#11 Remko van Ekelen & Oliver Roehl - Art Securitization

The Nalu Finance Podcast

In this episode of Nalu Finance, we sit down with Oliver Roehl of Fine Art Invest Group and Remko van Ekelen of Amergeris Wealth Management to explore the market of securitised art investments.

They dive into the appeal and mechanics of investing in fine art, including:

• Why editioned photography enables transparent valuation and strong performance
  

• How securitisation makes art bankable and tradable like any other asset
  

• What drives demand for blue-chip artworks and tangible value in portfolios
  

They also discuss how technology and tokenization are making art investment more accessible and structured.

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🎙️ Transcript: Oliver Roehl: 00:06 In 2000, this segment had a turnover of only 100 million US dollars in the auction market. In less than 20 years, it became a 1.5 billion US dollar market.

Sponsor: 00:19 This podcast is courtesy of the Zurich branch of Commerzbank AG, which offers over 20,000 publicly offered leveraged structured products in Switzerland. These structured products are accessible through a multitude of channels, including the BX, SIX Exchanges and Swissquote Bank. More information can be found at certificate.commercebank.ch.

Stefan Wagner: 00:43 I am here with Oliver Roehl, who is the CEO for Fine Art Invest Group and Dr Remko van Ekelen, who is the CEO of Amergeris Wealth Management Group. The Fine Art Invest Group is an art dealer and art consultant. It offers an all-around service from consulting and purchase to insurance and storage of the artworks in a state-secured bonded warehouse. Emma Gares works alongside high net worth individuals, asset managers, corporates, private equity funds and hedge funds on high-end flexible securitization solutions. Let's start with the first question. Why should anybody invest in art?

Oliver Roehl: 01:21 And because we define it and we see it as an asset class in itself, actually is most probably the oldest man-made asset. Or as Larry Fink, the CEO of BlackRock, and himself the art collector, has put it, one of the greatest stores of wealth internationally. And right from the start, we have all cliches already in place, because if we listen to Larry Fink, it matches all the mainstream perspectives about art. Art is seen as only could be spent with four and five, 50 million US dollars for Leonardo da Vinci, for example, or for Picasso and millions of forced painting or wall screen print. But in this 60 billion US dollar market worldwide, we discovered so much more opportunities for investments.

And the analysis is the most important thing about this. Most of the artworks are still painting, which are generally unique artworks. And exactly this is the main problem of investing in unique artworks. How can you value a unique artwork? To value something, you need to have something of the same kind, the same size, quality and so on. And of course, from the same artist. Then you can justify the price. So we need artworks done in the so-called editions. If you have something in addition, that means that it matches all the criteria I just said, like same size, same quality from the same artist and so on.

And this is usually done in lithographs and photography. So we decided to pursue this genre of photography as part of a segment of post-war and contemporary art of the art market. And this segment is the fastest growing segment overall. In 2000, this segment had a turnover of only 100 million US dollars. in the auction market. In less than 20 years, it became a 1.5 billion US dollar market. Wow. Which is an increase of 1400%.

Stefan Wagner: 03:35 Massively. And how did prices develop over that time?

Oliver Roehl: 03:39 Oh, that's a good question. According to Deloitte Arts and Finance report, this segment has a performance of 10.71% on a year-to-year performance.

Stefan Wagner: 03:51 And probably with a very low volatility.

Oliver Roehl: 03:54 Yes and no. But overall, if you have a year-to-year of 10.7%, that's pretty good. If you compare that to the usual suspect indices of DAX and Dow Jones, they just have a performance of 7 to 8%.

Stefan Wagner: 04:10 On average, yes, correct. And when you help people investing into these arts, what is the way that you advise them to do it? What is the best way to do that? outright thing as a portfolio? Do you invest only in the bits that you actually like? Do you invest only in dead artists because there's no more supply coming or you invest also in living artists?

Oliver Roehl: 04:35 What sort of is the… A good question. Let's define what we actually propose and offer our clients. We do have two products and services. First of all, we offer a direct investment, so-called direct investment. which is actually very old-fashioned. We follow the general strategy of wealthy families and what they have done throughout all centuries. That's a good thing and we just added a twist to that. We have democratized this investment. Our investment proposition starts not in millions but only in 15,000 euros.

When buying such an individual selected and well curated portfolio we call this group of artworks we offer to the client as a portfolio, he becomes the owner of the artworks. In addition to the sale, we usually manage this portfolio in terms of storage and insurance. And secondly, we do offer art advisory to family offices and to private banks. We do not have any license to launch any financial vehicle, but we help our partners to wrap up art into such a financial structure. So, we teamed up with Dr. Remko van Ekelen from Emergeries to help in making art as an underlying asset for a financial vehicle, which he calls certificate or note.

Dr. Remko van Ekelen: 06:08 Okay, so for us at Amergeris, you know, we've looked a lot at investing in art for our clients. Next to that, we work a lot with other investment managers, banks, and asset managers on structuring deals. And at some point, you know, when we said, you know, we're buying art for our clients, we're storing it, it's physical art, we said, well, you know, maybe it's good to have it in one of our nodes. We run securitization platforms in Luxembourg. And having it as a bankable asset makes it a lot easier to manage for us as investment managers. So we've seen quite a lot of interest in it from other banks and family offices investing in the note. It's a private placement note and traded at NAV, you know, like a fund. It works exactly the same, basically.

And we securitize a portfolio of art. Fine Art Investment Group, they do the advisory to the product. They tell us, you know, okay, or they tell the structure part. We are going to buy this, we are going to buy that, and they take care of the storage, they take care of the insurance, they take care of the whole management of the art portfolio in that way, which is very beneficial because that is something that we cannot do again.

So, if you look at the liquidity side, when people would like to Buy art through the note. It trades OTC, trades like a certificate or a fund. We get subscriptions and we get redemptions. The note always has about 10% of cash in there to make sure that redemptions can take place. And that for us is, yeah, it's a very useful product in a portfolio where we're looking for yield and we're really trying to figure out, you know, what can we do? And real assets nowadays, you know, next to real estate, art and other things like forestry are very, very interesting. And, you know, a lot of our clients, they love the fact that they have something that has a cultural value as well.

Stefan Wagner: 07:55 So if I would be one of your clients and buy such a portfolio from you, is there any way for me actually to enjoy it? In a sense, could I take one of the pictures out and hang it on the wall at home? Or does it have to be in a secure storage to be insured and safe?

Oliver Roehl: 08:11 We differentiate very clearly between decorative art and art which we are going to invest in. Of course, if you want to have one of your artworks at home, you are free, because you are the owner, to import this artwork and hang it onto your wall and enjoy it yourself, of course. But then you have to insure it yourself, because this is not covered by our insurance.

Stefan Wagner: 08:37 It touches, it has some emotions with it. When you do the securitization, who can actually invest? You mentioned it's a private placement, so the limitations, who can come to you on this one? And what's sort of the minimum at which you start looking at it?

Dr. Remko van Ekelen: 08:53 So basically it's under the PPR rules in the EU. Tickets are 125,000 plus. So normally it comes through discretionary management portfolios or it comes through banks, high net worth individuals that are eligible to invest in these type of products.

Stefan Wagner: 09:08 And what you see is sort of a trend in there. How long do people normally hold these holdings? One, two years or more, five, seven years?

Dr. Remko van Ekelen: 09:19 No, I think in general, our clients, they've been in there for the long run. We manage a lot of, let's say, nest eggs. People like something that has a stable return like art, like Oliver said, 10.3, 10.7% on an annual basis on post-modern contemporary art. It helps a lot in a portfolio where bond yields are very, very low. You need to add something different. I think it makes a difference with what we do and how we invest for clients. And clients really appreciate a different look at investing.

Stefan Wagner: 09:53 And is there a reviewing process in the place? Or is this portfolio stationary?

Oliver Roehl: 10:00 In terms of review, the overall structure, as Remco just pointed out, is on a 10-year basis. We do buy or we do propose to the node when money and investments come in what to buy. And of course, along this period of time, if we have an opportunity to sell art for a very good price, then nobody would be reluctant to do so. So we take these opportunities to make money and to buy again at a lower price some more art.

Stefan Wagner: 10:37 As you regularly evaluate the art, how do you actually determine the price of the art when you're not intending to trade the art, you're not trying to sell it? So there's no market price in a sense. Do you go to auction results? Do you use an art deal a bit? Is it expert valuation? Is it insurance value you use for it? In a way, what's your source?

Oliver Roehl: 11:00 Yeah, good question and a relevant and basic question, because this is always what we've been asked about the valuation. Actually, coming back to what I've said in the first place about photography and the beauty why we chose photography, that it's managed in editions, that makes it transparent in prices, because we do have a comparison in the market If you sell pieces in an edition, you have a comparison price in the market. So in our network, we do get the prices from the galleries. And of course, we also screen auction prices, which are but not as relevant as the actual market prices from our dealer partners and galleries.

Stefan Wagner: 11:45 And now over the last few years and going forward, sort of what themes and trades do you see will affect your business?

Oliver Roehl: 11:52 You most probably agree that the latest trend is the search for real investment opportunities and the trend to tangible and real assets because there is a lack of other opportunities. So that is our chance and we do benefit from this trend very much.

Stefan Wagner: 12:21 And is the internet making this market more transparent now?

Oliver Roehl: 12:25 Of course. Also in the art market, online sales increase very much. It's already 6 billion in size, an increase of 11% per year throughout the last years. And it's expected that it will increase even higher in the next years. accompanied by, on the other hand, the dying of the small galleries. So the trend is growing as a gallery, making your own network of galleries, like a Gaugien and Hauser& Wild and so on. So they get bigger and bigger, whereas on the other end of the spectrum, the smaller galleries will die in the future, because it's hard to get new collectors and make them appreciate art.

Stefan Wagner: 13:17 Can you walk us through your investment process and how you construct a portfolio when you put a note together?

Dr. Remko van Ekelen: 13:23 For us it was really important when we started doing this project with Fine Art Invest Group is that they look at a lot of the factors out there. They really invest in artists that have been there for a long time, that have a track record. They're very traceable in the internet, very present. Those were things where we said, okay, that is really important for us next to storage and insurance and things like that.

So our investors that invest in the note, they benefit from the same processes that Fine Art Invest Group puts into the whole process when buying physical art for their clients. We basically put that together and said, okay, well, this is a bankable product with a Swiss eyes in, you know, easy to trade. And from there, you know, it was for us something that was investable for our clients. But I think, you know, Oliver, you can say a little bit more about the process, you know, the steps that you guys take to select the artists and to really see, you know, what is something that we add into the note or in bankable portfolios like this.

Oliver Roehl: 14:26 Yeah, following our key philosophy to preserve wealth and value, we do only invest in so-called blue-chip artists. And those blue-chip artists have to match very strict and defined criterias. It's not a matter of young and old, but of other criterias. Is there a body of work recognized by art historians, by curators? Is there a body of work in significant collections of museums and institutions? Do they have quite a significant amount of shows and exhibitions throughout the last years? And is there any trackable and comprehensible pricing throughout the last at least 10, but more or less 20, 25 to 30 years. That is the key to make an investment, to persuade our clients to invest in this particular artist.

Stefan Wagner: 15:28 I mean, this sounds like, you know, you look more at it, actually, what the opportunity in the market is, or does also your taste play into what you select?

Dr. Remko van Ekelen: 15:39 The thing is that when we started working with Fine Art Invest Group is that what we really liked is the fact that they look at, you know, what does the market want? And it's not about personal taste. It's not about, you know, is this a beautiful picture or not? It is what does the market want? What does the market want to pay for it? Is there a track record or not? And it's, it's very, um, yeah, how do you say, almost you take the emotion away. Exactly. And it's really about, you know, that is the picture that is the track record and that is how it works. And those are things that we really value a lot. I mean, I have no knowledge about art to be really honest. Yeah. Yeah. I don't like it or you don't, but with these types of investments, how we make them together, you know, it's not about, do you like them or you don't, it's about what does the market want?

Oliver Roehl: 16:24 I can add to this that our target group is not the collector. The collector follows his own philosophy and his taste and his philosophy of collecting. But we attract investors and investors only are interested, as you just mentioned, track records. This is why we only choose blue-chip artists and not any rookies coming from art school. That would be totally speculation. What we have in mind is preservation of value and the opportunity, of course, over time in long-term perspective to increase in value and to generate performance.

Stefan Wagner: 17:07 Last question to you. What are your three favorite art or art heist movies?

Oliver Roehl: 17:12 Of course, as a man of photography, I have to mention the film from John Maloof, Finding Vivian Meyer, this really amazing discovery, which was by accident of John Maloof. Vivian Meyer died very poor in 2009, and he bought her work by accident through an auction house. undeveloped film in 2007. And the outcome of this body of work is amazing. We're still discovering, we're on the urge of just discovering this body of work. She photographed in the 50s and 60s, very unique as a street photographer in Chicago, New York. and left us a body of work which is amazing, of interesting people, and of course, and this is what most curators adore of her work, is her ability of a very unique set of self-portraits she has done in the 50s and 60s already, although there are other big names who did in the 70s self-portraits, which look pretty, I wouldn't say silly, but… Excellent.

Stefan Wagner: 18:27 I'm going to have to find this movie and watch it. Over to you, Remko. What are your up to three favorite either finance movies or art heist movies related to our discussion today movies?

Dr. Remko van Ekelen: 18:39 Let's take the finance movies. Excellent. Same as with the finance books, you know, they're always interesting to look at. Well, we've mentioned Boiler Room, The Big Short, Margin Call, but one of the really nice ones is still The Wolf of Wall Street. It is just so entertaining. And all the other ones that we looked at, where we see all these big, big, big corporate traders in Wall Street, they're very nice to watch and it gives you a lot of impression how it was in the old days. But yeah, I think if I'm in a plane, I'll take The Wolf of Wall Street. Excellent.

Stefan Wagner: 19:11 Thank you very much for your time.