Art and Liquidity
As a fine art collector, you no doubt have a very clear sense of what drew you to each piece in your collection. You may even be able to talk in depth on the personal history and creative influences of the artists whose works you own. Yet if you are like many collectors, you may only vaguely be aware that you can use art as collateral for a loan. By borrowing against your artwork, you may create liquidity to take advantage of a broad range of financial opportunities. You might think about:
- Acquiring more artwork
- Financing a business investment
- Renovating and investing in real estate
- Investing in hedge funds and private equity partnerships
- Replacing a volatile securities based margin loan
- Taking advantage of other opportunities
As a client of U.S. Trust, you have access to a qualified team of credit specialists who can help you borrow against your art collection while you maintain possession of every piece.
Your Collection
Deep aesthetic interest and passion may be your main motivations for buying fine art. Yet your collection may be valuable in financial as well as emotional terms. You are no doubt aware of how the individual pieces have changed in value over time. Indeed, if recent auctions of major artworks is anything to go by, we are in a period of increasing activity in art markets.*
Recent appreciation in the art market may favorably affect the potential collateral value of your collection.
While there are collectors who have ready access to liquidity, we have found that others tend to be fully invested most, if not all, of the time. They often have little money available to focus on other investment opportunities and must consider liquidity when the opportunity arises. A fine art loan may be an effective way to generate the cash which can be invested elsewhere in your portfolio.
*Source: Baerfaxt.com and NewYorkTimes.com, 2012
This report is provided for informational purposes only and was not issued in connection with any proposed offering of securities. It was issued without regard to the specific investment objectives, financial situation or particular needs of any specific recipient and does not contain investment recommendations. Bank of America and its affiliates do not accept any liability for any direct, indirect or consequential damages or losses arising from any use of this report or its contents. The information in this report was obtained from sources believed to be accurate, but we do not guarantee that it is accurate or complete. The opinions herein are those of U.S. Trust, Bank of America Private Wealth Management, are made as of the date of this material, and are subject to change without notice. There is no guarantee the views and opinions expressed in this communication will come to pass. Other affiliates may have opinions that are different from and/or inconsistent with the opinions expressed herein and may have banking, lending and/or other commercial relationships with Bank of America and its affiliates. All charts are based on historical data for the time period indicated and are intended for illustrative purposes only.
This publication is designed to provide general information about economics, asset classes and strategies. It is for discussion purposes only, since the availability and effectiveness of any strategy are dependent upon each individual's facts and circumstances. Always consult with your independent attorney, tax advisor and investment manager for final recommendations and before changing or implementing any financial strategy.
You should carefully read your account agreement to be sure that you understand your risks and obligations.
Diversification does not ensure a profit or protect against loss in declining markets.
Credit facilities may be provided by Bank of America, N.A. Member FDIC, or other subsidiaries of Bank of America Corporation, each an Equal Opportunity Lender. All collateral are subject to credit approval and may require the filing of financing statements or other lien notices in public records. Asset-based and securities-based financing involves special risks and is not for everyone. When considering an asset-based and/or securities-based loan consideration should be given to individual requirements, asset portfolio composition and risk tolerance as well as capital gains, portfolio performance expectations and investment time horizon. For any loan with securities collateral, the securities or other assets in any collateral account may be sold to meet a collateral call as provided in the definitive loan documents and the client is not entitled to choose which securities or other assets will be sold. A complete description of the loan term will be found in the individual credit facility documentation and agreements.
Margin is not appropriate for all investors. Borrowing on margin and using securities as collateral involve certain risks. When considering a margin loan, you should take into account your individual requirements, portfolio composition and risk tolerance, as well as capital gains taxes, portfolio performance expectations and investment time horizon. The risks you should be aware of include:
- If the value of your securities declines, you may be required to deposit additional securities and/or cash into your account.
- Your securities may be sold to meet a "maintenance" call and we may do so without contacting you.
- You can lose more funds than you deposit in your margin account.
- We can increase our "maintenance" margin requirements at any time, and we are not required to provide you with advance written notice.
- You are not entitled to an extension of time on a margin call.
Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates, and risks related to renting properties, such as rental defaults.
Alternative investments are intended for qualified and suitable investors only. Alternative investments such as derivatives, hedge funds, private equity funds and funds of funds can result in higher return potential but also higher loss potential. Changes in economic conditions or other circumstances may adversely affect your investments. Before you invest in alternative investments, you should consider your overall financial situation, how much money you have to invest, your need for liquidity and your tolerance for risk. Alternative investments are speculative and involve a high degree of risk.
U.S. Trust operates through Bank of America, N.A., and other subsidiaries of Bank of America Corporation. Bank of America, N.A. and U.S. Trust Company of Delaware (collectively the "Bank") do not serve in a fiduciary capacity with respect to all products or services. Fiduciary standards or fiduciary duties do not apply, for example, when the Bank is offering or providing credit solutions, banking, custody or brokerage products/services or referrals to other affiliates of the Bank.
ARE6K016 | 08/2012