Artful Financing: Art Collections as Loan Collateral

Fine art is valued by collectors for personal and aesthetic reasons and is also frequently considered an investment with potential for profit — but the value of that art is not necessarily easy or quick to access. While pieces of art may be illiquid assets, they may still be considered assets, and some financial institutions are willing to consider the right kinds of collections collateral for loans.

JPMorgan Chase is one such institution. The company has its own large collection, a chief curator and a staff with expertise in art investment. The company’s private bank provides loans to collectors, but with strict rules: The client’s collection must be diversified and be composed of at least five pieces, each worth $750,000 or more, as determined by a JPMorgan Chase approved appraiser. The company also inspects the art yearly and uses interest rates proportional to the risk involved and the mutable nature of art’s value.

Read more about the difference between investing in art and in stocks in Darden Professors Richard B. Evans and Pedro Matos’ article “The Fine Art of Financing Art,” in the Darden School of Business/Washington Post “Case in Point” series.

For a review of the difference between the measure of liquid assets, like stocks and bonds, and the methodology more appropriate for the world of art investment, watch the above video, The Fine Art of Financing: Measuring Art Investing Risk and Return With a Repeat Sales Index.

About the Faculty

Richard B. Evans

Professor Evans’ research and teaching focus is investment decision-making. He explores risk taking by mutual fund managers, the role of broker intermediation in mutual fund investing, the impact of commission bundling and other trading costs on portfolio performance and retail and institutional-investor behavior.

Evans has been cited by The New York... Learn More

Pedro Matos

Matos is an expert in the fields of asset management, investments, corporate governance and international finance. His research focuses on international corporate governance and the growing importance of institutional investors in financial markets worldwide.

Before Darden, Matos served as an economist for the Portuguese Ministry of Finance and as a consultant... Learn More

Share & Subscribe

Tags

Education