Investing in art has always been an attractive option for individuals looking to diversify their portfolios. However, the art market has traditionally been inaccessible to many due to high costs and the illiquidity of art assets. This has led investors to search for alternatives that provide exposure to the art market without the complexities of direct ownership. While there isn’t an Art Index Fund per se, there are platforms that offer comparative solutions for investing in art.
Three prominent platforms in the art investment space are Masterworks, Yieldstreet, and Public. Although they do not operate as traditional an Art Index Fund, they offer investors the opportunity to invest in art through each with their own benefits.
Art Index Fund #1: Masterworks
Masterworks, established in 2017, is perhaps the most well-known online platform where investors can buy and sell “blue-chip” fine art. Using their in-house expertise and data analysts, Masterworks tries to identify undervalued art by artists like Picasso, Monet, Warhol, Banksy, Kaws, and Basquiat. After they acquire an artwork, they are filed with the Securities and Exchange Commission (SEC), and investors can purchase shares starting at approximately $20 per share. Masterworks aims to add one new artwork to its platform every week.
Masterworks doesn’t yet have a product that lets you invest across a number of artworks at one time, but you can easily curate a selection yourself and create your own Art Index Fund. In a way, this method grants the investor a greater freedom to choose the exact artists and artworks that align with their individual ideals and values (or thoughts you might have about which are more likely to appreciate over time).
Masterworks employs a buy-and-hold strategy, typically holding artworks for 3 to 10 years to allow for potential appreciation. Moreover, they have created a trading market that enables investors to sell their shares to other investors without incurring fees, helping to address the liquidity concern associated with investing in art.
While Masterworks offers fractional ownership of individual artworks, it’s worth noting a few aspects to consider. The platform charges an annual management fee of 1.5% based on the total value of the account, which covers essential services such as storage, appraisals, insurance, and SEC regulatory fees. Additionally, when an artwork is sold, Masterworks takes 20% of the profits, incentivizing the team to maximize returns and cover associated costs.
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Art Index Fund #2: Yieldstreet
Yieldstreet, an online alternative investment platform founded in 2015, offers funds across different typical and atypical asset classes, including its Art Equity Funds. Yieldstreet’s Art Equity Funds focuses on blue-chip artists such as Jean-Michel Basquiat, Damien Hirst, Yayoi Kusama, and Banksy, offering bundled packages that are comprised of multiple artworks. The bundled packages from Yieldstreet are its big advantage if you are looking for a hands-free experience that closely resembles an Art ETF or Art Index Fund.
Much like Masterworks, the team at Yieldstreet tries to identify undervalued artworks in both the auction and dealer markets with the intention of acquiring them at prices below their fair-market value. Prior to purchasing the artworks, the investment team engages an independent third-party appraiser to estimate their value too, helping them devise a fair market assessment. Yieldstreet then takes possession of the artworks, occasionally lending them to museums or major institutions for exhibition purposes, which can enhance their value and provide additional exposure.
Yieldstreet’s investment period is generally shorter than Masterworks, ranging from 3 to 4.5 years, allowing for potentially quicker returns. Although Yieldstreet charges an annual management fee of 2%, their stake in the profits once the artworks are sold is 15%. This fee structure ensures that investors receive a substantial share of any potential profits generated.
Yieldstreet accepts investments starting from $15,000, but typically gives priority to Accredited Investors who have a net worth of $1 million+ or an annual income of $250,000+.
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Art Index Fund #3: Public
On Public, you can invest in a number of alternative assets including artwork from Blue chip artists like Banksy, Kaws, and Tracy Emin. The number of artworks on offer at Public is fewer than Masterworks and Yieldstreet, as they only began offering alternative assets in September 2022 (when they acquired Otis), but it is a work in progress for the company so expect more to be added soon (with potentially lucrative IPO prices).
Public’s offerings are not just limited to traditional artworks. Rather, you can also invest in other rare cultural artifacts too, like game-worn Michael Jordan’s, sport trading cards, Pokemon cards, video games, comics, and NFTs, which is kind of cool but may just be a distraction for those purely interested in art.
Each cultural asset on the platform has been securitized with the SEC and broken into shares which are then offered to investors. Importantly, Public also have ‘Portfolios’ that allow you to invest in multiple items that are curated around a category or theme. They position this feature as an Index Fund or ETF for alternative assets which they effectively are. So with Public you have the choice to invest in individual pieces or in a package of assets.
Public aims to keep each collectable/artwork for a period of around 5 to 10 years, after which they look to sell for a profit. In the meantime, similar to Masterworks, if you need to sell your stake, all it takes is a few taps of the app to sell your shares to other members.