Episode 9 | “Arttech is a golden opportunity for asset managers”
Art dealer Frédéric de Senarclens created galleries in Geneva and Singapore before switching completely to online art sales four years ago. He operates through a gallery of contemporary art sales on the Internet, ArtAndOnly, and two sites: ArtAndCollect, a marketplace for collectors, and Art Market Guru, which provides information on new technologies in art. According to him, the convergence between art and technology is a godsend for the Swiss financial centre.
Where do you think new technologies have the greatest impact in art?
The last ten years have seen the emergence of online platforms, information aggregators and web-based art galleries. However, the relationships between the actors of the art market have not been radically disrupted. The art market remains one of the last bastions of the economy not to have been impacted by new technologies. That said, I think that in the next five years we will see a radical change in the way we manage and exchange art. Trusted third parties such as merchants, consultants and auction houses will have to adapt to a new set of rules. New actors will appear and some will disappear. Technologies such as blockchain, virtual reality, augmented reality and artificial intelligence will play a major role in the restructuring of the art industry.
How?
Multiple applications will appear and radically transform the art market; some are already quite active. The blockchain coupled with artificial intelligence will make it possible to create environments that guarantee the origin and authenticity of the works. The role of the intermediary will inevitably be questioned and transaction costs will decrease. Augmented reality and virtual reality will, in my opinion, offer enough acuity and precision to replace the current presentation spaces such as art galleries, art fairs or auction houses. To give you a concrete example, the resale right is currently very poorly applied in Europe and all over the world. This right allows the artist or his heirs to receive a percentage when one of his works is resold. Many artists do not receive the remuneration due to them even though legislation is in place. The blockchain, with a smart tagging system, would make it possible to link the authenticity of a work to the collection of a resale right. Another example: today auction houses spend millions of dollars every year printing and sending auction catalogues around the world. These catalogues often end up in the garbage. I can assure you that in a few years’ time these promotional tools will only exist digitally. The Lausanne-based start-up Artmyn already offers extremely subtle imaging quality.
With what consequences for the art market?
I believe that new technologies will bring greater transparency and a significant reduction in transaction costs. The art market has been structured in the same way since the 19th century, with artists on the one hand, and collectors on the other, and intermediaries (brokers, dealers and auction houses) in between. They act as trusted third parties. Their main mission is to guarantee the authenticity and provenance of the works. Their services are remunerated by significant commissions on sales made. New technologies will exert strong downward pressure on these remunerations. In addition, they will partially replace this function of trusted third party. To conclude, a question illustrates my point of view: as a collector, will you have more confidence in an advisor with a few years of art history studies or in a robot capable of taking into consideration your tastes, your budgetary constraints, your tax situation and analyzing in a fraction of a second all the auction results to provide you with a very precise verdict on the value of a work?
Do social networks also play a role in this transparency?
I wouldn’t necessarily talk about transparency when it comes to social networks. I would rather say that social networks offer a magnificent promotional space for all actors in the art market, and artists in particular. Today, Instagram is the art world’s favorite network offering a superb showcase and a unique place of expression. More and more young artists, without a gallery, sell their works directly through this social network. I often give the example of this Dutch artist who once told me that she made more than 85% of her sales through the Internet.
Therefore, the collectors no longer even have to travel to see a work…
Today, thousands of works of art are flown around the world to be seen by collectors at art fairs, galleries or warehouses. Every year, millions of dollars are spent by merchants on transportation and insurance. Looking at the progress made by virtual reality, it is not unthinkable to imagine that one day important salons or galleries will only exist virtually and that collectors will negotiate their purchases through an avatar. Artsy already offers its users an application that allows them to view a painting on their walls without having to travel.
Let’s go back to blockchain which created a lot of buzz two years ago in the art world. The bubble seems to have subsided today. What happened?
That’s normal. Blockchain reminds me of the Internet in its early days. Many companies will appear and disappear in the coming years. The buzz came from start-ups, more or less serious, who surfed on the Bitcoin wave and created their own token by proposing to divide the ownership of one or more works of art and offer investors the opportunity to invest in these split properties. Most of these start-ups are currently at a standstill. But this has nothing to do with blockchain. In fact, you don’t need blockchain to split a work of art. Entrepreneurs had tried to create art-based stock exchanges in China and France in 2010 and 2012; all these initiatives had failed not for technological reasons, but for liquidity reasons.
Beyond the splitting of the property, what does blockchain bring?
Personally, I believe very much in blockchain to maintain a register of certificates and guarantees of the authenticity of a work. I think we should see blockchain as an opportunity to ensure the recording and secure tracking of transactions. The English company Artory seems to stand out in this field. In October 2018, it developed a pilot project with Christie’s auction house to record the works of a sale on blockchain. Since then, it seems to have formed interesting partnerships. That said, other actors are advancing rapidly and the company that will prevail globally may not yet have been born.
How do art market players see the arrival of these new technologies?
I am struck by how few actors seem to be concerned about the arrival of these technologies, which will inevitably one day disrupt their habits. I often think of the Parisian taxi driver who proudly told me that he had just gone into debt for ten years to buy his license without worrying about the imminent arrival of autonomous cars. But what I find most interesting is that most of these arttech start-ups are created by technologists from outside the art world. They have little knowledge of the market so they make mistakes and offer poorly adapted applications. The change is not progressing as quickly as expected.
Do these technologies have an effect on the value of works?
Yes and no. There is not one market but several art markets. Technically, these technologies will not allow more people to acquire a work for more than 1 million dollars, but they will expand the art market to a larger number of potential buyers. They will encourage an increase in flows by creating secure marketplaces. These technologies will allow collectors to interact directly without intermediaries, with confidence, reducing costs and increasing the number of transactions. With a larger and more active market, one can expect higher valuations. But it is not certain, it is very difficult to predict the future and the behavior of the Millennials. Tastes and fashions change. The ways of consuming art will evolve. Some companies already offer the possibility of renting digital works for a given period of time. Will the buyers of tomorrow necessarily want to own or be satisfied with a work for a moment? The answer to this question will inevitably have an impact on the value of the goods traded.
As a result, can the art market interest more financial investors?
I don’t know if the art market should interest more financial investors; art remains for me a passion and not only an investment. But I think that financiers should be more interested in the art market. Bankers and asset managers will soon have (whether they like it or not) the technologies to manage their clients’ art assets. The clients of these banks will want their managers to pay more and more attention to their assets as a whole.
What do you mean?
In its 2017 Art & Finance report, Deloitte estimated that the ultra-rich (editor’s note: Ultra High Net Wealth Individuals, or more than 50 million in assets) collectively hold 1600 billion dollars in works of art. And that this figure could reach 2700 billion by 2026. It is difficult in my opinion for asset managers not to be interested in it.
And are they?
Not yet! Traditionally, the role of asset managers is to help their clients optimize their taxes and grow their investment portfolio. Digital transformation allows them to extend their services to the management of other assets ranging from real estate to childcare planning and insurance. They talk about a holistic approach. But even if they are beginning to include passion investments, such as wine or vintage cars, to get an overview, they remain very cautious on the question of art.
Can technologies help them overcome this reluctance?
Indeed, more and more start-ups are offering collection management systems with interfaces (APIs) that can be interconnected with the banks’ IT systems. We are also seeing the emergence of particularly effective valuation analysis tools. I think that once this apprehension is overcome, we will see bankers (against their will) enter the art market. I know of a computer company that offers software to asset managers that is investigating this issue very seriously.
Editing : Katherine Lingenfelter
Written by Fabrice Delaye
