Many affluent families collect works of art, but too few of them consider those art collections as a financial asset. Now, a fintech aims to solve that problem.
Overstone was founded to provide the risk modeling necessary to leverage liquidity from collected works of art, said founder and CEO Harco van den Oever. The company mostly works with large private banks interested in helping their clients use art as collateral.
“Over the past 15-20 years, art collectors have become more astute and much more financially savvy,” he said. “People who like art and are passionate about art always have in the backs of their minds the economic value of these assets. It’s a misconception that this is an illiquid, opaque marketplace riddled with conflicts of interest – clients should know that the art market can be a stable, regulated environment.”
Art has value as a source of liquidity, according to van den Oever, because it has very limited volatility. Since the late 1980s, annual returns have averaged in the 6-7% range.
According to van den Oever, there’s approximately $1.47 trillion worth of untapped value in privately held works of art, and only 2% of that value has been levered.
“It’s the last remaining unlevered asset, and it’s all because of the lack of risk tools surrounding art,” he said.
Currently, lending that leverages collectible art encompasses a market doing $25 billion worth of business annually, but van den Oever expects that to swell to $100 million over the next four years.
The growth will largely be driven by banks moving away from traditional investment banking and towards more comprehensive private banking, and catalyzed by the long-term low interest rate environment globally caused by the financial crisis of 2008-09 and the Covid-19 recession.
“This is an environment where interconnection and closeness to the client becomes more important, and where technology and user interfaces – and the ability to use different channels – also becomes more important,” said van den Oever, who says that the average high-net-worth individual currently has 6% of their assets in art.
Because art takes up a significant proportion of wealthy families’ net worth, it needs to be considered as its own asset class. Yet, at any given time, 30-60% of those assets are “sitting in a warehouse,” he said. Overstone hopes to take what is now a “dead asset” and make it useful for wealthy families.