.png)
HOW THE ART WORLD IS EVOLVING TO ATTRACT THE NEXT GENERATION OF HIGH-NET-WORTH COLLECTORS
A new generation of buyers is influencing how art is being seen, purchased and collected.
The art world is in a state of reinvention. Once an exclusive and elite place, its new dynamics have created a directional pivot through piqued interest from Asian, African and the Middle East markets; the grassroots growth of art fairs, biennials and contemporary art museums around the world; and the democratising effect of social media as a gateway for artist exposure.
“There's been a radical change in the global infrastructure around how art is promoted, transacted and made accessible to people in parts of the world that had artists but didn't necessarily have the means to put these artists on a global stage," says Anders Petterson, founder and managing director of ArtTactic, a London-based art market research and data intelligence company established in 2001.
The change felt organic and palpable prior to the pandemic – a natural progression enabled by technology but manageable in its pacing because it centred on coexistence with the traditional art world.
The pandemic changed that. “All these live events, the physical infrastructure that we saw being built up was suddenly disabled during the first lockdowns," says Petterson. The online market, which had been growing over the past decade, became the primary location for auctions. “There was this kind of attitude that you didn't sell your good stuff online – but when the only outlet was online, auction houses started experimenting."
Sotheby's and Christie's historic auction rooms were quickly refitted as TV studios for live-streaming auctions and drew millions of viewers on Facebook. Combined, the pair sold an estimated US$240 million worth of NFT art (non-fungible tokens – a form of unique digital asset stored on a blockchain) and digital collectibles in 2021.
The tech-first approach to art threw open the doors to an exclusive market of next generation high-net-worth (HNW) individuals, giving the curious a chance to engage without intimidation, says Petterson. “It had this veneer of neutrality or not being judged for who you are or how you look – it opened the gateway for a new generation to appreciate art."
A contemporary approach
For Corrie Jackson, a senior art curator who directs the management and growth strategy of RBC's art collection, the biggest shift in collector experience has come from the transparency of digital platforms. “You may not always get an exact price tag, but you're being saved the initial ask of 'How much does this cost?'" says Jackson. “I see this often as a huge barrier to access, especially for new collectors who might not have a comfortable relationship with a gallery and are just starting to understand the market."
There are many new platforms for buying and valuing contemporary art online. Wondeur AI, which researches the dynamics of value creation and biases in the art world, and Artland and Peggy, both online art marketplaces, are just a few of the platforms finding their place in the mainstream and making the art world more transparent and accessible.
A strong sense of personal values is also driving digital adoption, says Jackson. There is a collective awareness of the industry's environmental impact and the carbon footprint attached to collectors flying around the world to view work. Digital engagement is a more conscientious alternative. “Technologies can offer an opportunity to interact with artwork without the need for packaging and shipping it to a potential buyer," she adds.
For change-driven HNW collectors, there's a deep social value in investing in artists and their work. According to data from Artsy, Gen Z art buyers, in particular, are motivated to purchase art as a means to support artists while also reflecting on their personal identity and relationship to the community around them.
Petterson agrees, and says it's consistent with recent findings that indicate Gen Z tends to be more purpose-driven with their art-purchasing habits. “We thought it was a side effect of the pandemic," he says. “But what we found is three-quarters of the young people we surveyed this year are saying the same thing – they like feeling they're actually contributing or giving support to a creative process."
High-end hybrid
As the art market adapts to attract the next generation of HNW individuals, the biggest question in Jackson's mind is: which platforms deliver the value clients need to support their engagement? “Art is a physical experience, [whether that is] standing in front of a painting or being immersed in a digital installation," she says. “Artists work with mediums that engage our senses to convey their intent, and the intermediary of digital platforms can inherently dilute a direct experience of art viewing."
She says that's why she encourages collectors to prioritise the physical experience. That said, NFTs may connect new digital collectors with the art world of old. Jackson adds, “I think this will drive those collectors toward the benefits and connection of living with art objects in a more traditional sense too."
The art world is always in a state of becoming something new. But even as the lines between physical and virtual blur, neither the sense of tradition nor the sense of potential can be overlooked.
“In this moment of so much social and cultural change, I see collectors being drawn to the work that not only reflects personal values and interests, but shapes the conversations they want to engage in within their personal and private spaces," says Jackson. “There is a level of vulnerability, transparency and intimacy in this [approach to collecting] that is new and exciting."
RAPID RISE OF MILLENNIAL ART COLLECTORS ARE VIEWING ART AS AN ASSET CLASS
More people are viewing art as a viable form of alternative investment, but collecting comes with considerations.
In 2018, a version of intrepid artist Banksy's Girl with Balloon was sold by Sotheby's in London for £1,042,000 (US$1.3 million). As soon as the auctioneer's gavel fell, the painting slipped through a hidden paper shredder built into the frame, destroying half the image. The half-shredded, newly dubbed Love Is in the Bin (2018) then sold in the same London salesroom for £18.5 million (US$25.3 million) in 2021.
“Ordinarily, you'd say, 'That's a ruined piece of artwork,' when, in fact, the artwork has now been sold for significantly more than it was purchased for," says Alan Binnington, director of the trust specialist team at RBC Wealth Management in Jersey. “It's just so different from anything that's ever happened before, that people become excited and are prepared to pay for it."
The purchase of Love Is in the Bin (2018) is the epitome of art as an asset class, a spontaneous burst in value that represents both the volatility and allure of collecting art as a form of diversifying wealth. The nine-way bidding war for Banksy's Love Is in the Bin (2018) lasted 10 minutes, according to a report from Artsy.
The appetite for art as an asset class has risen among high-net-worth individuals (HNWIs) in recent years, partially as a response to the instability in the financial markets, says Binnington. “When the markets are volatile, people tend to favour investments that they can see and touch, like gold, classic cars and art." According to a report by the Chartered Alternative Investment Analyst Association (known as CAIA), the contemporary art market appreciated by 15.1 percent in 2020, even as auctions were put on hold or moved into online forums.
However, interest in art as an asset class by HNWIs isn't necessarily about market instability; there's a wider generational trend unfolding.
A new class of interest
High-net-worth Millennials have emerged as key investors in the art market. Their spending patterns, motivations and challenges differ from those of traditional art buyers. Deloitte and ArtTactic's Art and Finance Report 2021 found that the majority (86 percent) of younger collectors (i.e., those under 35 years) rank social impact, emotional value and purpose-led investment in art as their highest motivation, versus 32 percent of older collectors. The survey also found they place a stronger emphasis on the financial aspect of art ownership.
This is reflected in 2021 figures from Christie's, which found that 35 percent of the buyers at auctions were new – a third of whom were Millennials. Buoyed by demand from next-gen wealth, 255-year-old Christie's was the first major auction house to sell a purely digital NFT (non-fungible token) artwork – a form of unique digital asset stored on a blockchain. The piece, Everydays, by Beeple, sold for US$69 million.
Julie Kleis, trust specialist team director at RBC Wealth Management in Jersey, says she's handled a number of works in trusts, but NFTs are an entirely new phenomenon. “I personally don't perceive it as art," she says. But she also says it could very well become more common and accepted. “People have different interpretations about what art is."
The fluidity of art's definition doesn't apply to the complexities of art as an alternative investment. Collecting art carries a unique set of challenges to consider.
Art for more than art's sake
As interest in art as an asset class has risen, trustees have broadened their skillset for supporting their clients, says Binnington. “Now they tend to understand more of the pitfalls and risks."
As an unregulated market, Binnington says, it's important to have independent experts to guide the purchase, and to pay attention as values rise and fall and artists move in and out of fashion. “The old masters have been around for a long time. Therefore, their prices don't fluctuate that much. As you come toward more modern art, prices tend to fluctuate simply because they haven't been around that long," he says. “Then you go to the extreme with NFTs, where it's hard to know if they'll be a multiple of their value or merely a fraction next year."
Of course, investing in a work of art is just the beginning. The next step is where the trustees really come into play, says Kleis. “We also have to consider the tax position – where is the art? Who's enjoying the art? For example some of our clients have a piece of art that we own within our trust structures, but they have it in their homes, so, in effect, they're borrowing it from us."
I had a client who had a violin that had to be kept at a certain temperature and humidity level, but he wanted to play it at a particular concert and the only way he could get it there was to take it on the plane," says Kleis. “So sometimes the risks aren't so easy to manage."
Kleis says there are also scenarios in which a work of art that's meaningful to a family ends up at the centre of a dispute over which members of the next generation will receive it. Placing the art in trust at an early stage can take some of the heat out of a dispute, given that the trustees will be the owners and so they can help navigate these situations says Kleis. “The trustees are well-placed to decide on the appropriate course of action, balancing the wishes of the beneficiaries with the protection of the trust assets."
An (en)viable alternative
According to CAIA, the art market has an estimated global value of US$1.7 trillion, with around US$60 billion in annual transaction volume. But there's something special about art that supersedes financial value. Unlike a structured product or security within a portfolio, art tends to elicit emotional attachment. It makes people feel good.
“Art is a very attractive area for some people," says Binnington. “It's always going to be a much higher risk area … but even if that value falls, you will always be able to display it in your home and admire it.
About RBC
Royal Bank of Canada is a global financial institution with a purpose-driven, principles-led approach to delivering leading performance. Our success comes from the 87,000+ employees who leverage their imaginations and insights to bring our vision, values and strategy to life so we can help our clients thrive and communities prosper. As Canada’s biggest bank, and one of the largest in the world based on market capitalization, we have a diversified business model with a focus on innovation and providing exceptional experiences to our 17 million clients in Canada, the U.S. and 27 other countries.
Learn more at rbc.com
About RBC Wealth Management
RBC Wealth Management directly serves affluent, high net worth and ultra-high net worth clients globally with a full suite of banking, investment, trust and other wealth management solutions, from our key operational hubs in Canada, the United States, the British Isles, and Asia. The business also provides asset management products and services directly and through RBC and third party distributors to institutional and individual clients, through its RBC Global Asset Management business (which includes BlueBay Asset Management). RBC Wealth Management has C$1.3 trillion of assets under administration, C$1 trillion of assets under management and more than 4,800 financial consultants, advisors, private bankers, and trust officers.
For more information, visit: rbcwealthmanagement.com
This publication has been issued by Royal Bank of Canada on behalf of certain RBC ® companies that form part of the international network of RBC Wealth Management. You should carefully read any risk warnings or regulatory disclosures in this publication or in any other literature accompanying this publication or transmitted to you by Royal Bank of Canada, its affiliates or subsidiaries.
The information contained in this report has been compiled by Royal Bank of Canada and/or its affiliates from sources believed to be reliable, but no representation or warranty, express or implied is made to its accuracy, completeness or correctness. All opinions and estimates contained in this report are judgments as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. This report is not an offer to sell or a solicitation of an offer to buy any securities. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Every province in Canada, state in the U.S. and most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as the process for doing so. As a result, any securities discussed in this report may not be eligible for sale in some jurisdictions. This report is not, and under no circumstances should be construed as, a solicitation to act as a securities broker or dealer in any jurisdiction by any person or company that is not legally permitted to carry on the business of a securities broker or dealer in that jurisdiction. Nothing in this report constitutes legal, accounting or tax advice or individually tailored investment advice.
This material is prepared for general circulation to clients, including clients who are affiliates of Royal Bank of Canada, and does not have regard to the particular circumstances or needs of any specific person who may read it. The investments or services contained in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about the suitability of such investments or services. To the full extent permitted by law neither Royal Bank of Canada nor any of its affiliates, nor any other person, accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained herein.
