Sotheby’s announces a first: a $700M art loan securitization

June 21, 2024
updated on

Key Takeaways

  • Sotheby’s announced a $700 million art loan securitization. 
  • The move underscores innovation within the art investment market, as well as the broader landscape of alternative investments
  • Platforms like Alto play a pivotal part in facilitating access to investing in fine art and art-backed securities. With Alto, qualifying investors can use their retirement savings to invest in alternative assets.

On April 23, 2024, renowned auction house Sotheby’s announced a groundbreaking move in the art market with a major securitization backed by art-secured loans. The securitization totals $700 million in notes backed by art-secured loans. It uses art as collateral to secure loans, which are then bundled together and sold to investors as bonds. The first issuance is thought to include works by both Rembrandt and Andy Warhol.

The move makes art (traditionally a less illiquid asset) into an institutionalized financial product. In short, securitization is a process in which “contractual debt obligations” (such as loans backed by art) are grouped together. They are then repackaged into interest-bearing securities, which can be sold to investors to minimize credit risk (like over-collateralization). 

“This highly successful transaction, which saw strong demand from institutional investors resulting in a significant upsize to the transaction, will help further our mission of unlocking the power of our clients’ collections through the delivery of innovative financial solutions,” Ron Elimelekh, co-head, COO, and chief capital officer of Sotheby’s Financial told Investment News. “Now with over $2 billion of funding capacity, Sotheby’s Financial has a flexible and committed funding framework supported by an existing credit facility and this groundbreaking securitization program.”

Fine art is an increasingly popular asset class amongst investors.

Art is emerging as an increasingly popular alternative asset due to its aesthetic appeal, collectability and potential for financial returns. Beyond its intrinsic value, art offers investors a buffer against market fluctuations. Art prices tend to move independently from conventional financial markets and have shown resilience over the years—with select pieces showing substantial appreciation. ​​Pablo Picasso's "Femme à la montre" from 1932, for example, sold at Sotheby's New York in 2023 for $139.3 million, making it the second-most expensive Picasso ever sold at an auction (after the “Les femmes d’Alger” (Version ‘O’) from 1955, which sold at Christie’s in 2015). 

The most expensive artwork ever sold at an auction was Leonardo da Vinci's “Salvator Mundi,” however, which, in 2017, sold for $450.3 million at Christie's in New York. This masterpiece holds the record for the highest auction price yet. That said, art is being auctioned off for higher and higher prices, and investors are seeing the value in owning (and trading) it. 

While individual investors are only now gaining widespread, easy access to alternative investments like art, 84 percent of institutional investors and high-net-worth (HNW) individuals already invest a portion of theirwealth in art, according to Deloitte. Additionally, 63 percent of wealth managers for private banks and family offices have also offered art as an alternative asset. Furthermore, Sotheby’s Financial Service’s art loan portfolio grew more than 100 percent over the last two years; it is Sotheby’s highest-ever portfolio balance, despite the fact that the auction house began lending in 1988.

Incorporating art into an investment portfolio can reduce its risk since doing so diversifies with an asset that’s typically uncorrelated with traditional assets like stocks and bonds. This strategy can enhance overall portfolio stability (and, potentially, performance); art also provides potential long-term financial gains as it appreciates in value over time. Moreover, investing in art is fulfilling for many investors who are interested in cultural and historical artifacts.

What does this mean for alternative investments?

Sotheby’s securitization program is not the first time that investors have had the opportunity to invest in portfolios with art-backed loans. And Sotheby’s bonds are only available to institutional investors. Overall, the $700 million art loan securitization indicates growing interest among investors in art-backed debt investing. The move marks the recognition of art as a valuable asset class and is a significant step in the intersection of art and finance. It reflects the increasing appetite for alternative assets, such as art, which offer diversification and pack potential returns. It also signals emerging opportunities for both investors and the art market alike.

The bottom line

Sotheby's groundbreaking $700 million securitization backed by art-secured loans not only highlights the growing prominence of alternative investments, but it also underscores the potential for innovation, growth, and opportunity within this innately creative space.

As investors seek to diversify their portfolios and explore new avenues for growth, platforms like Alto provide opportunities to explore alternative assets, including art. With Alto, qualifying investors can access a broad range of investment options through strategic partnerships on Alto Marketplace. As Sotheby's sets a precedent with its pioneering move in the art market, Alto stands poised to enable investors to navigate the evolving landscape.

Open an Alto IRA today to start diversifying your portfolio using your tax-advantaged retirement funds and take control of your financial future.

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Sotheby’s announces a first: a $700M art loan securitization