Masterworks Review
4:09 AMInvest in a masterpiece and turn your portfolio into a work of art with Masterworks. It’s affordable and open to everyone. Here’s our review of this masterful creation.
Masterworks
Pros
- Outperforming the stock market
- Protection against inflation
- Art is generally unaffected by market conditions
- Fast appreciation but slow depreciation
- You don’t have to be an accredited investor
Cons
- The business model is new and untested
- Though the company plans to purchase different paintings, it is still just one type of asset
- Illiquid asset
- Selling mechanism implies difficulty in disposal
- The price of art is subjective
Table of Contents
People are always on the lookout for new investment opportunities to diversify their portfolios or hedge against market risk. Many of us have even thought about delving in the lucrative world of art as an investment.
According to a 2017 report by Deloitte, 88% of wealth managers recommend investing in art as the returns typically range from 9% to 15%. Art is a great option also because prices largely remain unaffected by market conditions. But sadly, multimillion-dollar price tags have traditionally acted as barriers for most investors–but that is not the case anymore.
Below, we discuss how a company called Masterworks is tearing down entry barriers for ordinary investors. We take an in-depth look and undertake a comprehensive review of Masterworks.
What is Masterworks?
Diversify your portfolio with Masterworks
Masterworks is an alternative investment platform which enables people to own a piece of artwork for a fraction of its market price. The idea is then to sell the painting at a later date for a higher value.
For anyone who appreciates fine art, owning these masterpieces is a dream come true. However such art collections have exuberantly high prices, often crossing the million dollar mark. Consequently, the price factor becomes a barrier for most investors.
However, Masterworks is changing how fine art is owned by making it available to groups of smaller investors.
How Does Masterworks Work?
Purchase shares of a painting
By buying an art piece and selling portions of it to different investors, Masterworks can fund its purchase. It can then be sold off later for a profit.
The platform uses blockchain to sell different shares in the same artwork to various investors. The question then arises, just how vital is blockchain technology in art-related transactions?
Masterworks looks at historical data to determine price appreciation for different artwork. The company will then choose art pieces likely to continue appreciating, so their investors can net a return eventually.
Once the artwork is chosen, Masterworks buys it and registers it with the Security and Exchange Commission (SEC) to offer greater transparency to investors on its platform. After the approval by SEC, Masterworks lists the artwork on their platform.
After a piece of art is listed, using blockchain technology becomes more apparent and prevalent. The art piece’s original value is broken down into different shares, each worth $20. This means customers can invest in world-renowned paintings for as little as $20, though a $1,000 deposit is needed to register.
The technology employed by Masterworks allows investors to track the price of their artwork over time. As the price appreciates, holders of shares can vote whether to sell the art after an offer has been made. A decision taken by the majority of shares to sell is then executed, and the proceeds of the sale are distributed amongst various stakeholders.
Valuation of the Art
Stocks and gold have fixed value by the market demand and supply conditions and the economy in general. However, art prices are solely determined by the offer a purchaser will make, as beauty lies in the eye of the beholder.
Masterworks is focused on acquiring pieces that appreciate and sell at high prices at auctions. Such pieces fetch prices in the millions and are beyond the reach of regular investors if they act alone.
Masterworks Key Features
Masterworks deals specifically in blue-chip artworks. Blue chip artworks are classified as art that continues to appreciate regardless of other market conditions. Blue-chip art can be understood as famous artwork or those pieces of art created by renowned artists, and bound to have high values because of the name value attached. They fetch higher prices at auctions as serious art collectors will do almost anything to get their hands on these pieces.
The selection process is done using analytical tools and big data to ensure that all the pieces on the platform are appropriately vetted by an in-house team.
As an investor who has bought shares for a particular painting, you can decide on whether to sell the art piece once an offer has been made. The decision is done through a transparent online voting system and to ensure voting equality; no investor can purchase over 20% shares of a particular offering.
Masterworks is currently building relationships with brokerage houses to facilitate the trading of their shares and create easy access for investors looking to buy shares in these artworks.
One of the best features the company offers is the tracking of price appreciation of the listed art piece. Though valuation is subjective, by using blockchain technology, the company can provide a sound quote.
The company also plans to open a free-to-access art gallery, which will house paintings purchased by the company. The difference in their gallery compared to other galleries is there will be a tablet next to each painting which will be tracking the price appreciation of each piece. Investors on the platform can view the artwork they invested in.
Masterworks Fee Structure
For any investor, understanding the fee structure of platforms plays a crucial role in determining whether or not to invest their money.
A 1.5% annual fee is charged to cover insurance, storage, and transportation. This is more or less the same as what you’d expect to pay at any other asset management company. Masterworks retains a 20% cut on any profit made from the disposal of an artwork.
It might seem to cut into your margins, but it gives peace of mind to users of the platform that Masterworks is in it to win it and will buy pieces that appreciate as the platform stands to gain from it.
The Sign-up Process
Sign up is quick and easy
It is relatively simple to create an account on the Masterworks platform. Creating an account requires necessary information such as name, email address, phone number, etc.
It is still an early stage for Masterworks as the offerings it has filed with the SEC are waiting for a green light. By signing up today, an investor is making a reservation to buy shares in the listed offerings the company possess in its portfolio.
At the moment, an investor can sign up to reserve shares, or if they choose not to commit, then they can still sign up to receive updates from the platform. This way they can catch the investment wave in art whenever they want though, slightly behind investors who have reserved shares.
Pros and Cons
Pros:
- Outperforming the stock market: Statistics have shown that the Blue-chip art index, which contains over 6,000 auction houses, outperformed the S&P 500 by 250% during the last 18 years. Also, during the economic crisis of 2008, the value of the S&P 500 fell over 51% compared to just 27% for the art index.
- Protection against inflation: Blue-chip art is an excellent investment to maintain value for money as it is hedged against inflation. Blue-chip art is a tangible asset and data indicates that it appreciates much faster than inflation. Prices of art pieces can rise instantly overnight and then steady out. So it takes some discerning to distinguish between the artists of the moment and artists of the ages.
- Art is generally unaffected by market conditions: Stocks and bonds rise and fall based on speculation and economic indicators. Blue-chip art has its market, and the price is subjective to the offers made by buyers.
- Fast appreciation but slow depreciation: Blue-chip art pieces follow a general trend where their price increases at a rapid pace but comes down much slower. Art differs significantly from public equity, and there are no subtle changes in prices daily. Stocks can plummet and have zero value overnight. However, depreciation in art prices is a slow and gradual process.
- Ease of access: Masterworks has done something revolutionary by democratizing art purchases and sales. Before the company was launched, the blue-chip art market was only dominated by very wealthy players. Masterworks has created ease of access by allowing art piece shares to be traded as low as $20.
- You don’t have to be an accredited investor: Most platforms dealing in high-end commodities and assets require their investors to be certified. This means the individual must have a net worth of over a million dollars or be earning $200,000 per year. Masterworks doesn’t require its investors to be accredited, and the platform can be used by non-accredited investors.
- You can now invest in highly renowned painters such as Andy Warhol: Through its conception, Masterworks grants people the opportunity to invest in well-known paintings and painters. This gives art enthusiasts the chance to take pride in owning part of something they highly value but otherwise couldn’t afford.
- Diversity in the artwork: The company plans to purchase an art piece every two months after getting approval from the SEC. This means investors can choose different artworks that fit their portfolio or their taste.
Cons
Cons:
- The business model is new and untested: The company was formed in March of 2018 and brought to market a new business model. Its combination of blockchain technology and art is a unique but untested model, and the result is unpredictable. No other company has successfully offered investable securities in indirect ownership of an art piece.
- Though the company plans to purchase different paintings, it is still just one type of asset: Masterworks portfolio only consists of acquiring and selling paintings. To rely on a single asset as an investment has high risks and the investors in Masterworks need other holdings in their investment portfolio if they seek diversification.
- Illiquid asset: Masterworks plans to keep a painting for 5 to 10 years before actively seeking to sell it off, but the company will be open to offers during this duration where investors can decide if they want to take the offer via a vote. This feature means that your investment funds are tied up for a long time before they are made available. An investment in Masterworks means you are in it for the long run.
- Selling mechanism implies difficulty in disposal: The structure of the tool in place to oversee the sale means that the voting process could create hurdles and discourage any potential buyer.
- The price of art is subjective: As the cost of art is subjective, there is no assurance that the price of a painting will appreciate for sure. Even if the price of a painting does increase, it might be insufficient even to cover the costs incurred on buying and storing the art piece.
Alternatives to Masterworks
As an investment platform that deals in blue-chip art, Masterworks is one-of-a-kind with no competition as it has created a niche. Other companies and platforms offer investment in art but at the price listed. Masterworks model is unique, and if successful, could change the landscape of art and investment.
However, there are other platforms known for ease of access and their range of available paintings, though they require full ownership.
Artspace
Artspace is an established platform which brings together renowned artists and buyers. Artspace deals in famous artists and artworks, though the site also features works from budding artists who could be leading the next wave of renowned art. Prices range from as low as $20 to hundreds and thousands of dollars though most pieces are under $5,000.
Amazon Art
Amazon Art offers original and limited art ranging from $25 photographs to oil paintings worth millions of dollars. The platform allows users to browse the website using many search tools such as price, artist, style and color. The platform has a vast collection and has something for every customer.
Who is Masterworks For?
The first set of people targeted by Masterworks is art enthusiasts. There are scores of people out there who envy and adore art but do not have the means to buy blue-chip art. Masterworks offers art lovers who fit this category, to own part of a painting, giving them the emotional pride and satisfaction they seek at barely a fraction of the cost.
Secondly, investors impressed by the returns of blue-chip art and prefer it over the stock market can turn to Masterworks as an alternative. Since the shares in each painting can be as low as $20, investors looking for opportunities in art investment can turn to Masterworks to quell their desire.
Stocks, assets, bonds, and other commodities are not everyone’s cup of tea. Some people are looking for alternative investments to put their money into. Blue-chip art offers investors looking for something distinct and exciting, a chance to invest their money.
Though generally, investment in Masterworks should not be your only one, and it should not be part of a retirement or wealth generating plan. Masterworks can be a significant investment as part of a small portion of your portfolio since it diversifies it.
Related: Ways to Invest Money
Bottom Line
Investing in art is an incredible opportunity for optimal returns and the exposure it offers to the creative world of art. Art is like any other investment as it has risk involved like other investable assets, but it provides much higher returns too.
Masterworks is at the edge of revolutionizing investment opportunities in blue-chip artwork. And by limiting the investor’s exposure to any amount they want to invest, the company has ensured that you won’t be losing millions of dollars in price fluctuations.
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