Key insights from Shinnecock Partners to guide fine art lending for investors and fund managers
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– Significant growth in alternative investing in 2021 requires significant due diligence –
LOS ANGELES – (BUSINESS WIRE) – Art lending as an investment has taken off over the past year as investors seek short-term returns. Inflation fears and pandemic recession defaults are additional drivers of what is a $ 20 billion market. Shinnecock Partners, an investment boutique, studied the market for two years before making its first loan. Company Managing Partner Alan Snyder provides insight into the challenges and opportunities facing investors and funds.
After almost four years and $ 45 million in loans against $ 120 million in art, Shinnecock has already seen many disasters, unfortunately for investors. For example, lenders who do not actually own the art they are lending against may be left empty-handed when the loan is in arrears. Shinnecock offers its own extensive due diligence checklist to avoid minefields in the alternatives.
Not all players transform the details, but the suggestions below are essential to protect your investment. Snyder warns:
Avoid bad borrowers. Borrowers in financial difficulty or too contentious can usually be avoided by researching the files. “We walked away from a loan opportunity where the borrower, a famous figure, has sued almost everyone in their past. When we asked about it, we were assured it wouldn’t happen to us, ”Snyder recalls.
Check the guarantee with the appropriate legal deposits. The US Uniform Commercial Code allows registration of loans to establish seniority. A pre-screen before the execution of the loan is essential. The final deposit when executing the loan, a UCC 1, must be properly made, otherwise it is invalid.
Insurance must be in place. Specifically, lenders should require separate coverage limits for works of art in transit and in storage, which would cover a total loss. Always insure yourself with highly rated insurance companies like Chubb and AXA.
The challenges of COVID-19 notwithstanding, a physical examination should be performed versus a complete reliance on high-resolution photographs.
“In the current hustle and bustle, a duty of care on the part of the lender is even more important. Investors need to know what questions to ask and when the answers are not complete, ”Snyder concluded.
About Shinnecock Partners
Shinnecock Partners is a 30 year old family office investment boutique with a unique approach: empowering investors to make informed investment decisions. Shinnecock was founded by Alan Snyder (Harvard Business School, Baker Scholar), former CEO, Chairman and Chairman of Answer Financial, Chairman of the Senior Executive, CEO of Executive Life and Executive Vice Chairman of Dean Witter (now Morgan Stanley) .
Telephone: (310) 824-9000
Source: Shinnecock Partners