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Masterworks - Investing in Fine Arts?

Updated: Sep 1, 2022

Unlike the past days when anyone wanting to invest in a highly-priced million-dollar painting required good capital, and normal people couldn't afford those. But now the scenario has changed!



Everyone can invest in those paintings at a much cheaper cost with the help of Masterworks. Masterworks allows every investor to own a small amount of these costly paintings at a much cheaper price. With the help of Masterworks people can now buy shares of some famous drawings of Banksy, Pablo Picasso, Kaws, Andy Warhol, Claude Monet, and many others.


Masterworks was founded in 2017 and the founder was Scott Lynn. The company grew at a fast rate, as a result at the present time the company has almost 250,000+ investors and counting. They also raised $110 Million in Series A funding.


Masterworks’ Price Database


To understand the art market, we need to start with Masterworks’ Price Database. The art market has historically been opaque. If you’re one of the small handful of people in the know, that’s a feature. If you’re putting up your own money to bring art investing to the masses, like Masterworks is, that’s a bug. This database is used by many investment firms.



Since Masterworks takes a principal risk by purchasing works of art itself and qualifies each offering with the SEC, it needs hard numbers. But hard numbers only existed scattered across old paper auction catalogs, which meant that it was impossible to get a sense of each artist and work’s historical performance. So Masterworks built the world’s most comprehensive repeat-sale pair database in order to understand how the market performs broadly, and by artist and work.

Masterworks’ research team built the Price Database by compiling over 3 million data points from over 300,000 auction transactions going back to 1960, often by painstakingly going back through paper auction catalogs by hand. By putting all of that data in one place, and plotting sale prices for paintings that have sold at least twice, they’re able to understand how artists and their specific works perform over time.


Fees Structure


For investing in Masterworks, investors need to have a minimum amount which will depend on the price of the painting they are wanting. An investor can only acquire a 10% share of the painting, not more than that. The company charges a 1.5% management fee annually and also takes 20% of the total profit from any artwork sale. There may be other applicable fees as well, and if they are so then they will be mentioned in the documents received by the investors.



Anyone interested in investing in Masterworks can go to the official website of the company and can apply for membership. After they apply there will be an interview call, and if they pass that round then they will be provided with an account. As soon as the investor's account is ready, he/she can instantly start investing in the painting they wish to. But the process will require some time as there are many waitlists.


It is important to note the 20% fees which the company takes from the investors are much more costly than investing in other markets like Index Fund. But alternative investments also have more risk if compared to Masterworks, as investing in art and paintings is much more secure than investing in any other market.


Who Should Invest In Masterworks?

  • To diversify their portfolios.

  • To protect themselves from inflation.

  • To invest money for a long time period.

  • To avoid stock or crypto market volatility.

Growth Of Art as an asset


The art market is growing, and it is worth $60 billion annually and the total worth globally is approximately $1.7 trillion. Art is a massive asset market. The art market is easily comparable to other major private markets.



Compared to other markets like jewelry, sports, cars, wine, and watches, the total annual transactions are almost 75%. The art market has maximum share in the global collectible market, and it also has some uniqueness that is not present in other collectible markets.


Conclusion


Art is becoming a more securitized asset class, and the number of investors investing in this market will keep on increasing. Investors need to study and understand how investing in art can increase their portfolios, this will ultimately decrease any possible risks like downside losses.

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