For millennia auctions have attracted buyers based on 3 fundamental drivers:
- Utility, the bidder can use the article being auctioned
- Excitement, the bidder is interested and excited to own the article
- Investment, the bidder expects the article to increase in value
-
In each case the whole lot has a single winner and potentially multiple losers at the end of the auction. This “all or nothing” dynamic has several drawbacks, some of which I have discussed before, but principal among these are:
- Bidders must have the financial ability to succeed in bidding for the whole article
- Bidders must have the desire to own, operate, store and be responsible for the whole article
These 2 restrictions alone effectively exclude huge numbers of potential bidders, only being able watch (albeit with a voyeurs interest!). At the Christie’s Art and Tech Conference in New York last week, Christie’s leadership talked about a normal high value sale having perhaps 4-5bidders. If we think about Banksy as an artist, his major works may attract 4-5bidders, yet he has 13m followers on Instagram.
With the advent of fractional bidding in auctions and subsequent ownership of shares in an SEC regulated entity using aShareX, whole new segments of bidders can participate.
Looking at the potential bidding groups and motivations, we are already seeing the following:
Collectors of the future – with the largest transition of wealth in history happening now, many future serious large scale collectors of art can begin their collection by fractionally investing in established artists work
Excited Individuals – folks who want a fraction of a lot for the enjoyment of owning it and being able to share the enthusiasm and sense of community associated with the piece, but without the financial capability of full ownership.
Investing Individuals – folks looking for a return on their investment but who, again, cannot afford the whole lot.
Fractional collectors/investors – folks looking to build a broader collection of (say) a genre of art, who could perhaps afford a single piece, but instead choose to own a fraction of multiple pieces either from a collection or investment perspective, or both.
Hedging Individuals – folks looking to hedge their other investments by investing in fractional alternative assets with low correlation to interest rates and inflation.
Joint and Trust account holders, small groups of investors looking for long term investments without the desire or capacity to physically take possession of the assets they invest in.
Institutional Investors endowments, foundations and pensions. These entities may have the financial wherewithal to own whole pieces, however the majority of their invested asset base is in shares of regulated entities. They do not wish to take ownership of physical art, or to focus their investment strategies as narrowly as on a single piece, instead choosing to have fractional ownership in a broad range of assets within their chosen asset class, with share based voting rights over the asset.
Family offices and Registered Investment Advisors. One of the challenges of this group is to differentiate in a competitive advisory landscape, what can advisors bring to their investors that is different, interesting (in fact exciting to be involved in the auction), has potential for value growth, and minimizes external management costs?
Auction House Benefit
Having these potential fractional bidders engaged in high value auctions is a huge opportunity to reduce the risk associated with depending on a very small number of whales, and deepens the enthusiastic ownership pool of the artist or asset class.
Please drop me an e-mail (kevin@asharex.com) if you have any questions, or for a demo of our fractional bidding system.
Leave a Comment