Overstone Chairman Cochin de Billy on interest rates and the art market

 

By Claude Cochin de Billy

The key issue facing global markets today lies in the hands of central banks and their policies. It is clear from a macro-economic perspective that interest rates have been too close to zero for too long, and central banks must seek to stimulate the economy on the back of real growth, as opposed to curtailing rates. This is difficult to achieve however, as events or market circumstances have limited the efforts to return to a “normalised” interest rate environment. Meanwhile there are several underlying mega-trends which affect the established economic and financial norms in the world (tech impact, ageing population): their impact is poorly understood and complicate the task faced by Central Banks as these are potentially deflationary.

A speedy rise in interest rates is therefore highly questionable.

This provides a positive outlook for the art market as a real asset class as a result of two factors. The first – art is a uniquely unleveraged asset class, and second – the amount of liquidity deployed in the art market has grown massively in particular in Impressionist, Modern and Contemporary sectors. The speed at which the contemporary art market has grown, driven by a burst of creativity and financed by the increase in wealth in the past 30 years, is one that occurs at exceptional moments in human history.

We believe these trends, supported by a benign interest rate environment and substantial wealth creation are well entrenched.

Whilst the US market already hosts key financial players in the art financing market, there is large opportunity, particularly for European Middle-Eastern and Asian banks to establish themselves as the market leader in this asset class. Beyond private client advisory services this opportunity extends to traditional lending against the asset.

Financial institutions developing a solid strategy in art financing, using newly implemented data analytical tools to better understand risk, will reap substantial financial rewards as first entrants, in addition to building long lasting relationships to ultra-high net worth clients.

First published on LinkedIN June 10, 2019. Edited for formatting.

 
 
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Claude Cochin de Billy has acted as the Chairman of Overstone Art Services since 2016. Claude is currently Executive Chairman of GFP Juniper LLP. See his profile here.