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Masterworks is an investment platform that lets the average Joe buy fractional ownership of fine art for just $20 a share, widening access to blue-chip artwork beyond the super wealthy and to the masses.
The concept is similar to real estate crowdfunding platforms (e.g. Fundrise, Groundfloor) that allow small investors to invest in commercial real estate projects. But instead of real estate, you’ll be putting your money towards priceless works of art. The goal is to sell the art for a higher value at a later date.
Why Invest In Art
Art is noncorrelated. Asset correlation measures how your investments behave in relation to each other. For a diversified portfolio, you’ll want assets that move in opposite directions. When one goes up, the other goes down. This offers some protection should the market take a downturn.
Art is the “picture perfect” non-correlated asset. While other stocks react daily to news and swings, the art market moves at a snail’s pace. Appreciating slowly and steadily and in complete disregard for how the broader market behaves.
Art is resilient. When the market crashed in 2008, it took eight months before it reached the art world. And even then, the effects weren’t nearly as catastrophic. During this economic crisis, the value of the S&P 500 fell 51%+ while the art index fell 27%.
Art is global. Art is a global commodity and can be bought and sold by anyone, anywhere in the world. Most stocks and bonds are limited to within the United States, or other countries where those assets are traded. The large, global network of potential buyers protects the art market from country-specific economic downturns and provides a constant source of new investment.
Art is in demand. In 2005, approximately $630 million flowed into the market for artwork sold at auction at $5 million or more. The value of these pieces almost quadrupled in value by 2008 – amidst the financial crisis – selling for $2.2 billion at auctions. And it didn’t peak there. In 2015, the art market achieved a remarkable $4.2 billion record in sales.
Art outperforms the stock market. On average, art assets posted returns of 10.6% compared to the S&P 500 total return of 5.1%. According to Artprice, blue-chip artwork has outperformed the S&P 500 by over 250% since 2000.
More About Masterworks
Masterworks lets anyone purchase fractional interests in valuable works of art. Here’s how the company makes it happen:
Masterworks purchases blue-chip art. Blue-chip art refers to pieces that have been created by world-renown artists whose popularity is reflected in exceptional sales volumes over the years, like Warhol, Van Gogh, Kahlo and Basquiat. The Masterworks team behind the purchases have 75 years of combined experience as art collectors, dealers and auction house workers.
You make an investment. Once Masterworks purchases a painting, the company files an offering circular with the Securities and Exchange Commission. Once the offering is qualified by the SEC, you can make an investment for as little as $20 per share. The minimum to invest is $1,000.
You monetize your investment. After 7 years, if shareholders do not have any other means to sell or redeem their shares, Masterworks will try to sell the painting on or before the 10-year anniversary of the offering. Profits are then distributed accordingly. You can also sell your shares to other investors via Masterworks or a third-party, but this option is not always available.
Masterworks Fees
Masterworks charges a 1.5% annual management fee which covers distribution costs, regulatory expenses, storage and gallery space, insurance and more.
If the painting is sold at an increased value, Masterworks takes 20% of the profit.
Masterworks Risks
Before you drop $1,000 on a piece of fine art owned by Masterworks, let’s take a look at the risks involved.
Untested business model. Masterworks uses a combination of blockchain technology and art that, although unique, is untested and unpredictable.
One type of asset. Although Masterworks will purchase different pieces of artwork, they’re still dealing with just one type of asset. And relying on a single asset as an investment comes with high risks.
Illiquid asset. Masterworks plans on holding on to a piece of art for five to ten years before trying to sell it off. During this time, investors can vote to decide if they want to take the offer. In a nutshell, your investment funds are tied up for the long run.
The subjective price of art. Because the cost of art is subjective, there’s no guarantee that the price of your art will appreciate over time.
Bottom Line
Masterworks gives the average investor the opportunity to invest in fine art and diversify their portfolio. But keep in mind, there’s a certain degree of risk involved – as with any other investment. If you’re okay with having your investment funds tied up for the long haul, and you think the return will be worth its fees, then you should consider investing with Masterworks.
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