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.
Today, it’s possible for families to both use their art as a source of liquidity and to put it on display themselves or lend it out to a museum or other exhibitor.
How does one apply the quantitative power of computing and automation to the softer, more subjective world of art?
“We do it the same way one would analyze real estate, equities and debts,” said van den Oever. “Look at the liquidity, the volatility, the likelihood of a change in authenticity, and condition risks.”
The firm keeps a database of 10,000 assets and tracks how actively traded they are in the art market, with 2.5 million art transactions recorded in its database, offering a sense of the overall liquidity, volatility and valuation of works of art. Currently, the Overstone platform focuses on “flat art” and sculpture, but in the future it may be expanded to include other types of collectible real assets like classic cars and wine.
Van den Oever has leaned on experience in the banking and brokerage industries as well as a 12-year stint at Christie's working in various roles to develop Overstone. At Christie's, he recognized a “vast disconnect between the art market and the financial services industry.”
Few firms were able to successfully link art, which for many families is a significant asset, to finance, but at Christie's van den Oever worked with family offices to help wealthy clients use art as collateral.
“We realized that there weren’t many offers in the market in terms of lenders, and at the same time, we were being taught by one of the biggest global private banks to write their global policies (regarding lending using art as collateral), “ he said. “After our policies were signed off by the executive committee, it got stuck in their risk department – so we ended up developing alongside the risk department a number of algorithms and tools that are able to measure and understand the riskiness of works of art.”
