Masterworks is an equity crowdfunding portal for fine art. Their logic is simple. Fine art appreciates in value, and for some artists, their work offers a higher return than some international equity indices.
Masterworks buys paintings then takes them public via their equity crowdfunding platform. The company is looking to set up a secondary exchange so that investors can exchange shares and have more liquidity for their investment. In the past, only the very wealthy could invest in fine art because of the nature of the asset. Individuals purchase fine art at auctions. Art requires substantial cash to participate. We are not aware of a securitized fine art asset before equity crowdfunding.
According to Artprice.com’s Top 100 Index, the top artists from 2000-2008 substantially outperformed the S&P 500. However, Artprice’s global index underperforms the S&P 500. The top 100 index includes Picasso, Monet, Warhol, Matisse, and others.
Masterworks argues that art investment helps investors diversify their portfolio. The company lists a correlation matrix comparing art as an asset with S&P 500, Gold, Hedge Funds, Private Equity, and Real Estate. Fine Art has a weak correlation with the S&P 500. Optimal portfolio allocation for illiquid assets such as Fine Art should be 1.4% of an investor’s portfolio compared to 4.3% for private equity and real estate.
The company’s fee structure is carried interest. Masterworks charges a 1% management fee that covers distribution costs, regulatory costs, insurance, gallery space, etc. They take 20% of the profit of a painting’s increase in value.
Art as an asset has a surprisingly robust pricing infrastructure led by Artprice. The company claims to have indexed 700,191 artists.
Local Art Markets
Many local communities do not have art markets despite an incredibly talented community of artists with powerful voices. Art is a good example of a sector that can’t reach sustainability in small to mid-size cities. Buyers of art typically have the means to curate their collection from the big cities. It is hard for a local artist to develop social capital to command a price that earns a sustainable wage. Equity Crowdfunding for Fine Art could substantially grow the art market when combined with Artprice’s robust pricing infrastructure.