Over 75 Percent of Collectors Want to Pass Their Holdings on to the Next Generation, Report Says

Over 75 Percent of Collectors Want to Pass Their Holdings on to the Next Generation, Report Says

As museums continue to court young art patrons and auction houses scramble to find consignors willing to part with top work for marquee evening sales, a new study from Bank of America Private Bank provides new insights into the strategies of art collectors young and old.

The report, the Bank’s biennial study of wealthy Americans, found that only 6 percent of collectors 44 years of age or older said it was “very likely” they would sell a work from their art collections in the next year. That figure is a dramatic drop from 25 percent in 2022. Art collectors age 21 to 43, meanwhile, are much more likely than that older cohort to collect antiquities, use an artwork as collateral for a loan, or buy a work of art in the next 12 months.

Those findings are based on data from more than 1,000 respondents nationwide with household investable assets of more than $3 million who were at least 21 years of age. Data was collected in January and February of this year, and the 2024 report was published on June 18.

“For many of our clients, [art is] one of their most, if not the most valuable asset on their balance sheet, but one that they tend to have less frequently incorporated into their estate plans,” Bank of America senior vice president and art services specialist Drew Watson told ARTnews.

Even though millennial and Gen Z comprised only 13 percent of respondents, while Gen X and baby boomers at 81 percent, Watson said it was notable that 40 percent of younger investors currently owned an art collection worth $100,000 or more compared to only 17 percent of older investors. Younger wealthy Americans were also far more likely to say they were “very interested” (18 percent) or “somewhat interested” (25 percent) in owning art compared to wealthy Americans age 44 and over (2 percent for “very interested” and 15 percent for “somewhat interested”).

“There’s a huge influx [of young collectors] that is kind of driving the market, if even if they’re not transacting at as high levels as maybe some of their older generational cohorts,” Watson said.

A major difference in how younger wealthy Americans are collecting art is higher expectations for financial performance compared to the “church and state” viewpoint of older wealthy Americans.

Watson noted that 56 percent of art collectors said they considered art assets as part of their wealth management strategy, but almost all the younger collectors (98 percent) did, and 28 percent would consider using art as collateral for a loan. “This is a huge generational shift that we’re seeing,” he said.

The majority of wealthy Americans with high-value art collections said it was important to pass it on to children or heirs (78 percent), and it was even more important among legacy wealth (90 percent). But Watson said a difference in collecting tastes among the younger generation of wealthy Americans “more often than not” is leading to more interest in the collection’s value, resulting in sales. “And then if they’re buying more art, they buy art that speaks more to their own personal taste, or reflects the more contemporary society that speaks to their generations,” he said.

Watson said the severe contraction in seller sentiment among art collectors 44 years of age and older, from 25 percent of respondents “very likely” to sell a work in the next 12 months to only 6 percent, was due to “a real kind of dislocation” between seller and buyer expectations over the last two years.

While 2022 was the peak of the art market coming out of the Covid-19 pandemic, rate increases, geopolitical conflict, as well as a measurable amount of volatility in financial markets led to the mismatch in expectations, according to Watson. “The sentiment among collectors is now’s not a great time to sell unless you really need liquidity,” he said.

Auction data collected by Bank of America not published in the new wealth survey also showed fewer lots at the top of the market in the $30 million to $50 million range that sold this past May in New York (12) compared to the same period last year (17), according to Watson.

Watson said the auction data showed there was still “quite a bit of activity” for works auctioned at the lower fifth of the market, which sold 26 percent above estimates. “It’s just getting a little thin in terms of supply, and also depth of bidding at the high end in the current market,” Watson said.

The 2024 wealth survey also showed 78 percent of younger collectors would “very likely” buy a work of art in the next year, compared to 34 percent of older collectors.

In addition waiting for the results of the US national election in November, Watson said anticipated cuts to interest rates at the end of this year would likely help bolster sentiments and result in a positive response from the market.

Nearly half of younger art collectors also said they collected Modernism and Impressionism art compared to the 33 percent of respondents who collected contemporary art. Watson told ARTnews the survey result surprised him based on the popularity of contemporary a few years ago, but theorized it might reflect a more conservative current market as well as a move away from the inaccessible prices of many works in the category by blue-chip artists.

Nearly half, 49 percent, of younger collectors also said they collected antiquities compared to 14 percent of older collectors. “Being able to buy an incredible work of art that is 2,000 years old, potentially, for, you know, $10,000 to $20,000, sometimes feels like an incredible bargain,” Watson said.

Watson said observing the market contractions in 2000, the financial crisis in 2008, as well as the boom period in the art market with annual sales tripling since early 2000s, drove many millennial and Gen Z wealthy Americans to have higher expectations for the financial performance of art assets.

This year’s survey also found younger investors are much more likely (13 percent) to use pieces from an inherited art collection as collateral for borrowing compared to older investors (2 percent).

Watson said there were several pragmatic reasons for this shift to more younger collectors using art as collateral for loans instead of selling a work, including the latter’s high transactional costs and a variety of taxes. “The worst part about selling art is that you no longer own [it] and no longer get to live with it, no longer get to connect with other like minded individuals about it, which … still remains as the survey says, the main driver of why people collect art,” he said.

Art loans from lenders like Bank of America, the largest art lender in the industry, allow clients to keep the work and access capital for a variety of purposes. Watson said these included growing a business; reinvestment into a hedge fund or private equity fund as part of an arbitrage strategy; an alternative to traditional real estate financing; funding a lifestyle; or making a philanthropic gift.

And while younger investors age 21 to 43 have 14 percent of their investment portfolio in crypto (compared to 1 percent of investors age 44 and over), Watson told ARTnews that NFTs have stopped being an area of interest among many of his clients. “Once the value of crypto collapsed, it was essentially radio silent,” he said. “I think a lot of it was financially driven.”

Demographic note: the majority of respondents to the Bank of America survey were Baby Boomers age 57 to 76 (65 percent compared to 62 percent in 2022), followed by Generation X (16 percent vs 20 percent), millennials (12 percent vs 9 percent) and Gen Z (1 percent vs <1 percent). Close to one-third (32 percent) of this year’s survey respondents also self-identified as coming from legacy wealth through their upbringing and inheritance, compared to 28 percent of respondents in 2022.

The post “Over 75 Percent of Collectors Want to Pass Their Holdings on to the Next Generation, Report Says” by Karen K. Ho was published on 06/18/2024 by www.artnews.com