Fimart: an ambitious newcomer in the art and blockchain scene

Chiara Aluigi talked with Look Lateral founder Niccolò Filippo Veneri Savoia about the launch of Fimart, a new platform that will apply blockchain technology to art investment practices, allowing for additional price transparency and increased investor confidence in the art market.

Look Lateral. Image courtesy of Mr. Savoia

What should be the role of blockchain in the art market and how will it influence art investment practices?

The blockchain is simply an instrument: it is not revolutionary in itself, but it has some characteristics that, if applied to the right ecosystem, can influence it in a positive way, creating opportunities that would be difficult to generate with other kinds of technologies.

Since 2016, I have been examining in particular two such opportunities: the first one is the possibility to track information in a verified, unchangeable, and incorruptible database. This aspect assumes even more relevance thinking about the opacity that characterises the art market: therefore, it is utterly important to finally provide the art market with the information accessibility it has been lacking so far, thus attracting a new and more diversified client base.

Furthermore, this aspect would increase confidence in art investing. To this day, a very small percentage of private investors, as well as corporate ones, choose to diversify their portfolio by investing in art, when art should actually be a fundamental part of every investor’s portfolio as it is an extremely well-performing asset class, generating a return of investments even higher than the one of traditional assets. As I was saying, the lack of transparency and knowledge are the first obstacles that would be overcome through blockchain, ultimately allowing new confidence in investing in art as an alternative asset.

Secondly, another relevant characteristic of blockchain is the so-called “smart contract”, which allows creating shares and securities of artworks. A smart contract is an extremely useful instrument because it generates financial derivatives in a very simple as well as cheap way. Securitisation, which used to require expensive and long processes before being finalised, can be now easily achieved through blockchain.

Niccolò Filippo Veneri Savoia during a podcast with Joe Roest, CEO of Dragonchain. Image courtesy of Giuliana Gagliardi, Forbes Italia.

Could you tell us about the team which will be on this new project?

I knew from the very beginning that in order to achieve a bold goal such as Fimart, it was necessary to have a team composed of highly competent professionals in various fields such as finance, art, and management. This startup cannot have a slow start, because it needs to face such huge market players, and that requires outstanding preparation. Members of the financial team are Antonio Mele, Professor at the Swiss Finance Institute. He will be the Head of Analytics, in charge of analysing the algorithm underlying the art market performance while taking care of pricing and indexing practices.

Nicola Mafessoni will be the Chief of the Art office. He is the former director of Galleria Massimo Minini and of galleries which have always participated in art fairs such as Art Basel. For the user experience and marketing advisory team, we have Piers Heaton-Armstrong, vice president marketing at Amazon.

Imamu Baraka Frazier will act as CTO. He has expertise with blockchain and cyber-security. The founder of Dragonchain, Joe Roets, is currently the blockchain advisor at Look lateral.

The Head of Operations is John Fiore, who developed the loyalty program of Starbucks. In conclusion, the Fimart team will have the perfect mix of Finance, Art, Tech and Management skills.

Finally, we would like to have as co-head of Fimart the former CEO of one of the principle 10 international stock exchanges. In this way, Fimart would have two heads: one for the Art team, and one for the Finance.

How do you establish the potential return on investment of an artwork? Do you consult available art market Indices such as Artnet, Artprice, and Mei & Moses to inform your decision-making?

We apply our own strategies and methodologies to the data, analysing market trends, and appreciating the market value of an artwork. Furthermore, AI will be used in order to make predictions on the artwork’s return of investment, through a special application which I cannot disclose yet. The traditional hedonic regression method and repeated sales model will be used together with another finance method which I cannot disclose yet, in order to better establish precise market information.

How does the artwork’s purchasing occur? Do you identify works with a promising compound annual return (CAR) to then propose them to your platform users?

Differently from other platforms, we don’t purchase works to then offer fractional ownership. We just offer the hub in which a gallery, a collector, or a public institution can list a work (after, of course, having it checked by our team of experts). We don’t acquire the art itself: we create the stock exchange of art. When a client is interested in a work, the Fimart team assists him or her through art advisory, analytics, valuation and provenance certification services.

Usually, after how long can clients benefit from their artwork's return on investment?

It depends whether artwork has already a dividend itself, or if the artwork has an option of buy-back established by the former owner. It also depends on the kind of security underlying the artwork. If it is a “base kind” of security, it is up to the artwork’s shareholder either to resell his share on the secondary market at his chosen moment and price. Therefore, the whole process happens in the same way as any other typical financial market’s bid and ask.

Other companies such as Feral Horses are developing a similar concept to Fimart’s. What are your thoughts on the competitive landscape?

I personally know the CEOs of all our principal competitors on the market. Feral Horses' concept may be very similar to the one of Fimart, but the structure and the application process are at the same time extremely different.

Reading Fimart’s presentation on the platform website, I stumbled upon the following sentence, which surprised me for its – what’s the word - boldness: “Art is historically one of the most reliable investments”. As you mentioned, the art market is indeed opaque, and generally investing in art is considered highly risky. How would you then justify such a sentence?

Well, it is a fact. Reports such as the ones published by Deloitte and UBS record market transactions unveiling the steady growth of art as an alternative investment asset from 1990 up to this day. The Art & Finance 2019 report by Deloitte estimates the value of art as an asset class at $ 1.75 trillion, estimating it at $ 2.2 trillion in three years. Therefore, we just state the facts, reporting data that can be also found on JP Morgan and Black Rock reports. In these reports, for instance, it is possible to compare the market performance of Impressionists and Post War to the one of S&P, gold, or any other asset: you will notice that art is one of the best assets in terms of market performance.

I have also read these reports and I agree. However, it doesn’t seem to be a widespread opinion when it comes to investing in art.

It is not recommended without the right tools. If, for instance, you buy a Picasso for $8 million, when you could have actually purchased it at $6.5 million, and then when you try to resell it to Christie’s the auction house asks you for the 20%... it is obviously not a profitable investment. The major issue is, another time, represented by the information accessibility through which an investor can identify the right work at the right price. If an artwork is “well-located” on the market - by well-located I mean, for instance, if an artwork has been validated by being displayed at relevant art fairs by major galleries - you will see that it will have an incredible return of investment. In Italy, the most evident example of this phenomenon is indeed Lucio Fontana: if you had bought a Fontana in 1989, you would have witnessed an outstanding CAR's growth, year after year.

What do you think of art secured lending, of the use of Art as collateral?

It is a topic I know very well. At Fimart, we are working on systems to inject incredible liquidity into the market for all of those that would like to use illiquid assets such as art to obtain loans. Art secured lending is utterly necessary, it has been so since 2019 and it is even more now after the pandemic. It is a priority to identify solutions that will allow banks to give loans having art as collateral, of which art owners will finally benefit, from collectors to galleries to museums.

In terms of banks offering such services, in Italy, Unicredit offers more or less a service that has to be further developed, operating such services for a percentage of the artwork which is not quite acceptable.

Another example could be the one represented by Deutsche Bank, that provides Art Secured Lending services only to those having a patrimony of $100 million...What are we even talking about?

What are your thoughts on art investment funds? Do you think it still is a viable model?

Art investment funds require incredibly high costs, both for their clients and for the funds themselves. I believe that the methodologies through which these funds operate should be rethought, otherwise it is not possible to guarantee that such services are able to attract big venture capitals from institutional investors. There could be a chance of gathering investment capital through, let’s say, a group of wealthy acquaintances, but if you aim at creating a fund of middle/big size, you should be able to attract, first of all, institutional investors. In conclusion, as I was saying Art Investment Funds should not be operated as they have been up until this day.

Which art category would you expect to be the largest on your platform?

Modern and Contemporary, as Antiquities are more difficult to evaluate, but I would not exclude their presence on the platform. The first due diligence will be done on the artwork’s owner, the second one on the artwork itself. If all the requirements given by the due diligence are met, there will be the chance of listing both an emerging artist and a Tiziano.

When do you expect to launch the platform?

The company has already started the process of technological development, which is at the beta stage. We are currently at the funding phase, asking $7 million, which hopefully will be achieved in a few months, therefore we think the platform will be launched in the first three months of 2021.

Look Lateral website. Image courtesy of Mr. Savoia.

Chiara Aluigi,

Contributor, MADE IN BED