Over the next quarter century, an estimated $73 trillion will pass from America’s Boomer generation to their Gen X and Millennial children in what has been dubbed “The Great Wealth Transfer.” About half of that number will go to just the top 1.5% of households, also known as America’s collector class.
This has made Sarah McDaniel’s job very difficult lately.
As head of Morgan Stanley’s art resources team, McDaniel helps high-net-worth clients manage their art collections, but aging collectors are reevaluating their plans about who will inherit his art in the midst of a rapidly evolving art market and the divergent tastes of the next. generation
“What we’ve found is that with the great transfer of wealth and the economy of taste in the art market, many children of collectors don’t have the same taste in art as their parents,” McDaniel said. . ARTnews in a recent interview. “In the past, the categories of collecting and who collected them tended to last longer, so there was less of a disconnect when a collector died or disposed of their collection.”
McDaniel estimates that for his very high net worth clients, whose fortunes are $30 million or more, five to ten percent of their balance sheet is in art and collectibles, the which means trillions in art is expected to change hands in the coming decades. . Or so estate planners like McDaniel thought.
But when heirs don’t want their parents’ collections, the two best options for collectors are to give away the works in exchange for a significant tax break or sell the art while the collector is still alive, he said McDaniel. This doesn’t mean just selling the job as end-of-life planning, but simply selling the job more frequently throughout life.
“The potential to achieve additional value through relationships [collectors have in the market] and the relevance of the art they collect might be better than waiting decades later to sell artwork that is no longer as desirable as it was when the collector bought it,” McDaniel said.
The increasingly rapid change of tastes in art and the resulting instability of the art market may seem unsettling, but McDaniel points out that there are many positive reasons that have contributed to this increasingly volatile cycle of trends.
“There is a new generation of collectors who are interested in acquiring the art of their peers,” McDaniel said. “Collectors tend to be more female and more diverse globally, there are a lot more Asian collectors now.”
These new collectors often want to buy from young, living artists from more diverse backgrounds, McDaniel says, which auction houses like Sotheby’s have already tapped into. In November 2021, Sotheby’s held its first evening sale dedicated to living artists. The sale of “The Now” was a resounding success, especially for female artists such as Simone Leigh, Anna Weyant and Jennifer Packer, who fetched record prices that night. The sale generated $283.4 million in total.
“Traditionally, it takes a while for living artists to have a secondary market. Now we’ve seen an acceleration or compression of the primary and secondary market for some of the living artists,” McDaniel said. “They could actually be selling in both channels simultaneously.”
This fast-paced market has already seen great volatility for young artists, who often peak quickly and disappear even quicker, with little to show for the work’s success on the secondary market.
So how are McDaniel’s customers reacting to the knowledge that collections they’ve spent decades amassing may be unwanted? It depends on the type of collector.
“Most collectors I’ve worked with buy art because they love it, and they’re really interested in the artist, their career, and their influence. There are other people who absolutely love art, but they also see it as an investment,” McDaniel said.
“For collectors who see it as an investment, and they can come from finance, real estate, technology, so it’s in their DNA, they can see art as an asset class as well as a passion asset. They come with the expectation that art will hold its value or appreciate. But they know that, like any other investment art, it can lose value. For people who buy art because they love it, changing markets are less of a challenge for them because they live with the art they love, this is their value.”