Over the next quarter century, some $73 trillion dollars will be passed from America’s Boomer generation to its Gen X and Millennial children in what has been dubbed “The Great Wealth Transfer.” About half of that figure will go to just the top 1.5 percent of households, aka America’s collecting class.
That has made Sarah McDaniel’s job very complicated as of late.
As head of the Art Resources Team at Morgan Stanley, McDaniel helps high-net-worth clients manage their art collections, but aging collectors are reevaluating their plans for who will inherit their art amid a rapidly evolving art market and the diverging tastes of the next generation.
“What we’ve found is that with the Great Wealth Transfer and the economics of taste in the art market, many collectors’ children don’t have the same taste in art as their parents,” McDaniel told ARTnews in a recent interview. “In the past collecting categories and who’s collecting them tended to last longer so there was potentially less of a disconnect when a collector was passing away or disposing of their collection.”
McDaniel estimates that, for her ultra high-net-worth clients, whose fortunes total $30 million or more, 5 to 10 percent of their balance sheet is in art and collectibles, meaning that trillions worth of 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 is either to gift the works in return for a sizable tax break or to sell off the art while the collector is still alive, said McDaniel. This doesn’t just mean selling off the work as end-of-life planning, but simply selling work more often throughout life.
“The potential to realize additional value through the relationships [collectors have in the market] and the relevance of the art that they collect might be better than waiting decades later to sell works of art that are no longer as desirable as they were when the collector bought them,” said McDaniel.
The increasingly rapid change in tastes in art and the subsequent instability of the art market may feel disturbing, but McDaniel points out that there are many positive reasons that have contributed to this increasingly volatile trend cycle.
‘There’s a new generation of collectors who are interested in acquiring the art of their peers,” said McDaniel. “The collectors tend to be more female and more globally diverse, there’s many more Asian collectors now.”
These new collectors often want to purchase from young, living artists from more diverse backgrounds, according to McDaniel, which auction houses like Sotheby’s have already capitalized on. In November of 2021, Sotheby’s held its first evening sale dedicated to living artists. “The Now” sale was a smashing success, especially for women artists like Simone Leigh, Anna Weyant, and Jennifer Packer who each made record prices that night. The sale generated $283.4 million as a whole.
“Traditionally it takes some time for living artists to have a secondary market. We’ve now seen an acceleration or compression of the primary and a secondary market for some of the living artists,” said McDaniel. “They might be actually selling in both channels simultaneously.”
This rapidly paced market has already suffered major volatility for young artists, who often peak quickly and disappear even quicker, with little to show from the work’s success on the secondary market.
So how are McDaniel’s clients reacting to the knowledge that the collections they have spent decades amassing may be unwanted? It depends on the type of collector.
“Most of the collectors that I’ve worked with buy the art because they love it, and they genuinely take an interest in the artist, their career and their influence. There are other people who absolutely love the art but they also see it as an investment,” said McDaniel.
“For the collectors that think of it as an investment, and they may be coming from finance, real estate, technology, so it’s in their DNA, they may look at art as an asset class, as well as a passion asset. They come in with the expectation that the art retain its value or appreciate. But they know that like any other investment art might lose value. For the people who buy art because they love it, the changing markets are less of a challenge for them because they live with the art that they love, that’s their value.”