Looking back at the securitisation market 2019

NEW FRAMEWORK FOR SECURITISATION

In 2015, the European Commission (EC) announced that it wanted to remove the “stigma” attached to securitisation and to revive the EU’s securitisation market by creating a framework for trusted securitisation. This resulted in legislation that laid down the framework for “simple, transparent and standardised” (STS) securitisation.

The EC thinks that if there was an increase in repackaging contractual loans and selling off the risk in a certified manner it would free up balance sheets, and the EC estimated that between EUR 100bn and EUR 150bn of additional credit would become available to the private sector – and that particularly SMEs would benefit.

The EC thinks that if there was an increase

The STS regulation has applied since 1 January 2019, but it was not until March that the European Securities and Markets Authority (ESMA) received its first notification of a securitisation product meeting the STS criteria. This is due to the fact that the market is waiting for some key implementing rules to be adopted by the EC.

Most people agree that the STS will become the standard in ABSs, and that the market will continue to grow steadily. We have started to see an upswing in deals issued as STS compliant, especially since some asset classes, such as residential mortgage-backed security (RMBS) and auto loans, were already familiar with the ECB purchase programme’s stringent requirements, so the impact has not been too much of a shock. However, there are other asset classes that will not be considered as STS, but will still have to meet more stringent reporting requirements under the new framework.

THE DIRECTION OF THE SECURITISATION MARKET

It is important to note that European ABSs offer a higher risk-adjusted yield than most other fixed income asset classes. As an example, a high investment grade rated ABS strategy currently yields 130 basis points above the Euribor (the Euro Interbank Offered Rate). ABSs offer exposure to direct consumer risk, which is complementary to sovereign and corporate exposure, both of which tend to be well-represented in most investors’ portfolios already. ABSs have a low, or even negative, correlation with traditional asset classes, and European Collateralised Loan Obligations (CLOs) have a very low default rate. All of the above qualities should make securitisation a more widely spread asset class among investors, unfortunately, this is not yet the case.

Whether STS securitisation will improve the market conditions remains to be seen, however, hope for European securitisation especially for SME financing could lie in the private debt market.

GROWTH IN THE PRIVATE MARKET

In recent years, we have seen substantial growth in the private debt market, which comes in many forms, but most commonly involves non-bank institutions making loans to private companies or buying those loans on the secondary market. A variety of investors, or private debt funds, are involved in the space. These include direct lending, distressed debt, mezzanine, real estate, infrastructure and special situations funds, among others.

The private debt market accounts for a substantial piece of the private markets; 10-15% of total assets under management with most private middle market companies having at least some debt.

Investor demand for debt funds is on the rise. Depending on factors like interest rates, regulations and business cycle, investors view private debt as a less risky way to dive into the market or diversify their assets. Because private debt investments are growing so rapidly, competition in the space is increasing, and therefore, these funds are facing overcrowding just like other asset classes.

THE IMPORTANCE OF INFORMATION ASYMMETRY

Another factor to note is called information asymmetry. This idea was formally introduced to economics by Nobel Prize winning research on the market for used cars. It was demonstrated how the existence of “lemons”, or bad cars, in a population of otherwise good cars could create the conditions under which no one is willing to pay a good used-car price, even for a used car in good condition. That is because it is costly for sellers of good cars to credibly communicate their private information – that their car is in good condition – because buyers know that the sellers of bad cars have an incentive to represent their cars as “good”, and because it is difficult for buyers to tell the difference.

Private debt funds invest considerable resources in due diligence and monitoring. To do so efficiently, they often focus on companies located nearby. The shorter distance facilitates the flow of both tacit and codified information, in other words, proximity reduces the costs associated with information asymmetry.

Overall, there are three central costs associated with asymmetric information in private debt investing. The first is general awareness of the deal. It is costly to learn about different deals, especially when ventures are prohibited from advertising private placements due to the general solicitation regulations. The second is transaction costs. The overhead associated with small, ad hoc debt transactions increases with added communication and delivery costs. Third, the due diligence necessary to address the information asymmetry problems discussed above requires face-to-face interactions between investors and founders; thus, the cost increases with distance between the investor and the venture.

Same is true in structured finance (capital) markets because private information about the credit quality of loans restricts the scale of securitisation in view of the way information asymmetries adversely impact on the market ability of such loans.

CREATING A STRONG EUROPEAN SECURITISATION MARKET

The key to a robust securitisation market in Europe is therefore reducing costs associated with information asymmetry and opening up the market to a broad base of non-traditional lenders and asset managers. This may be easier said than done, but the STS securitisation framework is a good start even though it may require some additional features to entice a broad base of investors into the market. The solution to his may lay in another trend gathering pace, which is marketplace lenders using securitisation techniques to fund their businesses with investors keen to profit from the lower loan origination at fin-techs.

Both marketplace lenders and crowdfunding platforms use the concept of syndicates to minimise costs associated with asymmetric information. These platforms operate as two-sided markets in which the platforms try to attract both investors and entrepreneurs. In order to succeed, there needs to be enough investors to make it worthwhile for investors. Although the various platforms are similar on some dimensions, they each have some unique market design features aimed at attracting certain types of investors or ventures.

Given the fixed-cost nature of sourcing and monitoring, particularly small and mostly local firms, capital market funding end lending by non-banks (direct or via funds) should have a complementary role alongside traditional bank lending channels.

Vladimir Petropoljac, Head of Structured Finance, OMNIA Global

Structured finance as a finance option for SMEs

VLADIMIR, TO THOSE WHO ARE NOT FAMILIAR WITH THE TERM “STRUCTURED FINANCE”, CAN YOU EXPLAIN WHAT IT IS?

“One of the best explanations for structured finance products especially in terms of securitisation is that securitisation is the issuance of marketable securities backed not by the expected capacity to repay of a private corporation or public sector entity, but by the expected cash flows from specific assets.”

“In a securitisation, the seller of assets is called the originator. It sells receivables – an asset or a flow of future receipts to a special purpose vehicle (SPV) established to isolate the receivables.”

HOW IS THE SPV STRUCTURED?

“It is usually structured as a bankruptcy-remote vehicle: it has legal protection against claims arising from the bankruptcy of the originator, limiting the credit risk faced by investors to the assets of the SPV. Although as a final result of the securitisation, the originator is collecting financing means, it is not borrowing, but selling a future of cash flows.”

“A crucial element is that the securitised asset is by all means effectively “separated” from the other assets of the originator, and in case the originiator goes bankrupt, this does not affect the rights of final investors on the securitised asset. This is a very important distinction from plain “vanilla” types of financial instruments widely available on the market. These are instruments such as a mortgages or overdrafts and look at the credit strength of the borrower.”

WHY DOES STRUCTURED FINANCE APPEAL TO SMEs?

“In the years following the last financial crisis, the credit channels in a number of jurisdictions have been impaired in regard to quantity, price and distribution of credit with the effects particularly felt by small and medium-sized enterprises (SMEs) – especially in Europe. This is due to the fact that these companies were reliant on traditional bank lending, and they are now faced with important financing constraints in an environment characterised by widespread bank deleveraging.”

“Investors need internal analytical capabilities and in-house expertise for the assessment of the pools of loans subject to securitisation and in order to assess the credit quality of the resulting securities. This can partially explain the fact that SME securitisation as an asset class is considered by some to be a niche market.”

HOW DO OMNIA APPROACH THIS MARKET?

“At OMNIA, we are working with banks, institutions and other non-traditional lenders who have the ability and information required to perform detailed fundamental analysis of the securitised assets and broadening the existing investor base for SME securitisations. Pension funds and insurance companies – as well as their asset managers – have been building in-house expertise in order to invest in this asset class, but the market is still in “larval stage” and has a lot of growth potential with some public sector support.”

“We believe that loans to SMEs are a key driver for the functioning of the economy and, properly applied, the securitisation technique is a replicable tool that can enhance access to finance for SMEs. Using this instrument in developed capital markets, public sector support for SMEs (e.g. guaranteeing mezzanine tranches) can create multiplier effects – and hence it is an efficient use of public ressources, which is especially important against the background of a high public debt burden in many key countries.”

SME issuance is still suffering from the crisis, however, the overall issued volume is growing to about EUR 19 billion in 2019, still a long way from EUR 27 billion five years ago.

“Since a well-functioning securitisation market can be essential in helping financial intermediaries broaden their funding base, achieve capital relief and ultimately, increase their SME financing, the recovery of the (SME-) securitisation market is also one of the focus areas of the Capital Markets Union (CMU). Furthermore, the European Commision intends to revive securitisation with the objective “to ensure that it can act as an effective funding channel to the wider economy and mechanism to diversify risk.”

DO SMEs EVEN KNOW OF THE POSSIBILITES WITH STRUCTURED FINANCE?

“Based on personal experience, SME owners and directors are not aware of the possibilities in structured finance (securitisation) markets, as SME securitisation traditionally has been done by financial intermediaries, such as banks which would extend loans to SMEs and then re-package these loans to be passed on to off balance-sheet vehicles.”

THEN, WHAT SHOULD BE DONE TO MAKE ENTERPRENEURS AWARE OF THE WORLD OF STRUCTURED FINANCE?

“In order to make the owners aware of the possibilities of structured finance, the public sector could and should provide support for raising awareness – among SME entrepreneurs as well as smaller local financial institutions traditionally serving SMEs – about the availability and attractiveness of such financing alternatives for SMEs and financial intermediaries.”

“The public sector could co-operate with private sector institutions in improving the visibility of successful transactions and platforms for such instruments.”

HOW DO WE EMPOWER SMEs IN TERMS OF FINANCING OPTIONS?

“All SMEs tend to reach out to their local bank when seeking financing. While such a relationship has its benefits, it often leads to, or perpetuates, SMEs’ lack of awareness of other financing options potentially available to them, such as those provided by the “shadow banking” industry, including crowd funding platforms or hedge funds that directly finance small businesses.”

“It is a well-known fact that SMEs generally are ill-equipped to deal with investor due diligence requirements, and that lack of information and understanding leads to a weaker position for SMEs in financing negotiations.”

I argue that when it comes to financing options, SME managers or owners need to be supported by independent advice, no matter if it is coming from the regulator or an independent market participant.

“Independent advice and financial education, more generally, could empower SMEs to reach out for the best financing option – be it a bank loan or something more sophisticated – and more importantly it would enhance competition between finance providers.”

“I believe that creating a central “meeting point” between investors and SMEs would encourage communication and increase awareness of alternative funding opportunities for SMEs. An experienced mediator like OMNIA ensures that SMEs are aware of different funding opportunities whilst delivering all the necessary information to investors in a manner that is both efficient and standardised allowing for a better functioning market.”

Is Minimalism the new form of wealth?

THE NEW WEALTH

For decades, family offices have been managing their clients’ wealth, which do not only include shares, bonds and inheritance plans, but also things, such as real estate, yachts or even jets. But as times are changing, what are the family offices going to manage in the future if Minimalism; owning as little as possible, is the future?

“Millennials, as a generation, also care more about experiences than possessions. Research carried out by psychology professor Thomas Gilovich at Cornell University has shown that people derive more pleasure from experiential purchases rather than material possessions.

crossbridgeconnect.com

I believe that the new wealth will be time and experiences, as we all remember the experiences we’ve had and not the stuff that we bought. What we’re seeing is a rebellion against over-consumption towards more focus on time well spent and less clutter in our lives.

THE FAMILY OFFICE OF THE FUTURE

The future of wealth management will be more focused on what impact it creates while securing the cash flow needed to sustain the family’s lifestyle. It will be harder for managers to provide and source yield in a market that currently offers low yields, but also fits the funnel of which the investments must flow through, fulfilling the right impact, feeling and footprint. However, the minimalistic lifestyle does not require the same cash flow and posh assets to fulfil the demands of minimalists where time and headspace is number one on the wish list.

“As the search for yield and predictable rates of return intensifies amid more volatile market conditions, family offices have begun focusing on non-traditional asset classes, such as private equity and real estate.”
The future of family offices, Bloomberg, 2017

As mentioned here, the new family offices will focus on authentic partnerships. The future family office clients, the Millennial entrepreneurs, are a different breed of HNWI, who requires different services and solutions from their family offices, and with a very clear goal for the future that is different from their predecessors.

”Minimalism is a tool that can assist you in finding freedom. Freedom from fear. Freedom from worry. Freedom from overwhelm. Freedom from guilt. Freedom from depression. Freedom from the trappings of the consumer culture we’ve built our lives around. Real freedom”. 

Joshua Fields Millburn & Ryan Nicodemus

theminimalists.com

If you feel inspired, you can start by watching “Minimalism – a documentary about the important things”.

Daniel Hansen

Founder & CEO

OMNIA Global

Millennial family offices are on the move

Over the last couple of years, we have experienced a shift in focus from family offices across the globe. From a clear focus on return, risk and portfolio management to a more philanthropic focus on investments looking at sustainability, ethics and the environment – so-called impact investing. This focus, and pressure, particularly comes from the Millennials – people born between 1980 and 2000.

WHY INVEST IN REAL ESTATE WHEN YOU CAN SAVE THE WORLD?

With a change of generation comes a change of mindset. The focus away from old school portfolio management towards a more conscious investment strategy is not limited to the world of family offices. We see it with companies focusing on sustainability and branding themselves as being “green”, with elections being called climate elections due to the success of the green parties, and we see it in the debate sections of the newspapers.

“Global instability, the evolving story of Brexit and other political developments are calling into question accepted norms and challenging family offices to re-examine their purpose and the strategies that will best enable them to achieve their goals both now and into the future.”

Deloitte, 2019 Family Office Trends

Much of the pressure towards companies and politicians comes from the Millennials – children of the Baby Boomers, who in Western Europe and North America are associated with privilege. Generally, the Baby Boomers are a wealthy generation, but with that has followed consumerism and over-consumption. A tendency which the Millennials rebellion against by focusing on sustainability and protecting the planet.

“Younger clients tend to focus less on material objects such as yachts and airplanes, although they have sufficient assets to use as collateral. They take considerable pride in their businesses and how they treat employees. At the same time, investing in environmental, social and governance (ESG) projects has become popular, and is often seen as a more efficient use of funds than pure philanthropy, to achieve social justice and societal change.”

Bloomberg, The Future of Family Offices 2017

MAKING SENSE OF YOUR INVESTMENT

The rebellion is also felt at the family offices, which now meet a different type of questions from their clients. With this new mindset, all links of a company’s food change must be taken into consideration before a company becomes part of a portfolio – which factories do they use, where are they located, how are their employees being treated, are animals being harmed. Sustainability in the broadest sense of the word must be considered, and investments must make sense in other terms than financial terms. According to Bloomberg’s The Future of Family Offices 2017 report, 62% of family offices are now active or expect to be active in impact investing.

“Transitions almost always mean change so it’s not just about letting them know what you do but also about understanding what they want, how they want to work and, most fundamentally, how the vision for the family enterprise – its purpose – may evolve.”

Deloitte, 2019 Family Office Trends

A GREEN BUSINESS OPPORTUNITY

The world of family offices might traditionally be grey and dusty, but for the ones being quick on their feet, the Millennials have presented the family offices with a great business opportunity; The opportunity to brand themselves as being “green”. We have seen it with production companies calling themselves “green” for a while now, and even pension funds are now branding themselves or at least certain products as green or sustainable, and now the time has come for family offices as they become more and more brand-oriented.

THE NEW FAMILY OFFICES

I believe that the new family offices should not only be offering green and sustainable products. Those that will succeed in the future are those that will focus on an authentic partnership with personal relationships and a purpose in life as well. We need to focus on branding, sustainability and the climate – but also on networking and time well spent.

“The Family Office Exchange(FOX) addresses some predominant millennial motifs in its 2015 study, Engaging the Client of the Future. The FOX study highlights five salient themes applicable to the current generation: They “prize relationships,” and must relate to advisors on a personal level; they “crave authenticity,” whether in work, play, consumption or investing; they “operate in real time,” being inundated with information; they value entrepreneurship; and are sophisticated, highly educated and well-traveled.”

Bloomberg, The Future of Family Offices 2017

CO-SHARING AND CO-INVESTMENTS

Another trend that derives from the green wave and over-consumption is the Millennials’ urge to rent rather than own and to share anything shareable – whether it be electric cars, a house or their clothes. Unsurprisingly, this trend has spread to family offices and investments as well.

“We are seeing a steady increase in interest in co-investment as vendors seek investment from new sources and family offices either establish their own fund structures or seek to partner with private equity or with other family offices to by-pass traditional investment pathways and invest directly, (…).”

Deloitte, 2019 Family Office Trends

I believe that co-investments with other family offices will be a greater part of family offices’ portfolios in the future – particularly co-investments in the profitable SME sector. But also, that family offices will seek other family offices to invest with.

“Family offices are increasingly concerned with and focusing on the challenge of building the right team to deliver on the family’s objectives”.

Deloitte, 2019 Family Office Trends

This more direct form of investing requires a different skill set – one that is focused on operational skills, networking and social skills, as well as an entrepreneurial mindset of both the investor and the family office. Hopefully, the focus on fees will disappear when the results of the management team shows.
– –
We are all aware that we are handing over the planet to the next generation, and family office clients are also aware that they are handing over their portfolio to the next generation – and that portfolio better be one not to be ashamed of, and one that makes up for the over-consumption of the Baby Boomers.

Daniel Hansen
Founder & CEO
OMNIA Global

Launching OMNIA Asset Solutions at the Luxembourg Art Week

We recently hosted our launch event of OMNIA Asset Solutions at the Luxembourg Art Week to promote our product, develop market relationships and to build brand exposure for our businesses.

From everyone at OMNIA, we would like to take a moment to thank our guests and supporters in Luxembourg. We were thrilled to officially launch OMNIA Asset Solutions – the latest piece to the puzzle forming OMNIA’s alternative financial offering.

OMNIA Assets Solutions is a new venture for OMNIA Global, essentially a purpose vehicle to source and vet the on-boarding of assets for the OMNIA solution. The OMNIA solution is the collective offering of OMNIA Bonds II, OMNIA Private Equity and OMNIA Asset Solutions.

Luxembourg Art Week provided a great platform from which to launch our offering as a partner sponsor of the art fair. We wish to thank the Luxembourg Freeport, Carole Schmitz and Philippe Dauvergne for the opportunity to pitch OMNIA Asset Solutions to their guests at an exclusive tour of the facility.

Also, a big thank you to our guests who joined us at the Gala Dinner organised by Luxembourg Art Week – what a fantastic event to have been a part of to dine within the art fair and to meet collectors and entrepreneurs with the same passion for art and collectibles. Last but not least, we would like to thank Alex Reding, the Director of Luxembourg Art Week, for having us.

“What a whirlwind experience and an absolute pleasure to launch OMNIA Asset Solutions at the Luxembourg Art Week as a partner sponsor. Meeting so many interesting people, from colleagues, art market advisors to potential clients, made the whole experience unforgettable. Finally, to host tables and dine within the fair at the closing gala dinner was a truly unique experience.”

Amelia Hunton, Managing Director, OMNIA Asset Solutions

C’était magnifique!

For more information about the Luxembourg Art Week

Ensuring productivity and well-being with a remote workforce

Since OMNIA was founded in 2009, understanding the advantages of a remote workforce has been at the core of the company. To begin with, employees where in Switzerland, Denmark and Cyprus, then came New York and California in the U.S., then London and Luxembourg.

THE OMNIA PHILOSOPHY

The philosophy of the remote workforce at OMNIA stems from an understanding by Mette and Daniel Hansen, the founders of OMNIA, that we get the best employees by letting them work from where they have their base. So, rather than looking for employees in a specific geographical area, in OMNIA’s case in the central part of Switzerland, and settle for the best candidates in that area, Mette and Daniel can search for the most qualified candidates possible, and then they let new employees work from where they prefer to work.

Further to the argument of a remote workforce is that we believe that our employees knows best when it comes to their preferred working place. Whether it is from their home, an office space shared with freelancers or a camping site on Iceland, as our Graphic Designer did while travelling around Iceland for three months, focus is on getting the job done – not where your computer is.

Generally, we do not believe that a company can only be run from one address, where all employees have struggled to arrive on time after a hectic morning with the kids and through morning traffic in snow, rain or heatwave, or that productivity is higher in an open office where you spend most of the day trying not to be disturbed.

Monday morning video conferencing at OMNIA

COMMUNICATION IS KEY

But with employees spread across the globe, how do companies ensure information sharing and team spirit? How do we reach the full potential of this model where high productivity and mental health is the goal?

As a company that has a remote workforce at its core, it is very important to do what is necessary for it to work for all employees. The most important factor is ensuring smooth communication with and among your employees. One way of doing this is by having weekly status calls with video (very important!), both with all employees at once and in teams. Furthermore, as the employer, you must provide the necessary communication and project management tools to ensure easy and professional communication among all employees.

It is also vital that your employees have the necessary setup for having a home office or working in an office space if that is preferred. Remember, that the right place for productivity and creativity is individual from employee to employee.

Finally, company events a couple of times a year must be prioritised by the management team giving colleagues a chance to meet face to face. As with any other company, it is important to give employees an opportunity to get together on a more informal scene, but for a company with a remote workforce it is crucial, as your employees might never meet in real life

FOCUS ON THE ADVANTAGES

So, what are the benefits of a remote workforce for OMNIA? Obviously, there is a risk of employees getting out of touch with goals and performance of the company – it requires a strong management team to keep up with this aspect. Also, as employee, you have to make a bigger effort getting to know your colleagues when you are not having coffee breaks and lunch together every day. Again, this is why communication is above all to get the advantages of a remote workforce.

According to Forbes, there are several advantages of having a remote workforce. Besides expanding the talent pool as mentioned above, it improves productivity due to less distractions at the workplace. Also, health conditions both physically, some factors being getting well faster rather than forcing yourself to work when being sick, and mentally, e.g. due to the lack of a stressful commute, are relevant factors. Generally, people working from home feel much less stressed.

At OMNIA, we focus on the advantages of a remote workforce. We believe that we get the best of the best by not having any geographical boundaries when searching for candidates. Without geographical boundaries, we also get a more diverse workforce, which brings different points of views and creativity.

From the employees’ point of view, they get what most workers are hungry for: Flexibility. Most of us needs flexibility to get closer to that infamous work/life balance – or just balance, as most of us do consider our jobs to be part of our lives, too. As humans and not just employees, there is a great fulfilment in being able to find that balance. If your employer focuses on the tasks you complete and the creativity you bring to the table rather than on you being at the office from 9-5, you are closer to finding that balance. And let us not forget that the flexibility goes both ways – the employer is more likely to have an employee that is available at odd hours if needed.

At OMNIA, we believe we have found a way that works very well for us and our employees, and we are clearly following a trend: According to Forbes, 25% of all employed Americans work from home, and in 2020, 50% of the American workforce will be remote mainly because most of us are able to do our jobs using technological devices.

When networking through LinkedIn actually works

It is no surprise that Singapore is a fantastic country to visit whether for business or pleasure. It is a wonderful melting pot of cultures, food and businesses with unbelievable and ground-breaking architecture and not to forget beautiful nature and historical sights worth exploring.

With one of the world’s most efficient and widespread public transportion systems, you can more or less come from meeting to meeting without ever breathing fresh air, but stay in the airconditioned trains, stations and tunnels from building to building. That would however be a shame, as you would miss out on all the beauty that Singapore has to offer.

EXPANDING OUR BUSINESS INTO NEW TERRITORY

The efficiency and innovative thinking, which the Singaporean transportation system has become a symbol of, has made Singapore a popular place for doing business, and is also why the country was ranked at number 2 by the World Bank on their ease of doing business. At OMNIA, we have had Singapore in sight for some years, and we first visited the country in the beginning of 2016.

We have all heard it hundreds of times: “Network is key” when doing business, and there can be no doubt that most successful businesses are built on strong relationships and strategic partnerships.

So, before going to Singapore, we reached out to about 50 people on LinkedIn. Those 50 messages turned into about 20 meetings, which again have led to new connections and meetings. In short, it is as simple as that. But what it really comes down to is how you approach people and what you have to offer.

“The characteristic of OMNIA is our ability to unite clients, partners, employees, projects, solutions and subsidiaries in surprising, new ways, and thereby, we create synergy between all components to accomplish the ultimate result. By connecting elements, we form the unique.”
The philosophy of OMNIA Global

DO YOUR RESEARCH

We all know the people on LinkedIn who will connect with anyone just to have +500 connections on their profile. Rather than focusing on numbers, you should focus on building connections that matter. Invest time researching for relevant people – then their stories and backgrounds, and learn all you can about the actual person behind the professional profile.

When you do reach out and try to connect, create a personal message that is meant for that specific person, including a few lines of why you would like to connect – especially if you do not have any mutual connections (always bet more on the people you have mutual connections with). Finally, you should keep your message short, simple and leave out your sales pitch.

IT IS EASIER WHEN YOU ARE VISITING FROM ABROAD

Know that people are much more likely to take the time to meet you, if you have let them know that you are visiting from abroad rather than if you are living right next door. Most people know that when you are flying in from abroad, your time is limited to visiting the right people, and there is not much room for wasting time. For that reason, it is often easier getting relevant and productive meetings, when you have flown in from abroad.

KEEP AN OPEN MIND

When you do meet, you have to connect with people the right way. What we consider ourselves to be good at at OMNIA is meeting people on equal footing and with an open mind. This way, we are also more open to new surprising opportunities, which might come our way when meeting new people. Entering a new territory, you have a lot to learn, and people usually like telling stories and sharing experiences. Therefore, listen a whole lot more than you speak.

HAVE SOMETHING INTERESTING TO TALK ABOUT

Lastly, creating connections is easier when you have something unique to offer – this makes people much keener to listen. It is important to recognise that connections and meetings must be for the benefit of both parties. Never waste anyone’s time, and as you have done your research before a meeting, you should also be well-prepared for the actual meeting.

ALWAYS TAKE THE NEXT MEETING

When you have built up those connections and actually met, hopefully you will be introduced to a lot of other people. If you are lucky enough to have been referred to other people, who your connections trust, and who want to meet with you, you take that meeting! You never know what the person will bring to the table, or who that person knows – he or she might be the connection to your next valuable connection and meeting.

If you look at the people you are doing business with, they are probably different than the ones you thought you would be doing business with. Remember that you will learn something from any meeting you attend, and hopefully you will adapt your business as you keep learning. And you never know what will come out of that last meeting you attended.

“You have to trust that the dots will somehow connect in your future.”
Steve Jobs

And those 50 messages on LinkedIn back in 2016? A lot of great meetings, with what we now can call out network in Singapore, transformed into acquisitions for our private equity division, bond distribution channels, blockchain projects as well as great banking relationships. The greatest thing about all that we learned along the way is that we ended up in a different and better place than we expected in Singapore.

The drivers behind the push for blockchain

This was the overarching message of the Art & Tech Summit, I attended on 17 July 2018. It presented a desire for the art market to have real transactional transparency and validate authenticity. That’s a view that we share at OMNIA. The summit articulated the capability for an artwork to hold a digital ledger of metadata, through blockchain technology, to certify provenance and trace ownership. A solution to the markets inefficiencies.

Over the past 18 months numerous articles have circulated about the hype of blockchain and cryptocurrency, with headlines ranging from ‘Can blockchain clean up the art market?,’ to ‘Can blockchain eliminate the myth of the starving artist?’ The Art & Tech Summit brought market pioneers and leaders within the field of blockchain and the art market together. There they shared their thoughts on whether the art market is shifting towards a growing consensus that the current trading model is failing and if blockchain is the solution.

WHAT IS BLOCKCHAIN TECHNOLOGY AND HOW CAN IT BE APPLIED TO THE ART MARKET?

Just in case there are any queries over blockchain technology, otherwise known as distributed ledger technologies (DLT), it is a concept driving organisations and individuals to figure out a digital future. Blockchain records and validates digital transactions with permanence on a secure database. And is widely perceived as an emerging technology which has the promise to deliver the most significant impact. The question is how this can be applied, more specifically for physical objects, and embraced by the art market?

During the course of the day highly regarded speakers echoed arguments presented in ‘The Art Market 2.0’ report, produced by the University of Oxford, The Alan Turning Institute and DACS, a not-for-profit visual artists rights management organisation. It’s a report presenting how the UK could set the standard for the adoption of digital art technologies. It outlines how the infrastructure, offered by blockchain, could enable a new trading standard and support further development of software for example, for the purposes of authentication, provenance tracking and tax collection in relation to art transactions.

The fact blockchain technology is still very much in development, a sentiment shared by many speakers and the audience in attendance, is important to think about when weighing up the limiting factors highlighted at the summit. Aton Ruddenklau, of KPMG, held the position of blockchain being part of the solution, but not the solution. Meaning the application of blockchain requires partner technologies to combat the processing issue of authenticity verification. Verisart recently faced criticism for failing to prevent incorrect data bring recorded on their platform and was an example of a member of the public’s demonstration of the technologies limitations. The ‘Mona Lisa’ was logged on Verisart’s platform by Leonardo Da Vinci, an obvious fraudulent act, highlighting the weaknesses of blockchain and the public’s lack of confidence.

What course of action can be taken? The entry cannot be undone and a genuine question is, what legal precedent could Versiart take? Legislation is in development and there is no unified governance on blockchain to date. Financial services, privacy regulators and data regulators are unified with concern for the adoption of blockchain technologies and are looking at the global implications. Five key issues were identified in the tech talk ‘Blockchain – Legal Fact and Fiction,’ presented by Jonathon Kewley of Clifford Chance, data privacy, cyber security, artificial intelligence, shadow infrastructure and anti-trust. The fact the concept of blockchain is not GRPD compliant, for all transactions are permanently recorded, was a factor I hadn’t yet pieced together to taken into consideration. Kewely’s departing message, “Tech + Law = BFF,” was a cautionary warning very much heard and acknowledged by the room.

Left to right. Jason Bailey, of Artnome, Nanne Dekking, of Artory, Jess Houlgrave, of Codex Protocol, and Ram Nadella, of Paddle 8.

The promise of blockchain was likened to the Internet, in that it enables development of numerous products on which to be built. Private versus public and centralised versus decentralised platforms, were and are some of the key debates for blockchain platforms. The panelists platforms demonstrated the diversification in approach to blockchain, with some operating on the Ethereum blockchain and other’s having built their own. At its core the blockchain concept is for a distributed decentralised peer-to-peer data-network without a central authority. It is the second component of the core principle, for unalterable tracible records of transactions, where we see shifts in adoption of the technology.

Fundamental challenges for blockchain, of verifying authenticity and how to engage collectors who embrace anonymity, were discussed by Jason Bailey, of Artnome, Nanne Dekking, of Artory, Jess Houlgrave, of Codex Protocol, and Ram Nadella, of Paddle 8. It was observed that the format of many sales involves various intermediaries and offshore vehicles operating anonymously. Whilst online sales platforms, such as Paddle 8 and Artsy, introduced E-commerce to the market, the transactions remained anonymised. The online market altered the traditional notion of physical engagement with the artist, dealer or work, moving the market towards virtual engagement but the transaction model remained old-school. A crucial question for art tech developers is how to alter perceptions centred on anonymised transactions? The key take-away for me, of the panel discussion, was how companies were thinking about how to use it by the adoption of certain parts of blockchain.

BLOCKCHAIN POTENTIAL IN THE ART MARKET – IS IT THE ANSWER?

The art market is plagued by fraud, forgeries, illicit business and tax evasion on an international scale, key arguments in demonstrating the need for a radically new model for standardised trade. For proponents of the technology, blockchain is seen as having the potential to introduce smart contracts changing method of sale, record of provenance and transparency of ownership, to solve problems surrounding authentication of art and its opaque money trail. Opponents take the position that a publicly distributed ledger, an immutable and censorship-resistant database of ownership goes against the entrenched trading model which shrouds transactions in much valued anonymity. Do I think blockchain is the answer? I think it is too soon to tell.

For the art finance market, I do embrace the idea of blockchain, but acknowledge that the product has not yet proven itself. Until there are ironclad solutions to verification of authenticity and a consensus of market backing, for me, only then will it hold value. What I did find promising at the Art & Tech summit was the enthusiasm of tech start-ups working through solutions for verification purposes to solve the acknowledged limitations of blockchain as perceived today.

–

Amelia Hunton

Managing Director

Amelia Hunton, MD of OMNIA Assets Solutions, at Art & Tech Summit 2018

The launch of OMNIA Asset Solutions

The company helps collectors raise finance against their high value luxury assets, generating liquidity and releasing equity.  

With low yields and limited investment options available, art and collectibles are one of the alternative assets that are increasingly considered a store of value – a motivation that remains significant among collectors and art professionals.  

With many asset collectors unaware they can generate income from valuable assets while retaining ownership, OMNIA Asset Solutions is offering a unique service. 

As Daniel Hansen, CEO, OMNIA Global, explains: “Many high net worth individuals have fortunes stored in assets, such as fine art, classic cars and diamonds.

“These collections will be appreciating in value and becoming a bigger part of the combined wealth of our clients, but not accumulating cash flow. We have structured a solution which allows clients to use their assets as the base of a cash flow.”
Daniel Hansen, CEO, OMNIA Global  

At OMNIA, art functions as ‘backup’ for private equity investments. For the art owner there is an unleveraged private equity portfolio protecting the pledged assets.  

OMNIA Asset Solutions secures the ‘Asset Portfolio’ which underpins the operation of OMNIA Bonds II, a funding vehicle of OMNIA Global, which raises funds secured by high value assets.   

OMNIA Asset Solutions is headed by Amelia Hunton, who joined OMNIA Global earlier this year. Previously, she worked at insurance firm Jelf (previously Bluefin) where she set-up and ran the art insurance division two-and-a-half years ago.  

“With an academic background in art history and with experience working within the art finance sector insuring art loans and having developed OMNIA’s exclusive art finance insurance wrap she is definitely the right one for the job” 
Daniel Hansen, CEO, OMNIA Global 

As she says: “It is important to recognise the role the art insurance industry plays in driving market practices for luxury asset markets, this is what puts me in a strong position for navigating the niche field of the art finance market and what stands me out from my competitors.”

WHY ART?

OMNIA Global launched in 2009 as an alternative source of finance to entrepreneurs running privately held companies. Over the past few years OMNIA have expanded their footprint within Private Equity investments in SME’s as well as Yachts and Aviation. OMNIA saw art finance as an under-served market in which to invest, says Hansen.   

Annual art market reports support the growing consensus of viewing art as an asset class build year-on-year. With Deloitte’s prediction of $2.7 trillion being dedicated to art-related wealth by 2026, who wouldn’t be looking to provide a sophisticated finance solution. 

OMNIA’s CASH FLOW SOLUTION

OMNIA Asset Solutions offers individuals, corporations, foundations and institutions the ability to earn an annual income from an agreed fixed percentage of the appraisal value during the contractual pledge period of five years, with the possibility of retaining full ownership of the asset at the end of the bond term.  

“We are interested in assets where we can make a difference, our clients find themselves asset-rich but cash poor, and looking for an alternative to traditional art loans or banks. They don’t want to guarantee a loan personally or via their business,”
Daniel Hansen, CEO, OMNIA Global  

OMNIA is focused on finding high value luxury assets, such as fine art by established blue-chip secondary market artists or classic cars. “We are open to special cases but generally are looking for what is considered to be stable artists with an abundance of auction sale data, for example, we currently hold artworks by Picasso and Rodin in our pledged asset portfolio.  

“The asset portfolio will continue to grow with a diversified portfolio of assets, as it is important to spread the exposure minimising the risk,”
Amelia Hunton, Managing Director, OMNIA Asset Solutions

  A typical transaction will be valued at £1million upwards of the agreed value leveraged. The contractual period for the pledged assets is five years.  

“Currently the assets are required to be held in professional facilities, but we are keen to allow the asset owners to keep possession of art in the future, should they wish to do so.”
Amelia Hunton, Managing Director, OMNIA Asset Solutions

Strategic acquisition of art management company

As part of our asset-backed wealth management solution, we now offer our clients fine art management services through Luxembourg-based Artglor.

EXPERTS IN FINE ART

Artglor was founded in 2014 by Gérard L’Hermenault, a professional in the art market. Over the last forty years, he has built up extensive expertise within fine art and the sale of contemporary works of art through the organisation of exhibitions and participating in launching several major artists.

In 2015, Eric Bonafini, an entrepreneur specialised in finance and business development, joined Artglor to implement the art leasing branch and to manage fiscal and financial advice linked to investments in fine art.

During the first two years, Artglor mainly organised purchases and sales of major artists like Soulages, Dalí, Picasso and Botero. Today, Artglor gathers expertise in the fine art business and is specialised in the promotion of fine art offering expertise and advice relating to e.g. making an acquisition or collection constitution.

FOCUS ON FINE ART LEASING

Recently, Eric Bonafini decided to organise a major change in the business of Artglor and to not focus on the purchase and sale operation, but on leasing of fine art. Artglor has access to several collections, and the owners are more and more keen to generate revenue based on their collections but without having to sell them.

By this, Artglor reinvented something that had been done before, but with a modern approach. Clients may rent a piece of art for a month or for a year, have the possibility to buy it with a discount or to change it and try something different.

Thanks to Artglor’s experience and global network, the company is able to advise its clients with professionalism, discretion and efficiency both in the choice of works for purchase or sale and in financial positioning.

SYNERGY BETWEEN ARTGLOR AND OMNIA

In October 2017, OMNIA established a partnership with Artglor in order to promote fine art, organise exhibitions and not the least to offer expertise within the fine art market in the context of the securitisation process.

For OMNIA, which has specialised in securitisation of assets within fine art, acquiring Artglor provides an in-house tool allowing to lease the securitised pieces of fine art. This structure allows Artglor to facilitate the communication on the pieces and to dynamise the process of securitisation.

“Since our first meeting, we both knew that at some point we would work together. What makes OMNIA unique is that they put everything in place in order to support entrepreneurship and growth.”
Eric Bonafini

To OMNIA, Artglor is also a great asset in terms of facilitating introductions to fine art owners, as it is easier to be introduced to an art owner in regard to a securitisation operation by a fine art specialist. This means that Artglor will facilitate the introduction of OMNIA to owners of fine art collections.

Eric Bonafini

Furthermore, Artglor organises partnerships with museums and exhibitions. As part of our asset-backed solution, we have developed an optional program offering opportunities for public exposure, giving our clients the possibility of having their collections on display at museums and other venues around the world through Artglor.

Thereby, we are able to assist our clients in expanding the knowledge of and interest in their artworks, which eventually increase the value, while the owners receive cash flow based on the financial value of their fine art.

CLOSING A MARKET GAP

We see a need in the fine art market for access to securitisation and exposition. It has been done before, but many companies have failed due to the lack of the right insurance and logistics. However, together with Artglor, we have established strong partnerships with the right experts for our clients to be able to count on our expertise.

“I am happy that we have expanded our offerings towards our fine art and passion asset clients with an in-house specialist in fine art leasing, exposure and exhibitions.

Eric Bonafini and Gerald L’Hermenault are wellknown experts within securitisation and fine art and will expand our network within the area in order for us to grow faster with the right clients.”
Daniel Hansen, Founder & CEO, OMNIA Global

It is our common goal to offer world class expertise within fine art in all aspects of securitisation of art, and specifically in terms of Artglor to organise effective communication on the pieces of art in the portfolio, to organise exclusive events for art owners and to provide them with the pleasure of entering into Artglor’s world of art by being able to rent artworks.

We are very excited about this partnership and looking forward to seeing our synergies come into play.

For more information about Artglor, please go to Artglor.