Is it worth investing in fractional art? – Value | Candle Made Easy


Not everyone can spend millions to hang a Basquiat in their home, but you can still own part of a masterpiece — and earn investment returns to beat inflation along the way.

fractional art investments
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IIn 2020, Brooklyn-based art collective MSCHF bought a Damien Hirst print for $30,000, cut out all 88 digits, and sold them for $480 each. It then auctioned the leftover paper, titled “88 Holes,” for more than $260,000.

While dismantling and selling artworks remains the stuff of sophisticated pranks, investors are increasingly buying fragments of artworks. The motivation is easy to understand: investments in contemporary art have outperformed the S&P 500 over the past 25 years (with an annual return of 14 percent versus the S&P 500’s 9.5 percent annual return), according to the Global Art Market Report city

One of the leaders in fractional art is New York City-based Masterworks, which was founded in 2017. The company claims to have more than $300 million in art assets under management.

Here’s how it works: Masterworks enrolls members based on their investor profile (there are currently over 250,000 registered users, although far fewer are likely to have actually invested). These members get access to new offers every few days. The company is forming a Delaware-based limited liability company registered with the Securities and Exchange Commission (SEC) to “facilitate an investment” in a single work of art by a particular artist (a recent example was the renowned German visual artist artist Gerhard Richter). , for which the Fund approved a maximum of US$9 million). That company is then carved up into hundreds of thousands of shares that are sold to Masterworks’ members until they’re gone.

At a specified time after the purchase of shares, the artwork is professionally valued and reported to its investors on a quarterly basis about the value of work. Eventually the work is sold and the investors receive their fair share of the difference in value minus Masterworks’ fees. SEC filings show that a minimum of $15,000 is required for investments and a maximum of $100,000 is allowed, although a Masterworks representative said so value that both of these limits may be waived if individual circumstances warrant (e.g. a first-time investor may deposit $10,000).

Other investment firms take a different approach. At Yieldstreet they don’t invest in a single painting but in a collection of paintings of one genre to diversify the fund. For example, one of the Yieldstreet funds collects the works of Renaissance Harlem painters, including Alice Neel and Jacob Lawrence. Rebecca Fine, Managing Director of Yieldstreet and Head of Art Investments value: “We target artists who are somehow underappreciated and undervalued where we really feel there is room for great appreciation.” Interestingly, the vast majority of the art that is securitized and sold is modern/contemporary art. Investment firms say their algorithms show these works are most valued and offered for sale the most.

Partial art purchases may not meet the needs of all investors. At Yieldstreet, art investors commit to a five-year fund with two possible one-year extensions. While the returns can be impressive, it requires a lot more patience than a stock or ETF. At Masterworks, the investment tie-in on a single work can be even longer — three to 10 years, although the company notes that it has an incentive to sell sooner rather than later. Masterworks offers a kind of emergency liquidity exit; Its art investors are allowed to sell their shares on a secondary market, but there is no guarantee that the secondary market will be able to make the investor sane.

Furthermore, despite the sometimes astounding increases in value that can take place for individual works of art, prices can go down as well as up. The COVID pandemic has had a profound impact on art sales; The lack of in-person art fairs meant far fewer sales, leading to what an influential arts industry report called “the biggest recession in the global art market since the 2009 financial crisis” in 2020.

Despite this, the market has since recovered and the long-term numbers are encouraging. And for art lovers who are also interested in earning investment income to beat inflation but can never afford to spend millions on a work, it’s hard to enhance ownership of a work by an artist you admire .

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