For centuries, investing in fine art has been associated with millionaires and the powerful. Investing in multimillion-dollar art usually requires considerable capital.
The private company Masterworks has set out to change that. This website offers an innovative and profitable way to invest in world-class fine art. You will be surprised to discover that investing in art can be one of the most profitable ways to diversify your wealth.
Thankfully, this platform applies innovation and entrepreneurship, providing everyone with opportunities previously reserved only for a few. As a result, owning fine art is no longer just for billionaires.
What is Masterworks?
The global art sales market is vast, with a volume of 1.7 billion dollars in 2021. Masterworks is the largest buyer in that art market.
Company founder Scott Lynn has experience building scalable technology companies and a passion for investing in art. This knowledge, which has allowed him to succeed in his personal investments, is what he now shares through this innovative investment platform.
With a community of 400,000 investors with access to exclusive investments in world-class art, Masterworks has a history of 14.3%, net of fees, from inception (September 27, 2019, to March 31, 2022).
Masterworks is based in New York City. It has 17 employees and is backed by the venture capital firm Loop Ventures.
How does MasterWorks work?
Masterworks manages an auction database where it analyzes more than a million records. Along with a team of professionals, they select the best works of art taking into account different aspects, such as the history of the artist, the global demand, the history of the work, the risk factors, etc.
If everything looks good, Masterworks will purchase the fine art, displaying it in its own gallery in SoHo, New York. The company also registers this investment with the Securities and Exchange Commission (SEC), using an offering circular (an initial public offering).
Masterworks puts shares of the painting for sale on their website for installments starting at $20 per share.
Inscription
Interested parties can visit the Masterworks website and apply for membership, which requires a telephone interview with the company’s affiliate team to discuss their art investment goals and risk tolerance.
Once an investor’s account is enabled, they can choose individual boxes to invest in. However, this may take some time as the company currently operates on a waiting list.
After completing the registration process, customers can make a minimum investment of $1,000. Then you can choose how many shares they want to buy in each piece of art.
Individual investors can own no more than 10% of a specific fine art. The average investor invests about $5,000 for each painting.
Profitability
Masterworks is becoming an essential alternative in finance, offering investors high investment returns at a reasonable risk. Unprecedented sales volumes consolidated its position in the auction marke in recent years.
In addition, its profitability far exceeds that of fixed income today. With international instability and such high inflation rates, now is an ideal time to invest in contemporary art.
The profitability achieved by Masterworks is higher than that of the stock market. Even outperforming the S&P 500 by more than 4%.
Investment with higher risk
Keep in mind that past performance does not guarantee future success. Although the Masterworks business model focuses on established artists and works with a good track record, it must be taken into account that, like any investment, art is still risky.
Buyers’ tastes can change, and art and artists can go out of style, affecting the resale value of works. The art market, in general, operates in a much less regulated environment than the stock market.
Before diving into art investing, make sure you’ve reached critical financial goals, set up an emergency fund, and more.
Once you have established a solid financial foundation, consider investing in some of the most iconic fine art for the potential of building your long-term wealth.
Keep in mind that investing in fine art carries significant risks. In other words, this type of asset class should not represent a large part of your portfolio. If this is not your case, you should look for other investments with less risk.
Buying segments
Users can buy shares of masterpieces divided into two segments through the art investment platform.
One segment is called “blue chip,” which includes the works of 100 artists with the most sales over the last five years, such as Pablo Picasso, Claude Monet, Andy Warhol, etc. They are works that exceed a million dollars and are low risk.
The second segment includes living, mid-career artists whose works can give investors a 12% to 20% return, with moderate risk. In addition, investors can trade the shares of the paintings in a secondary market after the offer’s closing.
Commissions
Masterworks charges a 1.5% annual management fee, which goes toward storage costs, gallery space, archives, insurance, and audits.
When the company sells the fine art, they keep 20% of the profits from the sale. Other fees may apply and by investors receive details in the offer documentation.
Masterworks keeps each painting for 3–10 years before selling it. Only at the time of sale do they pay profits to the shareholders.
Although the management fee and 20% of profits are in line with the industry standard for hedge funds, these fees are relatively high when compared to investing in something like a market-followed index fund.
However, like most alternative investments that carry high fees and higher risk, fine arts can potentially provide a higher return than other traditional investment vehicles.
Long-term investment
It is important to note that users should think of Masterworks fine arts as long-term investments, so the company does not even allow investors over 70 to use the platform.
Investors must wait until Masterworks sells the frame to hopefully see a profit. Or, the investor can try to sell his art stock on the Masterworks secondary market before the company sells the painting.
Masterworks’ goal is to keep its fine art for 3 to 10 years, at which point it sells the painting and distributes the profits to investors based on their number of shares.
Investing in art is a long-term commitment. You must be comfortable leaving your money locked up for several years.
Unlike what happens with other assets, such as shares that distribute dividends, for example, works of art do not allow you to generate passive income on a recurring basis.
Conclusion
Now that you know this exciting investment platform, it is important you consider all the aspects that before investing, so as not to make a mistake. However, we insist that every investment entails a specific risk and should be carried out with the maximum possible security.
In short, although art is a niche that is gaining ground, make sure the investment is adapted to your financial situation and, above all, to your investment horizon.
