Hephaestus Analytical’s response to the 2023 Deloitte Art and Finance Report

November 2023

Authenticity has never been more important in the art and art finance sectors as it is today. The statistics provided by this report force us to ask the question posed: “can the art world continue to resist consumers’ [and market participants’] demands for more transparency…?”.

Claude Monet, Water Lilies and Willow Tree Branches, 1916-1919, Musée des Impressionnismes, Giverny.

Key Takeaways:

  • Authenticity has never been more important in the art and art finance sectors as it is today, highlighting the conclusions drawn in our recent insights article 'The Growing Significance of Authenticity: From Forgeries to Digital Content in 2023'.
  • 92% of NextGen collectors believe that through solving authenticity-related issues, new technology and online art businesses could make an impact. As in 2021, 100% of this group believed that improving provenance and traceability of artworks would signal an important shift in the market (1).
  • The statistics provided by this report force us to ask the question posed: “can the art world continue to resist consumers’ [and market participants’] demands for more transparency…?” (2).

The Deloitte 2023 Art and Finance Report crystallised the vital, and continuously developing, demand in issues related  to authenticity in the art market. 80% of wealth managers claimed  that issues relating to authenticity, lack of provenance, forgery and attribution are key hurdles to entering the market (3). In this report, authenticity was mentioned as a major concern over fifty times, indicating the increasing prevalence of issues of forgery and misattribution in the cultural and commercial discourse of the art world. This risk has been a long-term problem precisely because the art world has never adopted a universally accepted methodology of authentication. This is the problem that Hephaestus solves by providing the art world with a standardised authentication protocol, soon to be protected by authenticity insurance. Authenticity insurance protects collectors, dealers, advisors and museums from what has been termed an ‘unknown unknown’, a seemingly ‘invisible’ risk to an artwork’s entire value (4).

Roses, 1890, Vincent Van Gogh. Source: National Gallery of Art, Washington DC.

Given that, according to Deloitte, “the biggest challenges facing collectors today are provenance and authenticity, especially those not concentrating on emerging or living artists”, it becomes increasingly clear that status quo practices of the art world are damaging confidence in the market (5). This, in turn, highlights why the elimination of the risk of forgery is so vital now, not only in terms of consumer and market confidence, but also in allowing the participation of financial institutions that had been previously sidelined because of risks associated with authenticity.

Thorough standards of due diligence have the opportunity to increase the value of artworks because, as noted by the provenance researchers The Clarion List, “To say that a work of art has ‘impeccable provenance’ implies rarity and in the art market, rarity translates to value” (6). While this quotation only refers to provenance research, it points to the larger idea that, by providing collectors with greater confidence and transparency in the artworks themselves, sellers can benefit from enhanced, more robust valuations. Ultimately, a lack of protection against the risks of forgery and misattribution dampens not only liquidity but also general confidence in the market. This becomes particularly clear in the notably low levels of confidence in the mid-market segment of the art market for works priced between US$100,000 and $500,000 (7). In this segment, where artists might not have a complete catalogue raissoné or technical research might be limited, collectors are not afforded the certainty of attribution expected more so at the highest end of the market.

The relationship between confidence in the market and the confidence of authenticity assumes particular significance in the context of art-backed lending and fractionalisation. As noted by Yassir Benjelloun-Touimi, CEO of Artex, “how can the authenticity, provenance and accuracy of art valuations be guaranteed to protect investors’ interests?” (8).

The art market has long refused to acknowledge the risks of forgery and misattribution but, with the increasing shift towards art being understood as an alternative asset class, this trend is shifting. In 2014, only 53% of wealth managers believed art should be included as part of wealth management services. However, this jumped to 78% in 2016 and has continued to swell in 2023, with around 90% of stakeholders believing that art and collectible wealth should be part of a wealth management offering (9). Given that Global UHNWIs art and collectible wealth is estimated to exceed US$2 trillion, a number that is projected to grow to an estimated US$2.861 trillion in 2026, the art-secured lending market has never been as important as it is today (10). This market could reach US$29 billion by the end of 2023, up 11% from 2022, yet the current art-backed loan market has mitigated the risks of forgery and misattribution through offering high interest rates on shorter, one-to-three-year loans or through requiring personal guarantees and exorbitant coverage ratios (11).

The 2023 Deloitte Art and Finance Report highlighted the increasing interest and demand not only for protected authenticity and modernised business practices but also for the powerful financial opportunities that authenticity enables.

All references correspond to page numbers from the 2023 Deloitte Art and Finance Report.

(1) p. 353.

(2) p. 40.

(3) p. 37.

(4) p.294.

(5) p. 163.

(6) p. 163.

(7) p. 94.

(8) p. 340.

(9) p. 20.

(10) p. 32.

(11) p.35.

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