Leveraging the fact that contemporary art investments have historically outperformed the S&P 500, Masterworks aims to make high-priced artworks accessible to all types of investors. The company offers shares in “blue-chip” art, including renowned artists such as Pablo Picasso, Yayoi Kusama, Keith Haring, Andy Warhol, Banksy, Kaws, Jean-Michel Basquiat, and many many more.
To date, the Masterworks’ platform has garnered over 700,000 investors who are seeking to diversify their portfolios with assets that are not strongly correlated with the health of the stock market.
Here’s how they operates: When Masterworks acquires an artwork (typically a painting), it files it with the Securities and Exchange Commission (SEC) as a public offering, similar to a company going public. These shares of the painting are then made available for purchase on the Masterworks website, starting from about $20 per share. Every month, Masterworks adds 3 to 5 new artworks to its platform, although this pace is picking up.
Masterworks focuses on the high-end segment of the art market known for its more predictable returns (Blue Chip artists). The company’s research team calculates appreciation rates, correlation, and loss rates behind the scenes, in conjunction with its proprietary data to identify artist markets with the most momentum.
Masterworks also has a secondary market where investors can trade shares in paintings. Still, to enforce its democratic ethos, individual investors are limited to owning no more than 10% of an individual work of art. The company charges a 1.5% annual management fee and retains 20% of any profits from the sale of an artwork. While the management fee and profit-sharing fee align with industry standards for hedge funds, they are relatively high compared to investing in market-tracking index funds. However, similar to other alternative investments, fine art carries higher fees and risks but offers the potential for higher returns compared to traditional investment vehicles.
Interested individuals can apply for membership on the Masterworks website, and an interview call with the company’s membership team is required for compliance reasons. Although, as noted in previous articles, the phone call is more a conversation for them to understand your investing goals and strategy rather than an interview.
Masterworks advises that users should view its artworks as long-term investments. Investors must wait for Masterworks to sell the painting to potentially realize gains, or they can sell their art shares on the platform’s secondary market before the painting is sold. Masterworks aims to holds art pieces for three to ten years before selling them and distributing the proceeds among investors based on their share ownership.
If you have any further questions about investing in art funds, like that offered by Masterworks or Yieldstreet, please reach out to mark@easelinvesting.com, and we would be happy to set you on the right path. Additionally, you can learn more about Art ETFs here.
