The high-end art world has long been inaccessible to the general public. Famous paintings and artworks at Sotheby’s and Christie’s are sold at auction for millions of dollars. The combination of high demand from very wealthy investors and a worldwide supply shortage of famous works of art is driving the art market to a steady price increase. Enter masterpieces.
What is Masterpieces?
Masterworks, a startup that sells fractional ownership of famous artworks, aims to democratize the blue-chip art market. The startup achieved unicorn status, or a valuation of over $1 billion, following a $110 million Series A funding round. Investors such as Left Lane Capital, Galaxy Interactive and Tru Arrow Partners participated in the financing round.
Art as an asset class
As an asset class, art has generated extremely strong and consistent returns over the years. Art has consistently outperformed asset classes such as US equities, global equities and gold. In the last 25 years, contemporary art has outperformed the S&P 500 index by almost three times.
“We truly believe that the only investable segment of the art market is paintings worth a million dollars or more, broadly speaking, and when I say investable I mean something that generates predictable returns,” said Scott Lynn, CEO of Masterworks.
Unlike non-fungible tokens (NFTs) or meme stocks, blue chip art generates consistent and profitable returns. “Art as an asset class is not GameStop or NFT, at the end of the day the returns are pretty predictable,” says Lynn. “If you invest in one of these paintings, you’re never going to make 10 times your money, but you’re probably never going to lose 90% of your money either.”
The benefits of art investment
Art investments and other tangible assets also offer good protection against inflation. Contemporary art does particularly well when interest rates are low. It has outperformed other asset classes that tend to do well in low interest rate environments, like gold and real estate.
According to a Citibank report, the art market remains relatively resilient during economic crises and world events. In 2020, during the COVID-19 pandemic, the art market outperformed 10 major asset classes and the contemporary art market posted the strongest returns.
Masterworks makes it easier to participate in art investments
Alternative asset classes are becoming increasingly attractive to investors. Young people under the age of 40 have shown a significant and increasing interest in investing in high-end art. The leading auction houses, art fairs and galleries are also increasingly relying on digitization and virtual events.
One barrier to participation in the world of art investing is a lack of knowledge on how to identify which artworks have high returns on investment. This is especially true in the elusive contemporary art market. This is where Masterworks investors can help.
As an asset class, art has generated extremely strong and consistent returns over the years. Art has consistently outperformed asset classes such as US equities, global equities and gold. In the last 25 years, contemporary art has outperformed the S&P 500 index by almost three times.
A team of experts
Masterworks has an in-house research team dedicated to evaluating art market performance. Of the over 6,000 artworks analyzed by the research team, less than 2.2% passed their due diligence process. Since the company’s inception in September 2019, Masterworks has had over 80 total offerings that have yielded an average return of 15%.
The company’s management team consists of experienced art professionals. Scott Lynn, CEO of Masterworks, is an internationally recognized art collector and technology entrepreneur. Nigel Glenday, Chief Financial Officer at Masterworks, has spent over 15 years in investment banking specializing in art finance. Masha Golovina, Head of Art Purchasing, has more than 10 years of professional experience in art economics and research. Finally, Josh Goldstein, General Counsel at Masterworks, was previously a corporate counsel at international law firm Skadden Arps.
How it works
Masterworks buys and stores a number of famous paintings. Through qualifying public offerings registered with the SEC, Masterworks is selling shares representing fractional ownership interests in each unit. Investors are allowed to trade these shares on the secondary market once an offering is closed. When Masterworks eventually sells a painting, usually three to five years later, it pays the shareholders in proportion to their interest.
The startup offers a self-directed investment platform via www.masterworks.io. The investor community currently has over 95,000 members. Masterworks makes money by charging a 1.5% annual management fee for each painting. They also take 20% of the profits from each painting sale.
A curated selection of famous works of art is available for investment on the Masterworks online platform. Past Masterpieces auctions have included paintings by artists from many centuries, such as Pablo Picasso and Claude Monet. In addition, several contemporary plays (produced between 1995 and 2020) have been made available to Masterwork investors. The selection includes pieces by artists such as Andy Warhol, Jean-Michel Basquiat, Yayoi Kusama and Keith Haring.