What Is Masterworks?Masterworks is an investment company that helps you buy shares of fine art. The company offers a straightforward investment product that’s easy to understand and facilitates investing in the kinds of art previously available only to very wealthy investors.
According to The Wall Street Journal, in 2018, artwork returned an average of 10.6% return versus a 4.38% loss in the S&P 500. Masterworks aims to outperform the S&P 500, but as with any investment class, there are winners and losers.
Founded in 2017, the company has been around for just a few years. But Masterworks reports that the assets are held with extreme care and insured for damage or loss.
|Fees||$1.5% annually plus 20% at sale|
|Investment Length||5-10 years|
How Do You Sign Up for Masterworks?
Unlike some alternative investment platforms, you don’t have to be an accredited investor to start with Masterworks. Instead, you have to request an invitation and become a member, which requires a phone interview.
You would think a company that uses Blockchain technology to track shareholders would be forward-thinking enough to let you sign up completely online, but you have to make a real phone call with a human to join. That’s inconvenient.
Masterworks does not have specific minimum investment amounts. Minimums vary depending on the specific investment offerings available at the time of investment
How Does Masterworks Work?
- Masterworks purchases works of art from a list of artists determined by algorithms. It uses records from more than 1 million art auctions to pick top artists with proven histories of appreciation. Masterworks targets artworks where the artist demonstrates a historical 9% to 15% annual return.
- Once it purchases the art, Masterworks registers the art with the SEC and issues shares in $20 increments. No individual investor can hold more than 10% of the shares of any specific work.
- Masterworks holds the artwork and may even display it in the members-only gallery in New York City. It has a second office in Boulder, Colorado, but no gallery there.
- Masterworks plans to sell most of the artworks in around five to 10 years. Potential buyers make an offer that must be approved by a majority shareholder vote.
- When the art sells, the proceeds are divided among the pool of investors. Masterworks takes 20% of the profits as a fee.
- If you want to get out early, you can sell on Masterworks secondary market. Or you can buy shares of an artwork that is being sold on the secondary market, which you can view on their website.
- To research artists and investment prospects, members and the public can view a free database and blog on the Masterworks website.
Masterworks Risk and Return
Masterworks is a fairly new company with just a couple of years under its belt. That makes it hard to break down an exact historic performance.
To get an idea of the sorts of gains Masterworks expects, we can look to the Artprice100 index. This index is designed to track the performance of top artists and far outpaces the S&P 500.
If you poke around on the Masterworks website, you can find a history of both winners and losers. Even paintings by top artists like Claude Monet and Vincent Van Gogh occasionally lose value. But gains tend to outpace losses.
We'd be more wary of Masterworks offerings by living artists, such as Banksy. Here, there is a whole additional suite of concerns. The artist could wind up in the headlines for poor behavior, which would quickly devalue previous artworks.
Art can be highly subjective as well, which makes some works harder to value.
Like with stocks, bonds, and other investments, a diverse portfolio can help you manage risk. While investment in Artwork might be a fun addition to your portfolio, it should not constitute a big part.
Masterworks isn’t cheap. It charges both an annual account fee and a fee on the profits of any artwork sold.
The annual fee is 1.5%. This fee covers things like storage, security, and insurance, among other costs.
When an artwork sells, Masterworks takes a 20% commission on the profits. This is roughly on par with what you would pay to invest with a hedge fund. That’s pretty steep, but you could still come out with a decent profit if the artwork appreciates well.
Masterworks Pros & Cons
Invest in Fine Art in $20 Increments—Masterworks does not have specific minimum investment amounts. Minimums vary depending on the specific investment offerings available at the time of investment.
Pre-vetted Artistworks—Masterworks uses a history of art sales and chooses only artists who have shown a history of positive returns.
Protected and Insured—Art is stored in a secure facility in museum-like conditions or in a members-only gallery in New York
High Fees—The 1.5% annual account fee and 20% commission on investment profits makes Masterworks like investing in a hedge fund, fee-wise.
Low Liquidity—You can't sell your shares in the artwork early, although Masterworks says this is likely coming in the near future.
Phone Interview to Join—You can't sign up and create your account fully online. It takes a phone call with someone at Masterworks to get an "invitation" to create your account and invest.
Masterworks does not have specific minimum investment amounts. Minimums vary depending on the specific investment offerings available at the time of investment. While there are certainly some opportunities for improvement, it offers an opportunity to diversify into alternative investments without a seven-figure net worth.
That said, Masterworks is best suited for those who can afford to lose all or a portion of their investment. Art buyers can be fickle, and there’s no guarantee you will make money even with a “blue-chip” artist. If you are looking for alternative investments to get out of the stock market and other traditional assets, Masterworks could be fun but risky addition.