The Intermediary speaks with Edward Blackmore at Suros Capital about the ins and outs of luxury asset-based lending, and why this market could be the secret to unlocking more opportunities for clients.
What was your background before joining Suros?
I worked in the football finance sector for 20 years , working with high net worth (HNW) clients who either owned or were looking to acquire football clubs, owners looking to raise investment for their clubs or exit ownership, and did a fair amount with professional clubs across Europe in the receivables side – providing finance for clients against future revenues.
From one interesting niche to another – are there parallels with what you’re doing now?
I’ve been with Suros for just over a year, now. There are different motivations, but there is some crossover between the types of borrowers that I’ve dealt with in both sectors. It’s high net worth individuals looking for liquidity against their assets.
There’s a certain specialist skillset required to handle HNW clients who might be working under severe time pressures. Often we’re up against tight time scales, working around the clock to make it work for the client.
In essence, we are a financial solutions business, working against tight time parameters and sometimes where other lenders might not touch a client because of their credit profile or whatever it might be. We focus on the asset and don’t get too heavily embroiled in credit checking. We do our ‘know your customer’ (KYC) to the required level, but for us it’s more about the asset.
Is access to finance a problem for HNW clients?
Well, for example, at a certain age it’s harder to get a mortgage because you might not have as many working years left. So, finding capital to transact on properties or to finish a property development can be tricky for some clients. But for us, regardless of the age profile, if the asset stacks up in terms of provenance, we’re comfortable lending.
That’s one of the differences between what we do and what the more traditional lenders in the property finance space do.
How else is Suros distinguished from other lenders?
We have a team of in-house experts who can value and do the provenance and do the due diligence on the assets quickly. There are some asset classes which we appoint external experts for – art, for example, and sometimes wine – but other assets such as watches, jewellery, gold and silver, we have in-house expertise for.
So, our speed of transaction is really quick. We can be same-day if the client can bring the asset to us. When trying to secure finance through a through a bank, it’s a lengthy process that doesn’t meet the immediacy of and the need.
How do you go about measuring risk?
We have to be confident that the piece of art, or the watch, or whatever it might be is an original and is authentic.
In the world of art, for example, you see every now and again these high-profile cases of forgery. So, we go through a rigorous checking process, we ask for the paperwork to evidence when the asset was purchased, paperwork from the manufacturer, whatever that might be, to see that this is a genuine piece. Then, it’s down to our very skilled team internally, who are forensic in their analysis to assess whether an asset actually is what it purports to be.
We typically end on a six-month term, so it is short-term lending. Then, they can either pay back in full, or if they wish to renew the term, we revalue the asset to check it hasn’t depreciated, and we can reissue on the same terms.
In case of a default, then we may have to sell the asset to pay back the loan, and any proceeds beyond that are sent back to the client. Those instances are low, in the single-figure percentage of our loan book – this isn’t ‘loan-to-own’, but sometimes situations arise where this happens. Typically, we’ll sell via an auction house to get the best possible result for the client.
What kind of purposes are these loans being used for, do you have parameters for this?
There’s really nothing that’s a deal-breaker as such, unless it’s something illegal, of course. We like to understand the background of the client’s story.
That is often the interesting part – understand how the person is in the position they’re in, and how we can help. That’s where the solutions-based approach takes place.
Our clients come to us for a multitude of reasons. Some need money quick for an emergency – a tax bill or school fees or some need for liquidity – while others are more opportunistic. We have lots of entrepreneurs looking to invest, or complete on a building transaction. They’re using their assets to release capital as an investment in another opportunity.
The third type is dealers, traders – such as watches – who want capital to acquire more stock, so they’re utilising their existing luxury assets. They don’t want to sell them, but they want to utilise the value in them to acquire more stock to help grow their businesses.
The final type of client would be someone who has inherited a family heirloom and there’s a strong emotional attachment and they want to keep it in the family. However, they might have an emergency, and rather than sell the piece they come to us to leverage that to solve a liquidity problem.
Have there been any interesting trends over the past few years?
There’s a definite increase in customers looking at luxury assets as an investment, who believe they would appreciate over time, and therefore want to utilise what they’ve got already to reinvest to grow their portfolio in the hope of greater returns down the line.
There’s also definitely been an uptick in the number of clients looking for capital for property purchases. We get inquiries from bridging firms or mortgage lenders, where a client needs extra cash to improve their loan-to-value (LTV) on a larger facility. We help increase their deposit, the LTV comes down, and they get a better rate.
There’s also been an increase in clients with wine collections, who probably haven’t considered this type of loan before, and who thought they would have to sell their wine to release capital.
With the financial climate as it is, there’s more people looking to borrow just to fund ongoing expenses, such as school fees or holidays.
Do you think brokers know enough about this side of the market?
Early in my in my tenure I met with a number of wealth advisers, and they were talking me through their process of evaluating a client – assets, liabilities, property values, mortgage. One of them said to me that when it comes to watches, jewellery, diamonds, art, they would put just put a zero in the in the column. They just didn’t consider that that could be a way of releasing liquidity.
We’ve worked hard to help inform advisers and mortgage brokers that there is a solution out there to help get more of these deals over the line. It’s an ongoing marketing and business development exercise, to promote ourselves as a solutions-based business.
What are your relationships like with other lenders?
It’s part of the process – we have strong relationships and an ever-growing network of private banks and wealth advisers, and we communicate with them and try to remain front of mind.
We’re always looking for more relationships and trying to grow that side of it. Anyone in the property space that has contact with HNW clients who have these assets, there’s a business relationship to be formed there.
Is there an asset class that is particularly good for these types of loans?
There’s volatility in all the markets to a degree, so we’re constantly reassessing prices, and value obviously fluctuates.
With that in mind, I would say that our most comfortable asset to lend against is probably watches, because we are able to sell them on quite quickly in the unfortunate case of a default, whereas something like a car might take a bit longer, while with things like wine you have to wait longer to ensure the optimum price.
Where does technology come into the process?
Obviously, when it comes to value of gold and silver, for example, we’re plugged into the pricing market. There are also historical databases of what art has sold for at auctions, and we’re very detailed in terms of the track record of sales of an asset.
So, a key part of what we do is having that technology-backed data to make our lending decisions on – it’s crucial.
In addition, it’s not a ground-breaking technology, but our ability to transact remotely with clients through electronic contracts and that sort of thing means that a client could be overseas at the time of contract execution. As long as we have physical possession of the asset, and all the KYC checks are done in advance, they can be anywhere on the planet.
So, the business has a good mix of all the data resources, but there are also people with 30-plus years of experience working with different asset types. There’s nothing quite like getting them to hold and examine a watch or a piece of jewellery in person.
How does the firm quantify success for its clients?
Often it’s time-related. There are these deadlines the clients are against, and we can turn things around quickly. That said, no corners are ever cut to get a deal over the line – but we work around the clock to make sure no stone is left unturned, and to make sure we meet the client’s requirements.
We have a lot of clients who are repeat customers, who have been with us for a number of years across multiple assets. That speaks highly of the service that we provide, our flexibility around how we operate, and how we help them meet their goals.
What do you wish brokers knew about this type of lending?
There are assets that clients have, which traditionally they would not have put down on their asset liability form. So, there’s liquidity there which can help the client transact on a property, or whatever they need funds for.
Another interesting development recently is that we’ve done a lot of work in terms of our lending parameters and criteria, so we’re now open to put in place lending to businesses, where historically it has always been lending to individuals.
That might be dealers, art galleries, antiques – we have opened that as a source of as a new source of capital for potential clients. That’s a whole new client base for us, and something we’re going to be promoting throughout the year as a as a new string to our bow.
Any other big developments to watch out for in 2024?
We are still looking to grow relationships with more private wealth managers, private banks, and family offices.
We have a partnership with the Aston Martin owners Club, so we deal with their members, and we’ll be looking to explore other similar opportunities, whatever it might be to get the awareness out there.
There are more people looking to luxury assets for investment purposes. The appetite is there, and they’re looking for super returns on those as opposed to more traditional returns with the stock market. There are going to be more people leveraging their investments, and non-traditional lending is going to become more prevalent throughout the year.
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