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Could the art-finance industry offer museums some much-needed options?

22 August 2018

Among the many challenges facing museums today is how to fund new acquisitions. It is widely acknowledged that most museums need the ability to add to their collections. Major acquisitions can invigorate an institution, complement and give new meaning to existing artworks in the collection and, of course, generate more visitors. Yet with the enormous growth of the art market over recent years, particularly for works of the highest quality – precisely those pieces that would be of interest to major museums – most institutions are finding it increasingly difficult to compete in such a competitive environment.

One way to bring new works into a museum is through carefully selected loans from private collections. In the UK, some of these loans may in due course be offered to the museum by way of private treaty sale, or bequeathed via the Acceptance in Lieu scheme. This situation has, however, been undermined recently by high-profile examples in which works formerly on loan to a museum collection or major exhibition have ended up at auction with remarkable speed – fresh to market from the museum wall. The implication is that owners have been using the publicity generated by such loans in order to boost interest in the work, and then cash in at the salerooms. Modigliani’s Nu couché, for instance, which was sold at Sotheby’s New York for $157.2m on 14 May, had featured in the acclaimed exhibition on the artist at Tate Modern that closed just six weeks before the day of the sale. This is by no means an isolated example. Even long-term loans can be (and have been) withdrawn and sent to auction by owners who may need to raise funds quickly. When this happens, the museum is often the last to know, and has little prospect of raising the money to purchase the work in the short timeframe available.

The rapidly evolving world of art finance may hold some solutions for museum curators who despair of their chances of acquiring significant works in the current market. Using art as collateral for a loan is common among US collectors and is on the increase in Europe, with a number of specialist lenders providing art-backed loans that traditional banks are reluctant to offer. Yet while this facility is normally targeted at private individuals, and some of the more adventurous art dealers, museums have generally been overlooked.

Art finance could, however, help museums in a number of ways. Institutions might well consider it in relation to their long-term loans, for example. In order to avoid situations in which owners withdraw significant artworks at short notice and place them on the market, they could instead be offered bridging finance, using the art as collateral, while the art remains on loan to the museum. Such an arrangement would give the museum more time to raise the funds required (through grants and donations) to secure the purchase; in the UK, it would also enable both the seller and institution to take full advantage of the various tax incentives available for the sale of artworks to the nation.

For those institutions that are able to deaccession artworks (often the case with American museums, but less common in the UK and Europe), leveraging a few major works to free up capital earmarked for new acquisitions might be preferable to selling the works outright. Not only might this help to avoid costly mistakes in deaccessioning (for works that later turn out to be of greater art-historical significance than previously thought), but it would allow museums to acquire new works without divesting themselves of others. In May, the Baltimore Museum of Art sold five artworks at Sotheby’s New York for nearly $8 million, funds that will (laudably) be used to diversify its collection; but capitalising those works would have allowed the institution to pursue its acquisition strategy without compromising its existing holdings.

In the future, a museum may find it safer and less controversial to leverage artworks in order to release funds than taking the more drastic and irrevocable action of selling them. Even if the decision is later taken to pay back the financing through a sale, the museum will crucially have bought itself more time to make certain that such a decision is in the best interests of the institution. And while there are costs associated with servicing a loan, such arrangements would extend the time available for fundraising campaigns, with the cost of the acquisition effectively deferred until repayment of the loan. (In order to use its art as collateral in this way a museum would, as mentioned, need to be able to deaccession works, which is not always the case.)

Museums may be unaware of these possibilities, particularly as few banks outside the US offer such services. Bespoke financing arrangements can only be undertaken by a small number of specialist lenders in the field. But given the constraints under which many museums are operating, it is well worth exploring new sources of funding to facilitate future acquisitions.

Timothy Hunter is Vice President of Falcon Fine Art.

From the July/August issue of Apollo. Preview and subscribe here