Art investing has always been associated with the ultra-wealthy elite. The common investor can now more easily access this market thanks to initiatives and platforms like Masterworks.
In this review, we will go over how Masterworks works and what investors may anticipate from its platform, including its features, perks, and limitations. We will do our best to give our readers an inside look into Masterworks and whether or not this investment vehicle is a good fit for them.
What is Masterworks?
Masterworks is an investment platform that allows investors to buy stocks of high end artwork. The company was created in 2017 and democratized the artwork investment market by fractionalizing blue chip art pieces and opening up new opportunities for investors who couldn't afford to pay the full price for a whole piece of artwork on their own.
How Does Masterworks Work?
Acquisition of Artworks
Masterworks hand-picks high-value art pieces and then acquires them. It sustains a research team that analyzes a host of factors, among them the market performance for the artist, historical auction results, and the artwork's provenance. Once it is selected, Masterworks purchases the piece and files it with the Securities and Exchange Commission to make it an officially regulated investment opportunity.
Fractional Ownership
Post-acquisition, Masterworks further fractionizes the artwork into shares and sells them to investors. In effect, what the fractional ownership model does is give people the ability to own a share in very expensive art without significant capital outlay. Accordingly, investors can buy shares through Masterworks' platform, which can be resold or bought on the secondary market provided by Masterworks.
The Holding Period and Selling
Typically, Masterworks holds the work for three to ten years. it is stored and maintained during this period. After the holding period, Masterworks plans on selling the work at a profit. Money gotten from the sale will be distributed amongst shareholders based upon ownership percentage.
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Benefits of Investing with Masterworks
Accessibility
One of the main advantages Masterworks provides is access to the art market. Fractional ownership through Masterworks thus allows investment in otherwise unreachable high-value pieces. This democratization of the art investment space is an enormous advantage for smaller investors.
Diversification
Art investment is a good way to further diversify any portfolio. The correlation with traditional asset classes, such as stocks and bonds, has always been low, making it even more valuable against market volatility in these cases. On that note, Masterworks takes the unique opportunity to allow this kind of investment through its platform in order to help increase diversification within an investment portfolio.
Expert Management
Masterworks has its team of art experts and financial analysts who acquire and sell artworks. This professional management ensures that only works of art with strong appreciation potential are handpicked for investment. Further, its due diligence process makes sure to mitigate the risk factors associated with investing in art.
Potential Drawbacks of Masterworks
Liquidity Concerns
Another potential drawback to investing with Masterworks is that investments are not liquid. Unlike stocks or bonds, on average, art investments require a long period of holding, oftentimes as long as up to three or even ten years. While Masterworks does provide for a secondary market in which one could conduct share trading, the liquidity may still turn out comparably low against more traditional kinds of investments.
Fees and Expenses
Masterworks charges fees, including a management fee and a performance fee as a contribution in case of the sale of artwork. These can decrease the overall return on investment. It is, therefore, very important to understand the fee structure for an investor and know how that could decrease potential profit.
Market Risks
All markets, including the art market, move up and down. There is appreciation seen throughout history in the value of art, but no guarantees are made. The valuation may suffer from factors such as fluctuations in economic conditions or changes in taste. Investors must realize that this is a possible risk before making an investment with Masterworks.
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Masterworks vs Traditional Art Investment
Direct Ownership
Traditional investment in art has largely been associated with the purchase of entire pieces of art exclusively. a highly capital-intensive and expert-of-considerable detail SEC requirement. Direct ownership is also associated with additional responsibilities relating to storage, insurance, and maintenance. Masterworks lifts these barriers with fractional ownership and takes care of the logistics involved in investment in art.
Regulation and Transparency
It is in its regulatory framework that one finds some of the differentiating characteristics of Masterworks. By filing offerings directly with the SEC, Masterworks brings a level of transparency and disclosure to the rather opaque nature of art investment annually. This high degree of regulatory oversight brings great confidence and security to investors.
Secondary Market
Masterworks provides a secondary market whereby investors can sell shares of the artworks or buy more. This indeed offers a level of flexibility and potential liquidity that one is unlikely to find with direct ownership in art. Investors can take advantage of this market to manage their investment positions more effectively.
Case Studies: Success Stories with Masterworks
Banksy's "Mona Lisa"
In 2019, Masterworks acquired the niche outline work from Banksy known as "Mona Lisa" for $1.2 million. This particular artwork was resold at $2.1 million, bringing in handsome returns for the investors involved. This example illustrates that such highly demanded contemporary art invested in through Masterworks is very lucrative.
Claude Monet's "Nympheas"
Another high-profile success story is the case of Claude Monet's "Nympheas." Sold for $7 million, the artwork increased in value to be resold at $10.8 million. Investors holding their fractions in this piece witnessed great returns, which became a very loud advertisement on how well their investment approach works.
Getting Started with Masterworks
Account Setup
To start investing with Masterworks, the first process an investor needs to complete is creating an account. All of the required disclosures can be boiled down to providing personal information and completing an investor profile. This allows Masterworks to know the kind of art investments that would suit each particular investor.
Investment Selection
After setting up an account, investors can browse through the available artworks and choose pieces to invest in. Masterworks provides detailed information on the history of each piece, data about the artist, and financial projections, all of which help any investor make informed decisions.
Purchasing Shares
After selecting an artwork, investors could buy shares directly through Masterworks. The minimum investment amount differs from artwork to artwork but is usually very much within the reach of most investors. It also has payment options available for the completion of investments.
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Final Words on Masterworks Review
Masterworks has really democratized art investment by opening markets that are more accessible and transparent. Fractional ownership, professional management, and robust regulatory oversight create an extremely compelling opportunity for investors to further diversify their portfolios into high-value art. While there are potential drawbacks associated with investing in Masterworks, such as liquidity concerns or such fees, the benefits can outweigh those challenges for most investors.
By closely looking at the factors mentioned in this review, potential investors can make an informed decision on whether Masterworks works for them regarding their investment goals. Just like any other investment, being successful within the art market requires extensive research and due diligence.
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