Lifestyle Expanding your investment palette by adding art to your portfolio

In the world of fine art, there’s often an emotional and cultural value for a Rembrandt or Miro that outstrips those paintings’ monetary values. That unique dynamic is what makes investing in art of great interest to many people. The emotional return may be more important in some circumstances than the financial return.

For example, a stock or bond handed down from a grandparent may have some personal, sentimental value to you. On the other hand, an inherited Da Vinci is likely to possess a certain inspirational value both to you and to millions of art enthusiasts. Your emotional connection to the piece may be one factor in determining if and when you sell it—but the painting’s aggregate, worldwide emotional appeal is what will dictate the price it brings.

That close relationship between potential profit and its inherent capacity for inspiration is what makes securitized art such a magnetic asset class, but also what can make investing in it seem tricky at first. But with the help of your Truist Wealth advisor, you can understand how art can fit into your wealth portfolio.

In 1904, French financier Andre Level sought to purchase 100 paintings that included works from Matisse, Van Gogh, and Picasso. To afford the cost of this high-value and ambitious art acquisition, Level brought together a dozen investors to pool capital.¹ This novel strategy not only enabled Level and his investors to acquire artworks they would be incapable of buying individually, but also lowered each investor’s risk while broadening their exposure.

While there were initial naysayers to Level’s ambitious plan, the ability of that investment group to sell the paintings at a significant profit led to a fundamental shift in how financial professionals viewed the potential of art as an asset.

Over the next 70 years, that fundamental shift in attitude among financial and art professionals would culminate in the chartering of what is today recognized as the first art investment fund, established by the British Rail Pension Fund (BRPF).^{Disclosure 1} The success of the BRPF strategy made unparalleled progress in legitimizing art as an asset class and set the standard for core service provisions—like art advisory, collection management, art valuation, and art financing—that would be offered by future art investment funds. This put into motion the first real attempts to mitigate the inherent downsides of securitized art.

In the half century since the BRPF decided to invest in art, art investment steadily built its reputation and is now considered a legitimate asset class. Today there are close to 200 worldwide art investment funds,¹ and 63% of financial professionals working at wealth management firms report that they’ve integrated art into their offerings.²

Much of securitized art’s legitimacy and prestige are a direct result of the efforts made by financial professionals to engineer advantages for, and refine the structure of, the asset class in ways that help investors:

• Diversify their portfolios
• Hedge against inflation
• Capture the potential for substantial capital appreciation
• Facilitate more resilient legacy planning strategies
• Generate favorable tax treatments
• Provide additional income streams through art-backed loans and exhibitions

But maximizing any of these benefits when both passion and profit are in the mix can require careful calibration. The growth of art as an asset class in management firms is due in no small part to that complex reality. Truist Wealth advisors have a background in securitized art that provides them with the experience and know-how to help you balance emotional goals and financial outcomes.

In the past decade, art-as-an-asset has undergone a period of transformation as pivotal as any in its history. Driving this rapid evolution have been advances in technology that address the asset class’s historical lack of transparency.

New technology has increased the amount of clear, reliable information about market data, valuation methods, chain of ownership, and provenance in ways once only dreamed of. This unprecedented boost in transparency has empowered professionals in finance and tech to collaborate on innovative services and products that have been rapidly and widely adopted by investors.

Among the most popular of these breakthrough advances are:

• Fractional art ownership: Recent developments in fintech and the creation of online art platforms have enabled multiple investors to purchase shares of high-value artworks, reducing financial risk while increasing portfolio diversification.
• Securitization of art loans: Improvements in data analytics tools, the creation of art market databases, and the development of proprietary rating methods have led to more accurate valuations that have enabled the securitization of art loans and increased the volume of art-backed lending.
• Digital art marketplaces: New apps and platforms for buying and selling digital art have opened up a whole new realm of art investing while also expanding the scope of what can be used as collateral in art-backed loans.

The promise each of these methods holds for bold investors is, however, matched only by the high level of know-how required to ensure they align with one’s specific circumstances. Harmonizing your portfolio with the proper percentages of something like fractional art investment is most easily achieved with the help of a wealth advisor.

What does the future of art as an asset class hold for investors? If projections prove accurate, a record-shattering amount of investment capital is set to flood into the asset space. Deloitte predicts that by 2026, the amount of ultra-high-net-worth capital associated with art will total $2.86 trillion—a nearly 32% jump from 2022’s already impressive total of $2.17 trillion.²

Chisel through the data to the forces driving those numbers, and you’ll uncover those colossal totals are due in no small part to an unprecedented demographic shift. Millennials and Gen Zers, who grew up in a digital world, have a particular interest in what current and future tech advances could mean for the asset class, and they’re investing proportionately.

Between 2021 and 2023, the number of younger collectors citing financial returns as their primary reason for investing in art rose from 50% to 83%—with a concurrent increase of 34% to 51% of them citing it as a smart “safe haven” diversification strategy. At the same time, 41% view art investment as a vehicle for purpose-driven investments that could make a social impact.²

What that may signal is not just a surge in buy-in driven by an evolution in the “how” and “what” of the investment—but a fundamental shift in the “why” of art investment that could make it the vehicle par excellence for socially conscious investing. Whether or not that happens, what’s undeniable is that now is an exciting time to be involved in securitized art. If you’re inspired to try your hand at it, one of our wealth advisors can help draw up a plan to help you make your mark.