Masterworks Review: Investing in Fine Art
Ever thought your own artworks could fetch a fortune someday? Well, investing in fine art just might be the gateway to that reality. When Masterworks approached me to talk about their platform, I was intrigued—after all, I’ve been creating artworks with the paint from each house I’ve renovated since 2003.
Launched in 2017, Masterworks allows everyday investors to buy shares in fine art. With the rise of global wealth, especially in booming markets like China, fine art has become an increasingly popular investment.
Fine Art vs. The S&P 500
When you look at the performance of the Artprice100 Index—which includes names like Picasso and Warhol—against the S&P 500 since 2000, it’s clear that fine art has had a strong showing. It’s important to note, however, that investing through Masterworks means buying shares in specific artworks, not in a broad index, making your choice of artist crucial.
How Masterworks Operates
Masterworks acquires artworks based on a proprietary algorithm, aiming for an appreciation of 9% to 15% on each piece. These artworks are then registered with the SEC, and shares are sold in $20 increments. Investors can own parts of an artwork with no minimum share limit, though a single investor can’t hold more than 10% of any piece. The usual holding period before selling is three to seven years.
Insights from Masterworks Founder, Scott Lynn
Scott Lynn, with two decades in tech and a parallel career in art collecting, saw a gap in the market for making high-end art investments accessible. Masterworks was born from the idea of securitizing paintings, creating a new asset class for investors. According to Lynn, Masterworks stands out because it deals exclusively in investment-grade art, starting at $1 million per painting, and is backed by a team with over 100 years of combined experience in the art market.
What Defines ‘Blue-Chip’ Art?
The term ‘blue-chip’ in art refers to works by the top 100 artists by sales volume, representing over 60% of the market. These artists are renowned and highly sought after, which generally supports the appreciation of their works.
Investment Quality and Strategy
Masterworks focuses on what they consider ‘investment-grade’ art, generally steering clear of decorative pieces like those sold on cruise ships, which lack the market data to be considered for investment. The company uses extensive data to project potential appreciation rates, which is critical for investors looking to understand the value of their shares.
Art Appreciation and Market Dynamics
When an artist passes away, the supply of their work naturally diminishes as pieces are often donated to museums, potentially driving up the value of remaining works. This dynamic of declining supply can make art a unique investment compared to more traditional assets.
Tax Implications and Investment Structure
For U.S. investors, returns are taxed on a K-1 form, which is designed for optimal tax efficiency. Masterworks also operates a Cayman subsidiary for international investors to manage local tax liabilities effectively.
Looking Ahead
Over the next few years, Masterworks plans to expand its offerings, possibly including fund-like products and enhancing features on its Secondary Market, allowing investors more flexibility to sell shares.
Storage, Insurance, and Security
All artworks are securely stored at the Masterworks Gallery in Soho or loaned out to museums, with full insurance coverage against theft or damage.
Closing Thoughts on Masterworks
If you’re drawn to the idea of owning a piece of cultural history and diversifying your portfolio beyond traditional stocks and bonds, Masterworks offers a compelling platform to consider. With a significant waitlist, the platform is clearly in demand, reflecting the growing interest in fine art as a part of an investment strategy.
It’s essential for any prospective investor to appreciate not just the potential financial returns but also the intrinsic value of the art they’re investing in. Whether or not my own artworks will one day be deemed “culturally significant” remains to be seen, but the journey of creating and potentially seeing their value increase is an exciting prospect in itself.
