Masterworks Review: Invest In Blue-Chip Art Even If You Aren’t A Millionaire

Kenny Sokan
Updated: July 29, 2020
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We’ve said it before, and we’ll say it again: investing is a great way to build lasting wealth, not just for your lifetime, but for your children and grandchildren. Putting money away in a savings account can only do so much, especially considering that cash depreciates over time due to inflation. When you invest, you’re putting your money into assets that can appreciate, things that can outpace inflation, like individual stocks, bonds, and ETFs.

While the stock market is what most people associate with investing, it can be volatile, as we all know. On top of that, it’s important to remember that it’s not the only way to invest. There are plenty of other things to invest in — including blue-chip art — which is why Masterworks is such an exciting platform. It allows a lot of people who wouldn’t otherwise have access to invest in blue-chip works by Banksy, Monet, and so many other renowned artists by investing in just fractional shares of paintings.

Now, before you go asking whether or not you can make real money investing in art, think about museums and billionaire art collectors. Consider how much they are paying to own masterpieces by artists like Andy Warhol or Jeff Koons or even to just have them on loan? In 2017, a Da Vinci sold at auction for $450 million! Works by Basquiat and David Hockney have been appreciating at a faster rate than the S&P 500 (an index of the 500 biggest companies on the stock exchange). And they can often be a safer bet, too.

If you want to know more about Masterworks and how you can invest in art using it, read on. We’ve done a deep dive into how the platform works and how blue-chip art can be a lucrative investment.

Table Of Contents

What Is Masterworks?
Masterworks Offerings
Art As An Asset Class: Risks Vs. Profits
What’s The Investment Process Like?
Membership Application Process
Does Masterworks Have Any Fees?
Final Thoughts

What Is Masterworks?

Founded in 2017 by Scott Lynn, Masterworks is the first investing platform of its kind to allow investors to buy shares, thereby part ownership, in blue-chip art — art that’s projected to increase in value over time regardless of general economic conditions. The Masterworks library includes paintings by revered artists, from classic historical treasures by Claude Monet to buzzworthy contemporary artists like KAWS and George Condo.

Masterworks’ mission is to democratize the fine arts investing market — an asset class worth $1.7 trillion — which has historically only been available to the very wealthy. Shares are sold at $20 and an initial investment of $3,000-$5,000 is recommended to get started. Masterworks members can also sell shares of paintings. With the Masterworks Secondary Market, an investor can sell part or all of their investment for a premium — something you’ll be hard-pressed to find on other alternative investment platforms.

Masterworks Offerings

Masterworks selects work by artists that, through research and data collected from prior auction sales analyzed by its team of experts, have been determined to have favorable risk-reward profiles.

A few things Masterworks considers before acquiring a painting:

  • Does the artist have a global collector base?
  • What is the artists’ appreciation rate?
  • Is there sufficient demand for the artist?

Right now, the paintings Masterworks acquires are placed into two categories: Blue Chip (a low-risk investment) and Experienced Artist (a slightly higher risk but higher opportunity investment) to help its investors decide what works they want to invest in.

Past Masterworks offerings have included:

  • Mona Lisa by Banksy
  • The Mosque by Jean-Michel Basquiat
  • 1 Colored Marilyn (reversal series) by Andy Warhol

When logged into a Masterworks account, at first glance, approved members and those considering investing, will be able to see available offerings. You can track the progress of the shares still available for sale for a painting via a progress bar.

You will also be able to see other details about a painting like its appraised value, price appreciation for similar works by the artist, and the initial offering price, which is the current sale price being offered to private buyers by Masterworks. You can click on the “Painting Details” button to get a more in-depth understanding of any painting, the artist, and the term deals for the painting.

Art As An Asset Class: Risks Vs. Profits

Art is one of the oldest asset classes in existence and it’s one that is based on the cultural value of artists themselves, surpassing the test of time. People have been buying and selling art for centuries.

The art investing market exists largely outside of other equity markets, therefore it’s not subject to the same level of volatility as one like the stock market. According to Artprice, a leader in art market information, blue-chip art has outperformed the S&P 500 by over 250% since 2000.

Of course, it’s important to note that like with any other investment, there is still risk involved. There is no guarantee that a piece of art you invest in will grow in value by the time it’s sold, if at all. On top of that, art in general is a highly illiquid asset class, meaning you won’t have easy access to the money you have tied up in your investments for some time. Masterworks recommends being prepared to hold on to investments made with the platform for a significant period of time  —  between three to seven years.

All of this makes Masterworks really novel in the fintech space.

What’s The Investment Process Like?

Masterworks members can search its repeat-sale database (similar to the Case-Schiller Home Price Index for real estate) to research, track and evaluate how an artist’s work is performing and to get a jump on artists gaining momentum ahead of other investors.

What this database includes:

  • More than 60,000 data points
  • Over 70 years worth of collected data, including more than one million auction records
  • A proprietary dataset of ownership records

Members can tailor their portfolios according to their risk comfort based on their findings with additional guidance from the Masterworks membership acquisition team.

Shares for all paintings are available to Masterworks members for purchase at $20. A fixed amount of shares is set for each painting, and a Masterworks member can only own up to 10% of a single painting.

Paintings are usually held in its library for a period of three to seven years to allow for appreciation, though Masterworks will continuously attempt to sell a painting at a gain during that time. When a painting is sold, its investors will get their share of the net proceeds, if any.

If a painting doesn’t sell after seven years, and a shareholder is unable to sell their shares via the Secondary Market on the platform, Masterworks will work aggressively to sell the painting before the 10th anniversary of it being offered on the platform to liquidate the asset.

Secondary Market

The Secondary Market is a newer feature on Masterworks. Here, investors can trade shares in paintings among themselves — and trades are happening daily. So if an investor is looking to liquidate their assets ahead of a painting being sold for any reason — for example, if a major expense comes up — they can sell their shares on the Secondary Market. Similarly,  if an investor is looking to buy shares in a particular painting for which all shares have been sold, they too can search the Secondary Market to see if anyone there is selling shares in the painting or others that may be of interest. This benefit of liquidity doesn’t exist for most alternative investments and is really unique to Masterworks.

Membership Application Process

The membership application process is pretty straight forward. Provide your first and last name, email, and phone number, then create a password. You’ll also be asked how you found out about Masterworks. Make a selection from the dropdown menu provided.

On the next page, you’ll be asked how much you would consider investing in blue-chip art over the next 12 months. Your answer to this question will be used to estimate your possible gross returns over the next seven years (the maximum amount of years Masterworks holds on to painting in its gallery to allow for appreciation). You’ll get a dollar amount and an annualized return rate.

To test this, I inputted $5,000 and Masterworks estimated that I could earn a gross return of $12,511.34 (an annualized return of 14%).

Hit the finish button and from there, you’ll be told what number you are on the membership waiting list and will be prompted to schedule a membership interview phone call — they’re only about 15 minutes long. On this phone call, you’ll be informed of the available offerings and will receive a rundown of how Masterworks works. This is also a great opportunity to ask other questions you might have.

Since Masterworks has a small team, it’s able to take a personalized approach to the membership onboarding process. My membership interview call was with the Director of Membership, though there are a couple of other employees on the Membership acquisition team who also handle these membership interviews.

I got friendly, patient, and very detailed answers to all of my questions. I was also very happy to know that should I be approved for membership, I would have the same point of contact for as long as I would be a member, and that contact would be readily available to me via phone and email to discuss anything regarding my investments, the platform, and investment offerings.

After a few more phone calls spent making sure that a prospective investor understands how the investing platform works, membership benefits, and risks, and making sure they’ve set realistic expectations for investment performance, the final step towards membership is making an initial deposit.

The length of the membership approval process varies from investor to investor but can move pretty quickly.

Does Masterworks Have Any Fees?

Masterworks charges an annual management fee of 1.5% paid in the form of equity in the paintings a member has invested money in. Money from this fee is used to cover things like art storage, security, and insurance. Masterworks also takes a 20% commission of the profits when a painting sales, but only if the painting itself has increased in value at the time of sale.

Final Thoughts

If you’re looking to diversify your current investment portfolio, art is a great way to do that and Masterworks removes the barriers most individuals face trying to invest in fine art on their own. It makes investing in art affordable via share-based ownership. With the expertise of the various members of the Masterworks team, the proprietary data set investors have access to when they become members and hands-on customer service, you can invest in fine art with confidence.