lack of transparency in the art market as the greatest threat to its reputation and credibility, raising concerns regarding the issues linked to authenticity, lack of provenance, forgery and attribution.

However, the majority of them believe that technological advancements could increase transparency and contribute to addressing these issues effectively, most particularly by facilitating the dissemination of information and helping to educate the market. The areas the professionals believe the technology would have the greatest impact are provenance and traceability, authenticity and valuation. This would lead to a more regulated market, resulting in its better reputation.

The report finds that Gen II ArtTech startups are carving out a niche for themselves in relation to art business segments, seeing the period between 2018 and 2020 as characterized by increased momentum. However, these still operate in an isolated manner. When it comes to specific technologies, just over half of private banks and quarters of family offices cite advances in DNA technology as the factor which could facilitate provenance tracking and authentication.

The majority of these startups focus on blockchain technology as a way to standardize and democratize data. However, regarding its impact, the jury is still out, which might reflect a lack of understanding of the appropriate use cases of art and technology itself. However, as blockchain becomes more mainstream, it should be expected that it would play a more significant role in the field. The report suggests that the technology's appeal would increase if it would focus more on the user experience and benefits to the customer journey.

When it comes to the online art market, 71% of online platforms said they expected more consolidation among them in the next 12 months. At the same time, 41% of them believe that online art platforms will remain category-specific, with certain platforms dominating specific collecting segments such as photography, prints, contemporary art, etc.

Figure 50 Deloitte Art Finance Report 2019
Figure 50 Deloitte Art Finance Report 2019

Risk Management and Regulation

We have already mentioned that authenticity, provenance, forgery and attribution remain the main concerns among collectors, but another important factor would be price manipulation and other anti-competitive behaviors, undisclosed conflicts of interest and money laundering.

All in all, all stakeholders call for the modernization of current business practices. While the majority of wealth professionals in 2017 believed that the art market should regulate itself, there is an increasing number of them now calling for more government regulation.

The entire report is meant to raise awareness of the developments and initiatives that have emerged within the art and finance industry over the past couple of years and the aspects which would play an important role in its future. In order to address the pressing issues and challenges we face, the report suggests that a collaborative approach between art professionals, collectors and wealth managers is of the essence.

For more details, including thorough data analyses, interviews with art and finance professionals and a range of case studies, check out the entire report.

Featured image: Deloitte Art & Finance Report 2019.