Investing in blue-chip art probably seems out of reach for most people. Let’s be honest – how many of us have millions just lying around to drop on a Monet or Picasso? But thanks to an innovative app called Masterworks, even less-experienced investors now have a way to add blue-chip art to their portfolios.
Masterworks is changing the game by offering fractional ownership in iconic artworks. That means you can invest in shares of paintings by famous artists for as low as $20 per share. Suddenly, art is moving from an ultra-exclusive asset class only available to the ultra-wealthy into an investment opportunity open to anyone.
In this post, we will walk you through exactly how Masterworks works and some of the key benefits of fractional art investing. We will also give some tips on how to get started with Masterworks and fine art investment, as well as some things to keep in mind before you jump in. Let’s get to it.
How Does Masterworks Work?
Masterworks utilizes a highly skilled research team to identify contemporary artists with promising futures. They do this using art transaction historical data, auction and exhibition, and proprietary analytics methods. They search for artists actively gaining prominence through major museum shows, representation at prestigious galleries, steady growth and high marks at auction, and other indicators of rising status in the art world.
Leveraging its industry connections, the Masterworks acquisitions team then procures select pieces by the most promising artists at auction houses like Christie’s and Sotheby’s, through direct purchases from important galleries like Gagosian or Pace, and via off-market private sales. Their relationships with top dealers provide access to acquisition opportunities worldwide.
Once a piece is acquired, Masterworks files an SEC-qualified offering to sell shares to investors. This fractional ownership model opens up blue-chip art investing to those without millions to spend. However, despite the low share price, the minimum overall investment is around $15,00. Of course, this may price out some investors, but if you can afford it, the platform clearly offers an excellent avenue to build a diversified portfolio across multiple artists and artworks.
In terms of the “vesting period,” Masterworks typically each piece for 3-10 years on average, allowing time for appreciation before selling via whatever channel will maximize performance. This extended hold period is beneficial for investors, although it may be problematic for some who require more flexibility.
When a piece is sold, investors receive payouts proportional to the number of shares they own after deductions for expenses, taxes, and fees. If early liquidity is desired, investors can put their shares up for sale at any time on the platform’s secondary market, before the main resale occurs.
Benefits of Investing with Masterworks
Investing with Masterworks offers several advantages for those looking to diversify their portfolios and explore the world of art investment:
- Alternative asset class with high-performance history: Art has historically demonstrated strong returns and low correlation to the volatile market shifts of traditional investments, making it an attractive alternative asset class.
- Low investment minimums: Masterworks allows investors to start investing in blue-chip art with a minimum investment of $15,000, which makes it more accessible for everyday investors who may not have millions to spend on a single painting.
- Early liquidity potential: Masterworks offers an optional secondary trading market for investors who want early liquidity. While there is no guarantee that investors will be able to sell their shares at any given time, the secondary market provides an opportunity for investors to trade shares before the artwork is sold by the platform.
- Proven track record with data-driven approach: Masterworks uses proprietary data and art market expertise to curate a collection of iconic works of contemporary art. Their research and acquisition teams identify promising contemporary artists and investment-quality pieces, increasing the likelihood of strong returns for investors.
How to Invest in Masterworks
To get started with fractional blue-chip art investment through Masterworks, follow these steps:
Create an Account
Go to the Masterworks website and complete the account creation process, which involves submitting personal details like name, contact information, and ID for verification. This will allow you access to the platform’s investment offerings.
Consultation Call
Schedule a phone consultation with a Masterworks specialist. This 45-minute call will assess your investment objectives, risk tolerance, time horizon, and preferences to provide personalized recommendations on building a portfolio.
Review Offerings and Invest
Once your account is approved, browse current and upcoming offerings on Masterworks based on pieces that fit your goals. Click through to offering pages to read details on the artist, artwork, acquisition price, and more.
Monitor and Manage Portfolio
Use your Masterworks dashboard to track your growing portfolio of shares in various artworks. Monitor new offerings to consider additional investments. You’ll receive distribution payments after each sale proportional to your share amount.
Secondary Market Activity
As mentioned, Masterworks facilitates a secondary market for shares if you want early liquidity before the main sale. You can sell your shares to other investors through the platform.
Things to Keep in Mind
While the Masterworks model provides an intriguing new on-ramp to blue-chip art investment, it’s important to carefully consider the unique nature of the art market before adding this alternative asset class to your portfolio.
While the secondary market on the platform helps, art investments do tend to be relatively illiquid – the multi-year holding periods mean your money will be tied up for years before realizing any return. The market is also highly subjective and at times hard to predict, as art valuation relies on shifting perceptions of importance, quality, provenance, and other intangible factors, so prices can fluctuate dramatically. What’s deemed highly valuable today may lose favor tomorrow.
Furthermore, like other alternative assets, art investing comes with an inherent higher level of risk that may not suit all investor sensibilities. Loss of principal is possible. Thorough due diligence is highly advised before any art investment – research the artists, artworks, historical precedents, and market conditions extensively to make educated decisions.
Investing in art also requires the discipline to stick to a long-term horizon and ride out periods of decline. While fractional ownership makes blue-chip art more accessible, the asset class still demands education and diligence to add it to your portfolio in a prudent way.
Conclusion
What Masterworks has achieved is genuinely game-changing – they’ve taken an asset class that was once restricted to the ultra-rich elite and opened the door for regular investors to buy a seat at the table. Fractional ownership is the key that unlocks blue-chip art as a new option for portfolio diversification.
