Jolene Tan
by Jolene Tan
Jolene Tan is a Managing Partner at SingAlliance, with more than 17 years of client advisory and private wealth management experience. She specialises in providing independent advice to HNWIs and their families to build holistic wealth planning solutions. Contact Jolene.
The cultural significance and aesthetic pleasure elicited by works of art are often why art collectors purchase them. But the perception of art has shifted in recent years. Collectors may no longer be solely motivated by the sentimental or social value of these pieces but also by the potential of art works to become working assets in their global portfolio. There are various ways to leverage the power of fine art, but this article will focus on two unique solutions – art financing and tokenisation.
Art financing is a service that offers loans to art collectors using their high-value art collections as collateral. It begins with an appraisal of the artwork's value to craft the loan agreement (LTV ratio, tenure, etc.) according to the client's requirements. Lenders offer different types of loans, typically distinguished between a recourse and a non-recourse loan. In the former, the borrower gives a personal guarantee of repayment on top of the art, but in the latter, the art is the sole collateral.
This is an effective way to extract the value of art to blend it into wealth management. For art lovers, it is a tool to finance the purchase of more art without selling other assets. Moreover, it is an alternative liquidity source for personal finance purposes or redeploying to new investment opportunities.
Art tokenisation is another innovative solution that converts art into digitally tradeable tokens representing ownership shares. Information related to the art, such as name, provenance, and value will be uploaded onto the blockchain as a smart contract, ensuring the integrity of this data.
It is a revolutionary way of democratising art to bring potential liquidity to the art world. Art owners will find it easier to match with counterparties without the administrative and cost burdens of going through an auction house. With more efficient trading on the secondary market and greater transparency, art owners can raise funds more effectively. While traditionally art has been a non-bankable asset, tokenisation allows for the tokens to be included in asset statements, providing more comprehensive reporting and analysis of the portfolio and performance.
Lastly, art tokenisation can be a robust tool in wealth planning. In the event of the demise of a family member with multiple beneficiaries (e.g. siblings), the split of art inheritance can trigger disputes as art in itself is not divisible. Thus, it may be better to keep the work of art as part of the family wealth and distribute it through tokenised assets.
As the value of art rises and the market expands, it will become an increasingly critical part of an art collector's wealth. Instead of just sitting on colossal wealth, art collectors can adopt art financing or tokenisation to unleash the locked-up liquidity of artworks to become a crucial player in overall wealth management. With the proper guidance of trusted experts to navigate the process, there is boundless potential in capitalising on the value of art and optimising one's wealth planning strategy.
SingAlliance is an independent wealth manager based in Singapore, specialised in providing a comprehensive suite of wealth solutions to HNW individuals, families, and institutions. In Singapore, SingAlliance holds a capital market services licence for fund management issued by the MAS.
GCG Consulting member firmSingAlliance Pte LtdSingaporeT: +65 6303 5050Advisory, Fiduciary & Estate Planning
