Are you a seasoned retail investor exploring alternative asset classes to build a hedge against economic turbulence? Or maybe you’re a beginner who has just realized the importance of a diversified investment portfolio.
In either case, you’ve likely considered investing in fine art due to its high appreciation potential during inflationary periods. With low correlations to other asset classes like bonds, mutual funds, and stocks, blue-chip art – for example, paintings by Monet, Picasso, Warhol, and the like – has been attracting attention from investors for generations.
And now, with mobile-friendly art investment platforms like Masterworks, the process of adding fine art to your portfolio is becoming easier.
Let’s dig deeper into the inherent challenges of investing in fine art and how the Masterworks app is helping everyday investors overcome them.
The High-End Art Market and Its Barriers to Entry
When someone mentions fine art, your mind likely immediately conjures images of plush art galleries and pristine auction houses. It’s a world that’s only accessible to ultra-wealthy investors with millions of liquid cash.
In early November, a painting by Picasso sold for an eye-popping $139 million at a Sotheby’s New York auction. Titled “Woman With a Watch,” it became the second most expensive Picasso work ever sold.
Last year, an Andy Warhol silkscreen portrait of Marilyn Monroe raked in a whopping $195 million at a Christie’s auction in New York, making it the most expensive artwork ever sold by an American artist.
The high price point of museum-caliber artwork keeps the market out of bounds to the common public. You’d have to be born with a silver spoon or work your way to become a billionaire to afford that kind of luxury.
Plus, even if you had that kind of money in the bank, you’d have to navigate the complexities of art auctions and private sales. The thought of it can be intimidating for outsiders.
How Masterworks Is Democratizing the Art Investing Space
Launched in 2017, Masterworks’s fractional investment model aims to resolve the aforementioned challenges. After the company’s acquisition specialists identify a high-yield investment opportunity, they purchase the painting and file an offering circular with the SEC.
This involves setting up a limited liability company dedicated to each painting and securitizing the holding company. That, in turn, allows Masterworks members to buy fractional shares of the underlying artwork at a starting price of $20.
In other words, anyone with a few hundred dollars to spare can invest in pieces by world-famous artists. Gone are the days when you had to have a seven-figure bank balance to get in on the fine art market.
The fractional ownership model doesn’t just make art investments affordable. It also gives you the confidence to diversify your portfolio within this asset class. Instead of locking up all your money in one painting, you can spread the amount across different pieces.
Better still, you can buy shares of paintings by different artists. When you don’t put all your eggs in one basket, it minimizes the risk of losses if a painting depreciates in value.
Other Masterworks Benefits
Fractional ownership isn’t the only feature Masterworks is using to make fine art investing possible for the public. The company has built a proprietary database of auction sales records from the last 30 years to evaluate art performance and prices. The research team also uses predictive analytics tools to understand where different artist markets are headed.
These insights help acquisition specialists at Masterworks make data-backed decisions when purchasing paintings. At times, they can even identify undervalued artwork or emerging names with strong appreciation potential.
Similarly, the company adopts a data-driven approach to plan successful exits. While the typical holding period for a painting is three to ten years, Masterworks’s private sales experts are always on the lookout for short-term exits that can generate high returns. For instance, a Cecily Brown piece resulted in 77.3% annual profits after a holding period of less than a year.
Then there’s the secondary market, where you can sell your shares of any artwork to other Masterworks users. It maintains the liquidity of your investments and gives you more control over your portfolio.
If you choose to retain your shares for the long haul, you can wait for Masterworks to identify a suitable exit opportunity and sell the painting. The company distributes the profits to shareholders after deducting fees.
Simplifying Blue-Chip Art Investments
With the fractional investment model, Masterworks provides regular investors with an entry point into the exclusive high-end art market. You can buy shares of multi-million dollar artwork and even sell your shares in the secondary market.
As of this writing, Masterworks’s user base includes over 811,000 investors. In 2022, the platform issued $25 million in payouts to members. These figures indicate that the fractional investment model is gaining momentum, generating high returns for investors.
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