Family Business Audiocast | Episode 55 | Suzanne Gyorgy

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R. Adam Smith: [Intro] Welcome to the Family Business Audiocast on LinkedIn. I am R. Adam Smith, creator of this audiocast series. As an entrepreneur, investor, founder, investment banker, and board leader the last 25 years, I'm fortunate for my many experiences within the family firm industry. A warm thank you to our live audience on LinkedIn today and for those listening in the future. 

A brief comment on why I created this broadcast: private companies are a passion of mine, having grown up in a family of entrepreneurs and having engaged for two decades in deals, strategic transformations, investments, and boards with an array of fascinating family enterprises, family firms, and family offices. 

I founded this series to offer a useful platform for listeners to hear from veterans, academics, and leaders in the vast family firm ecosystem. Whether you're a family business owner, building, running, or advising a family office, or just expanding your family office activities, I hope these conversations are useful and enlightening. And now it's time to turn our attention to our accomplished guest on today's episode. 

[01:00] Welcome to the Family Business Audiocast. I am R. Adam Smith, creator of this series, and a warm thank you to our live audience today and those listening in the future. Today I am joined by Suzanne Gyorgy, partner at Emigrant Bank Fine Art Finance in New York. It's great to have you here today, Suzanne. 

Suzanne Gyorgy: It's lovely to be here, thank you. 

R. Adam Smith: Yes. So, you are in a wonderful space and an amazing company. I'm just going to talk a bit about you for a moment here, and then we'll dig in. Suzanne is one of the world's foremost authorities on the intersection of art and finance and family wealth. She brings more than 35 years of experience advising collectors, families, and institutions on building art and financing art collections. 

Before Emigrant Bank Fine Art Finance, the last couple of years she was at Citi Bank as a Managing Director and Global Head of the Private Bank Art Advisory and Finance. There, she led a global team serving some of the world's leading private collectors. Her career has spanned museum leadership, gallery direction, and banking innovation from the Museum of Fine Arts to UBS, and to Citi Bank, making her a true pioneer in art finance. 

[02:00] She's also a frequent speaker and media commentator in the Wall Street Journal, New York Times, Financial Times, Bloomberg, Barron's, and The Art Newspaper on topics ranging from art as an asset class to even NFTs and succession planning for collectors. Art is a massive part of the family office community, not just for passion but also collecting, trading, and building private museums. It's a space that I'm very passionate about, and I'm really glad to talk about art collecting today. 

Let's talk a bit about the firm, Emigrant Bank Fine Art Finance. It is part of Emigrant Bank, which is America's oldest privately held bank, and from its headquarters in New York, the Emigrant Fine Art Finance provides several core services to collectors and families worldwide. Suzanne, I'd love to talk a bit about those core services of the organization and how you guys help collectors obviously leverage their art financially, but also help them buy and sell art and build their personal collections. 

Suzanne Gyorgy: [03:00] I'd love to. Yeah, you know, as you said, we were formed over 20 years ago, and really looking at art collectors and how the, you know, financial market support art collectors, but also just the need for bringing really a fiduciary view to both art advisory, obviously art appraisals, and then doing art finance. So we do, we do all three. I think where unique in many ways, but one is being a bank that's actually doing certified USPAP appraisals. 

[04:00] So, for our clients that need appraisals for the IRS, wealth planning, etc., we can do all that, and then the same team does the appraisals for all the art loans that we do. And our approach to art advisory is we have experts covering spans from old masters, impressionists, modern, contemporary, and Chinese art. And we work globally, helping new collectors navigate the art market, explaining how the art market works, giving them access and exposure to both galleries, artists they might not know, different sectors of the art market, and helping them guide through how the art market works, and doing the whole, you know, source, educating, sourcing, and then the collection management, everything that goes into it. 

R. Adam Smith: [05:00] Right. A lot of the fine art advisory firms in the business, which I know well, they do sometimes one part of the art business for wealthy clients. They sometimes, they just do the financing, sometimes they just do the appraisals or advisory. You know, I view your organization as an elite organization that is able to cover the gamut, which is, which is great. And of course, as part of Emigrant, it's really a more of a boutique, it's a bespoke boutique, but within a powerful firm. I'm a big fan of Emigrant. Maybe talk a bit about Emigrant briefly, and Howard Milstein and the family, and just talk a bit about that for our listeners. 

Suzanne Gyorgy: You know, coming out of a very large bank that I did come out of, what I appreciate about Emigrant is Emigrant Bank and all, you know, all that it encompasses is that it's, it's a family bank that is working with families. And we're able to be very nimble and creative and really, you know, meet families where they are and help guide them. We understand, you know, generational planning, legacy, and that families really want a bank that understands them and is able to be nimble with them and find solutions. 

[06:00] It's also, you know, we have direct access, like we're not having to socialize and you know, sort of different ideas on a certain level. We can go direct to people and get things done. It feels like old-school private banking when people sat around the table and found solutions, and so I really appreciate that. 

R. Adam Smith: That's great. Well, the world is filled with art. It's always moving, it's massive, it's under-regulated/unregulated, and it's, it's a beautiful, complex, fragmented business. There's haves and have-nots, and there's, there's lots of personalities and egos and wealth within the industry. So, you know, we should talk, I think, about the evolution of art finance and how important is the finance and lending to family, family offices, billionaires, alternative investors, collectors. 

[07:00] You know, what is the financing and loans used for? And talk a bit about the intersection of art and wealth management. As an aside, I see stats talking about the size of the art-backed lending business the last couple of years is pushing, you know, 40 billion, depending on, by the Financial Times, depending on what source you're talking about. So obviously, it's a very large market, and it's important to unlock the value for the existing collections, but also use that leverage to buy new assets. 

Suzanne Gyorgy: Yeah, you know, art finance has been around for probably more than 20 years. It was something that really wasn't talked about when it started. It was very kind of to a very elite group of people that were doing it, people didn't talk about it. I came out of the museum world where I had no idea that art was leveraged, and when, you know, when I joined a bigger firm that was doing it, it was a real awakening to me because I think what people think is that people getting art loans, it's the last resort, and it's anything but that. 

[08:00] Very savvy people realize they've got massive collections hanging on their walls, there's a lot of value in the art, and through art finance, they can get 50% of the value to leverage to invest in other businesses, to buy more art, to do wealth planning, and while the art still remains on the wall. And then for a lot of people that have been collecting for a very, very long time, they have such a low cost basis in their art collections that selling just doesn't make sense. The capital gains would be exorbitant, so it's great to look at art as a source of liquidity. 

R. Adam Smith: [09:00] Right. Liquidity is wonderful to have if you don't have to sell your asset. So, as art finance grows and art collections grow, and the size of the art grows, especially for the assets bought within Phillips, Christie's, and Sotheby's, and Bonhams, you know, these are bigger numbers. The capital can be used, you know, to fund other things. It can be used to buy other art, or it can be used for personal lifestyle or philanthropy, what have you. 

But the actual structuring of the art, art lending, is, it can be complicated looking at the valuation of the art, looking at the risk profile of the owner, the liquidity profile, how the market is related to that art asset itself. Can you just kind of walk through those dynamics and demystify a bit the, the approach to the art lending? 

Suzanne Gyorgy: Sure. Traditional private bank lending, which we do at Emigrant, you're looking at both the quality and marketability of the art, and you're also looking at the financial strength of the client. So that's the most traditional that is done in the big banks and we do it. So your thinking there is that the way I was schooled looking at art lending, it was the character of the client, their cash flow, and then the art collateral. And so you're really looking at your first way for repayment, the financial strength of your borrower. But you also need to do a deep dive into the art, you need to understand the ownership, research the provenance, check the condition, and think about the overall marketability of that collection. 

[10:00] The difference at Emigrant is that we'll do for that type of lending, we do longer tenors, so we're really matching the tenor of the loan with the investment horizon of our clients. Where most banks are one, two, or three years, we tend to start at five, seven, to ten years. And really, the thinking is you don't buy a house with a two-year mortgage. We're really looking at long-term working with our clients, if they're thinking about intergenerational wealth transfer, whatever they're thinking about, really matching it with their horizons. 

[11:00] Then, we've also most recently launched a new product, which is more of an asset-backed model. And for that, we can do those very quickly, we closed one last week, where we are looking at the character of our borrower and then looking at the strength of their art collateral, and not doing a deep dive into their financials. So that, that's something that we've just launched, and we saw a need in the market for people that, you know, where really it was a good fit for them, and we being, you know, an FDIC-regulated bank, can do this in a way where they can have a lot of security in the institution that they're working with. 

R. Adam Smith: [12:00] Okay, thank you for that. Obviously, art is a growing asset class. You know, it's expanding dramatically, I would say, since 2010, but also with the advent of online bidding and reserves, and financing, and syndications, and obviously, you know, Sotheby's and Christie's especially, and Phillips recently doing quite well, Heritage as well. Some of the stats I see, you know, focusing on the wealth management class, is saying 63% of wealth managers are incorporating art into their wealth management offering, which is quite, quite robust. 

And as a whole, the art market as defined by the amount of art and collectibles held by the ultra-high-net-worth client is somewhere around two and a half to three trillion. It's quite, it's quite a large business, larger than I think most people appreciate. So, love to hear from you how you're infusing and managing art as a serious asset class within the family office and ultra-high-net-worth community, and, and also, you know, the balance of let's say, actually investing versus passion and the overlap of the investment mindset versus the passion mindset. 

Suzanne Gyorgy: [13:00] Yeah, sure. I think what we witnessed in the 2000s was the overall financialization of the art market, and that was largely driven by Artnet, you know, coming out in the late '80s where before when you were trying to value art, people were going on their memory of what sold at auction. We'd sit in auction and write the, what things sold for in the catalogs, and then need to remember what catalog to go back to. So Artnet gave us the basis to be able to track what things were selling for. 

[14:00] So that made a big difference, and then with Michael Moses and the Mei Moses Index, he was tracking repeat sales at auction and tracking that to the S&P. And I found that that was for people in the financial world where they didn't understand the art market, I would talk to them about art and value and future value, but there was no way for financially-minded people at that point to really link it together. With the Mei Moses Index, he was looking at repeat sales, like, like the Case-Shiller model for real estate, and then tracking it with the S&P. 

And once it was tracked with the S&P, the light bulb went off because you could see the irregularities in the market, and I think that changed things really for people to look at it as a, what could be a wealth holder and a financial asset. I think that viewing it solely as an asset is a mistake, and a lot of people got caught up in that. I wrestled with it because I did come from the museum world, but you can't deny that it is, you know, for many, it's a large part of their overall net worth. I mean, it could be more. 

[15:00] I mean, what happens is for, and it's, I don't know if we'll see another cycle like this in the next few years, I don't think we will, but people that were buying in the '80s and '90s, we see it where people bought something for $100,000 that's now worth 35 million, you know? And that was, that was a time when that was happening. We'll probably, history repeats itself, so we'll probably see it again, but I don't think in the near future. 

R. Adam Smith: Yeah, so that is certainly a powerful evolution of the art market—financialization, and also the creation of significant wealth in the last ten years going into passion assets, not just art, but also cars and castles and real estate, but I think art is, is much bigger and, you know, the biggest market out there for passion collecting. Of course, to actually buy art often you need serious appraisals and governance and professional mechanics around the art. 

[16:00] And so, obviously, art collectors know how to find and hire appraisers, but let's just talk about how vital it is for not just valuation itself, but also tax and estate planning, and just talk about that professionalization of the appraisal process and like what, you know, who you involve in that process and how vital it is. 

Suzanne Gyorgy: Thank you, that's a great question, because when you're looking at art, you'll see an awful lot of art appraisers, like art that's been appraised by various people, but it's really important to make sure you're working with a highly trained, highly experienced, certified appraiser. So on our team, we have USPAP appraisers that have done the rigorous training that you need to do to do those appraisals, and they can be used for tax purposes. So many appraisers don't have that certification. 

[17:00] So if you need an appraisal for gifting, for estate planning, or for settling your estate, you really need a certified appraiser that will stand up to the IRS. So, we happily can do that in-house. So we can do appraisals for current market insurance coverage, a replacement value on artwork, if something unfortunately had been damaged, we can do those appraisals as well. In fact, we were just recently working on one, sadly, for a collection that was lost in the L.A. fires last year. So, the insurance companies need those appraisals, so we're able to do them. And also when you think about charitable giving, equitable distribution, and all those things, it's, it's important to have really good, solid appraisals. 

R. Adam Smith: [18:00] For sure. Moving on to the trends in the art market, could you just give us a sense of where the value has been shifting the last couple of years in terms of secondary art, primary art, big names, certain non-living artists that, that are really killing it? Love to hear your thoughts on that, and also, which markets are the, are the strongest geographically. Just talk about what are you seeing in like broader, more macroeconomic trends, different regions, and different culture dynamics, and just a couple of names that you think are exciting out there in the market. 

Suzanne Gyorgy: We've been going through like during COVID, the market went crazy. Everyone was so worried about what would happen. What we witnessed happening is people were home, people were bored, the auctions went online, the art fairs went online, and it, it really grew the art market to so many more people because so many more people had access. And the auction houses saw their online bidding go up, there was collaboration, and it was interesting during that period is because COVID hit Asia first, Asia collectors were the first to bounce back and really start bidding online and getting comfortable with buying art without seeing it. 

[19:00] Because we were in New York, we were able to get into the auction houses, galleries, and look at the art for our clients, and did a lot of FaceTime looking at art and explaining how the colors weren't exactly right. But that, there was that activity. And since then, you know, the auction houses will report how many, you know, thousands of people are watching sales when it used to be just the people physically in the room. There was a huge rush of collecting. And I think people at that point were buying certain contemporary artists that were very hot, hard to get, prices were soaring, and it was done with more speculation and buying as they say, buying with your ears and not your eyes, and buying what people say is hot. 

[20:00] And that's in the past year or two has dropped off. And so what we're seeing now is people are more discerning, people are doing more research, the art market's slowed down, but in a way I think it's readjusting, and I think we're going to be in a better place where people are taking their time, really thinking, and really making curatorial decisions and driven by passion, of course, but being really thinking about it. So an artist that's interesting that has, you know, been around for a long time is Roy Lichtenstein, where a lot of Roy Lichtenstein's has come to market recently. 

[21:00] But what's happening is it's looking very fresh again. So, it's collected by older baby boomer collectors, but it looks fresh to new collectors as well, and so you'll see really strong prices for Lichtenstein. And then in general, I think people are looking back a lot, and then with the contemporary artists, just taking their time. But I was just in Paris for Art Basel and the galleries brought great things, really wonderful works of art, and had them priced accordingly and things were selling. It feels good. 

And the most recent Clare McAndrew report that came out last week was saying that women are now taking up a larger sector of the art market, so about 40, I think it was like 46%. So that also is a great sign because women have been great collectors, they've tended in the past to be outpaced by the men. But you think of a collector like Agnes Gund who sadly just passed away, she for years built a world-class collection of masterworks and also supporting artists at all levels of their career. It's passion-driven and then with people that are really educating themselves, it really enhances their lives, and if you're lucky, you know, you're growing your wealth and the values are increasing. That shouldn't be the driver, the driver should be passion and education. 

R. Adam Smith: [22:00] Yes, I agree. So some stats I found that are interesting, in terms of, you know, the focus on transparency, trying to figure out pricing, of course, fraud, but just really trying to figure out as sophisticated investors, even with their advisors, you know, what art is worth buying and at what price. Sometimes the art is available through the auction houses on a direct primary basis, but sometimes they're off-market or pocket listings between advisors. Some of the, the data again from Deloitte talking about 76% of collectors, 80% of art professionals, 74% of wealth managers are focused on transparency in, in purchasing and financing their art. 

[23:00] So that gets into not just the appraisals, but also the due diligence and, and documentation and provenance, and that also relates to how family offices work together internally to actually spend, you know, millions and millions of dollars for these assets. The differences of approach to investing in art versus a passion investment. And there's really, there's really no right answer, of course. I love your thoughts on this in terms of the next gen and there's, again, the passion, the joy of collecting where the bar maybe is not that high in terms of transparency because you have the money, you're willing to, to pay a high price or within a high price range, you're not as focused on the ROI perhaps, or not even considering selling it ever. 

[24:00] If you could go a little bit deeper on the next gen and different points of view on ROI and fair market value, it would be great. 

Suzanne Gyorgy: You could have all the money in the world, but still doing research and making sure that you are buying from the best sources, really getting to know the dealers that represent the artists that you're responding to, and developing relationships. So this is really, it's about passion, but it's having strong relationships in the art market is really important. There's Artnet data, there's a lot of data out there, but it's also talking to people and getting a sense of hearing their experiences, one, but also getting a sense of, you know, what artists people are looking at, have the artists been in museum exhibitions, and then doing your research on, on proper pricing. 

R. Adam Smith: [25:00] Okay, that's interesting. But like, the next gen is so huge in terms of the wealth coming down to G2 or G3 or G4, especially in the millennial generation. They're much more plugged into art after the, you know, First Dibs, Artsy, Paddle8 generation, and also bidding online, moving into let's say, you know, 25-30% of total bidding. So I'd love to also cover that dynamic, right, is you can actually be spending millions of dollars and never see the art. Like that's crazy, right? But it's, it's real. 

Suzanne Gyorgy: What do you mean by spending like never seeing, oh, the fact that you're buying it online that you haven't seen it physically? 

R. Adam Smith: Yeah. 

Suzanne Gyorgy: I think that as I was saying earlier, during COVID people got used to that, and then with high-res images and, you know, just developing your eye to get used to that, you know, it's not perfect, but there is so much art that actually looks pretty good on the screen. You know, someone had said to me, and we noticed it too, that during COVID what the auction houses were putting up for sale were works that would look good on a screen, not the works where it was real subtlety to see it. 

[26:00] You could extrapolate that, that markets for those artists have soared or are very strong because they do look good on the screen without seeing it in person. And, you know, Lichtenstein could be one of those artists, you know, KAWS could be one of those artists, Sarah Crowner, they're obviously better seeing them in person, but they do look good on a screen. There are artists like, who's, you know, very hot in Asia, Shanuo, that you can't see them on the screen. Impressionist paintings you can't either, so, you know, there's certain artists that you or sectors that you really have to go and look at them, but there are others that, you know, you can kind of get a sense of, of what it is, especially if you know the artist. 

[27:00] I'm excited that like being at Art Basel last week, that there are a lot of younger collectors. You know, the concern was that the baby boomers had taken up all the space collecting and what would the next generation be doing, but it seems that we are seeing real collecting happening. And it'll be different, as it's always different. Every generation that comes along collects differently and has different motivations and lives with it differently, but I think that human nature to make things beautiful where you're living continues and changes. 

R. Adam Smith: Right. So almost 15% of family offices report an allocation to art and collectibles. I think that's been growing, I can see that even getting higher. It is a beautiful thing as you said, but people are making a lot of money as well in art, especially the last ten years. I see other stats, again Deloitte, talking about stakeholders—wealthy stakeholders, you know, believing like 89-90% of the stakeholders believe that it should be part of a wealth management offering. You obviously saw that at Citi Bank, we see it as well in UBS and J.P. Morgan and these sort of high-end boutique private banking channels. What is the future going to look like as the next gen starts to, to shift their interest in art? Do you think it'll be more of the big names, or do you think it'll be more of the approachable, like the non-core more peripheral names—maybe more contemporary, modern, you know, kind of in the 1 to 5 million range versus the big names? 

Suzanne Gyorgy: [28:00] I think right now it's the lower price points, that's where you're seeing the most activity. And, and that makes sense. I mean, if you think about when the baby boomers were collecting Warhol, they weren't expensive, right? I just think we're seeing a whole new generation coming in and it won't be the same, but people are collecting mostly at lower price points. And that will be interesting for the November sales in New York to see what happens with these like large ticket, massive collection, you know, masterpiece works, how they do sell and who they do sell to. 

[29:00] But we're also seeing an uptick in what's going on in the Middle East and building out the collections there. I think the Guggenheim opening up in Abu Dhabi, the auction houses now and art fairs now really having outposts in the Middle East will up that collecting in that sector. And it's interesting, like globally, there are different parts of the world that are very active at certain points and then they're not, but another sector comes in and is. So, you're always seeing different parts of the world really getting, like starting to collect and getting the bug. 

[30:00] And you know, let's be honest, when you're collecting art and you get into it and you are able to acquire something, the dopamine changes in your brain and it's addicting, and then you keep on going. So it's the, it's the education, it's the passion, but it's the hunt. It's a very seductive, energizing way of living. 

R. Adam Smith: Definitely. No, it's beautiful. It's wonderful to see groups like Emigrant Fine Art really committed to the industry. Of course, providing liquidity is super important because it is a liquid asset class. We see liquidity being an issue in almost all alternate asset classes—not just private equity, venture capital, but also art. So, people should look at liquidity management as a vital part of art collecting, but also as a way to, to enhance liquidity of their entire balance sheet. They might get 50% liquidity for a big name, which is a, a pretty good number and similar to the leverage you might get in a private equity asset or a home. 

[31:00] But I think a lot of collectors don't really pursue it as much or know how that would work, but it's certainly a very vital tool. Finally, would love to hear what's inspiring to you in the art market. You talked about women investors and buyers and owners, and you talked about next gen. What else do you see that's inspiring to you around, you know, stewardship of art and, and the passion that, that's, uh, that's clearly part of the next gen as well? 

Suzanne Gyorgy: You know, it's always new artists coming out and making new things. I recently saw an artist from Italy who is a fashion photographer and has taken the skill of that and started doing photographs of like rose branches and things like that, and then doing custom-built frames that are built around it, and then strapping it together. And these were, were selling for, you know, $5,000. They were incredible, they were completely sold out. People saw them, saw it was something special, something new, and were attracted to it and buying it. 

[32:00] You see that often, and I think the best thing about the art market, or one of the best things, is that you can enter it at all different price points. And so it's not just the elite and the, you know, the multi-million dollar things, that you, you can buy, you can buy something at so many different price points and really get joy from it, and like look at the world in a new way and enjoy living with it. So, I just feel very optimistic that we're entering a new phase but another really vital, interesting phase in collecting and the collectors out there. And as you say, the fact that more women are collecting is a great thing. I think that's, you know, it's changing what people are bringing to the art fairs, it will translate into expanding museum boards and non-profit institutions, bringing more diversity from, you know, men, women, age groups, everything, so, you know, we'll just keep evolving and changing as we should. 

R. Adam Smith: [33:00] Absolutely. Young collectors are getting much more involved again at the more affordable price point, pushing about 26% of their wealth now according to Art News is in art. That's a pretty high number, whereas typical ultra-high-net-worth are more like 20% and up from 15% just several years ago. So, it's really exciting. No part of art is being, is being uncovered, like it's a very dynamic industry. 

So back to Emigrant, I encourage family offices and even multi-family offices, wealth managers, alternative worth investors, and buyers and passionate collectors of art of course, be in touch with Suzanne and her team at Emigrant Fine Art in New York. They can be found online, of course, as well as to Suzanne and her colleagues on LinkedIn. It's been really wonderful to have you today, and just talking about the different themes in art and how it affects the wealth balance sheet and also how liquidity is essential as well in, in art collecting. I really appreciate your comments on that today. 

Suzanne Gyorgy: [34:00] Yeah, thank you for the opportunity. It's always nice to talk to you. 

R. Adam Smith: Thank you. So we're going to sign off. Thank you for joining the Family Business Audiocast today, and of course for our distinguished guest, Suzanne Gyorgy of Emigrant Bank Fine Art Finance. This is R. Adam Smith signing off. Stay tuned for the next episode of the Family Business Audiocast. 

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