The man behind Art-Secured Lending
The average price of a work of fine art sold at auction was only $42,439 in 2019. We approached Zsolt Szemerszky, founder of Monaco Art Structuring to discover the size of the market.
“I have to admit that this is definitely an ultra-niche service, especially if one considers the average price of artwork sold at auctions. However, it would be a mistake to compare the collaterals of the art-secured lending deals to the average art prices, it is like saying that Monaco is full with millionaires,” – starts Mr Szemerszky.
Comparing art-secured lending with the general art market would be a bit like comparing the residents of the Principality of Monaco to each other. It is a well-known fact that 1 in 3 residents in Monaco are millionaires. It is also known that approximately 1 in 52 people are considered as UHNWIs. Ultra-high-net-worth individuals are defined as individuals with investable assets over $30 million. They are the minority in Monaco, but also the top-of-the-range residents. It is a fact that 2 in 3 people are regular employees, they are not necessarily wealthy. Monaco has a very similar situation as the art market.
Every art has a different financial value.
It is a bit like George Orwell’s legendary book, Animal Farm, with its famous quote: “All animals are equal, but some animals are more equal than others”.
Is art finance a capitalist market?
“I was contacted by many of my previous clients, who had a great need for refinancing their fine art collections to increase their liquidity. Even if we provide financial assistance to our clients, lending, in general is a for-profit industry.”
Do people in this industry need passion for art?
“I prefer not to generalise because we are all different. On a personal side, as a child, I partly grew up with my mother and my stepfather in my grandparents’ house. My grandfather was a well-established man, gaining his wealth from real estate developments. However, his real hobby was tinkering. He especially had a passion for creating wooden frames for artists and art collectors to dress their most precious artworks.
We lived in a three-floor house, and my grandfather used the entire third floor for his picture frame factory. This became also storage for more than hundreds of contemporary artworks. Therefore, for me, it was always natural to be surrounded by art. I remember that I used to play there, spending every day some hours among the artworks.
Through my background, I learned that by safeguarding art and supporting artists we can enrich our culture and show a piece of our present to the future generation. This passion for art was burnt into my heart and followed me on my journey wherever I went. I supported charity art auctions, artists, musicians, I invested in cultural projects, cultural-educational books and I also started to own and collect original contemporary paintings. I once was also married to an artist, therefore I had the chance to experience all the diverse sides of the art world.”
What was the biggest lesson you learned from your grandfather?
“It was the appreciation of art. Being a passionate art lover and a great supporter of the artists’ community, my grandfather never asked artists to pay for their picture frames. He always requested the artists to offer an artwork as an exchange, which was a win-win situation for both the artists and my grandfather. Through this generous act, my grandfather cultivated mutual respect within the artist community, which also led to an invaluable collection of contemporary art.”
Your company, Monaco Art Structuring is focusing on the collectors and not the artists, right?
“Because of my childhood background, I always have access to many artists on the primary market (artworks coming directly from the studio of the artist). However, I also understood that artists need financial support to create and make new artworks. When a collector has more financial freedom, it is more likely that they will re-invest a fair share of their assets into new artworks. This way we can safeguard a great share of our cultural heritage.”
So do you see art as an asset?
“I love art as an investment and an asset class, but I truly appreciate the human nature of art. I always stand up for creative people who are talented and brave enough to inspire us and the future generation with their visions and inspirations. I believe art is all around us and aesthetic inspiration is our footprint to the next generation.
Art is not just a piece of canvas, but a passion and message from our century, something from us to our grandchildren. Artists tell us their stories and share their emotions through their works. Finding the moment to understand the art pieces allows them to communicate and tell you their individual messages. When you find this harmony, you can also combine the passion with the profitable long-term investment.”
Do collectors showcase these artworks to the public, or do they just keep them for themselves?
“It is a question of personal preference. Luckily, when we offer art-secured loan we have a great chance to temporarily showcase the artwork to the public.”
How does that fit into the complete discretion that is the base of art-secured lending?
“At Monaco Art Structuring our goal is always to support our valued clients, and to offer them solutions to increase the value of their art assets. When someone uses art as collateral they have three basic choices.
1, They deposit the artwork in a Freeport or a bank, which is the most popular choice of many.
2, In some countries, such as in the USA the regulation allows that they can keep the artworks in their home and they don’t have to move them.
In these first two options, the artwork stays “hidden” from the public eye and the value is not necessarily increasing.”
So what is option three?
“3, There is an option to lend the artwork to a museum for the period of the art-secured loan. This has multiple benefits. It can serve in the best interest of the owner because generally speaking the more public exhibits an artwork has, the more valuable it becomes. With a smart display, the artwork will significantly increase its value by the end of the loan agreement.
On the human side, it is not just a winning situation for the owner, but also for all art lovers because they have a chance to see a privately owned artwork in public display.”
Why do people choose Freeport over public exhibitions?
“One could assume that in general, art collectors are enjoying their beloved collections, seeing them on the walls of their homes or yachts. The truth is that the majority of art collectors are buying artworks only as part of their investment portfolios.
When art is purchased for investment, one automatically creates art speculation, where the aim is to keep costs and tax duties low.
The purpose of a Freeport warehouse is to make it possible to store works of art, items from collections, antiques, and jewellery without incurring duties and taxes. In short, a Freeport is a storage facility that exists formally outside of the territorial jurisdiction of any country.
In general, we can say that in their dynamic cultural contexts, countries offering Freeports aim to promote and develop their art market. The Freeport warehouse makes it possible to store or sell works of art without incurring duties and taxes. Most of the Freeports are located in a strategical place, close to important international airports, helping the transportation of the assets between the other Freeports.”
What is the minimum value that Monaco Art Structuring considers?
“We are only interested in artworks over the million Euro valuation. The average artworks we deal with are over 10 million Euro each.”
What was the biggest request someone has ever approached you with?
“Last year we started a working relationship with a collector requesting an art-secured lending on an asset group of paintings and sculptures worth US$2 billion in total.”
Can someone approach Monaco Art Structuring with artworks that have never been auctioned and presented in any form on the secondary market?
“One can also be eligible for art-secured lending even when their artwork has never been presented on the secondary market, but it has to have an acceptable fair market valuation. The ownership tracking and estimation process might be more complex. Yet, there are solutions out of the “high street” banks, such as with private art funds that are interested to look at such transactions. They can offer quick assessment and closing process and are often good short-term solutions for art dealers or private sellers.”
What is the success rate?
“It is hard to tell because it all comes down to the authentication, the provenance, and of course the condition of the artwork. If everything is fine we are normally happy to proceed.”
What are the other challenges for the owners?
“I would not say there are challenges, it is more like an ethical start. By this I mean, owners need to invest in advance to prove that their artwork is original, in good condition, and also that they are the legitimate owners. It would be basically the same with any type of asset class, whether it is a car, yacht, or real estate.
Our process starts with the appraisal, in some case, it is already in place in some forms, but for us and the lenders, it has to be done by an independent expert at the expense of the borrower.
If the appraisal is acceptable by the lender, we provide a term sheet and a legally binding commitment from our side. Still, the artwork has to be transported and stored in a bonded warehouse, selected by the lender. All the related costs such as transportation, insurance, and storage fees have to be borne by the borrower.
Authentication and trusted valuation is a key source of concern when it comes to art-secured lending.”
Do you challenge existing art valuations?
“It depends on the artworks, on a case by case basis. Sometimes it happens that we get ridiculous valuations from people who are not even recognised in the art world. In these cases, we challenge the valuation through a globally recognised expert of the artist. This is important for the owners as well so they have realistic expectations. Of course, art is subjective and often the emotional value overshadows the fair market price, but when it comes to financial services the involved parties must have an agreement of the valuation.”
Is it possible to lend against Non-fungible Tokens (NFTs)?
“It is quite a new market field, but we are already working on various NFT-secured lending options.”
Are your services limited to Monaco?
“We have a global clientele. Also, our partners are international because each artist has a different art expert, and sometimes for USA-based collateral, we recommend a USA-based partner. Our service cannot be limited to a single destination; we collect the most trusted art experts from all around the globe.”
How do you see the growth of the art-secured lending market?
“Without any doubt, the art market is going through a great expansion where more funds and players are involved in art. Art is becoming a niche of wealth and asset management services, which will continue its revolution.”
What do you think, what is the withholding factor for this field to grow so slow?
“If you ask any wealth manager, they will say that the primary withholding reason is their lack of internal expertise on international art which is a must-have to develop a broader and diverse financial service around art and collectibles. On a positive note, they also realised that they can make more proactive approaches by working hand-in-hand with reliable art experts to develop this new service.”
What do you enjoy most in your work?
“I love when a hidden artwork comes to public display. You know, we are like modern Indiana Jones in terms of discovering rarely seen artworks from private collections. It is always amazing to be part of a collateral assessment and to see a piece of art history. For me, who greatly appreciates art, there is always that excitement factor combined with a precious moment that money can not buy.”
What was the most exciting piece you have ever seen in the past decade?
“There were many great pieces, but I would not be in this business if I would disclose them. Our core values are discretion and privacy.”