Masterworks Review 2023

What Is Masterworks?

Masterworks is a unique, alternative investment platform that allows you to purchase fractional shares in fine artwork. In addition to offering low investment requirements and accessible prices, Masterworks makes it relatively easy for investors to buy shares of contemporary artwork by well-known artists like Banksy and Basquiat.

According to a statement in The Wall Street Journal, the fine arts sector had an average return of 10.6% annually.

• Start investing with only $20.
• Want to liquidate before the sale of artwork? Masterworks has a plan, and you can sell and purchase your shares in the secondary market.

External Masterworks Review & Ratings

How Masterworks Started

Scott Lynn founded Masterworks in 2017. Despite being a relatively new concept, Masterworks understands the importance of art needing to be a relatively safe investment.

That’s why they take extreme care with every investment opportunity presented and make sure every piece of art is insured and kept safe.

To date, Masterworks has more than 400,000 art investors signed up to their platform and launches a new high-end piece of artwork just about every week. Their propriety data to determine which artists’ market has more investment potential is what allows them to be so active.

Masterworks Investment Options

Once the Securities Exchange Commission (SEC) has approved a filing for an individual piece of artwork, Masterworks offers its members 90 days to purchase shares as a primary offering.

With no minimum investment, how many Masterworks shares you want to buy in the blue-chip art is dependent on your risk tolerance and budget. Fractional shares tend to start at $20.

Once you have invested, you can expect Masterworks to hold onto that particular art piece for 3-10 years. This gives them enough time to find opportunities to sell to art collectors or the contemporary market.

Once the sale of the artwork is finalized, Masterworks will distribute all proceeds to investors/shareholders calculated based on the fractional ownership (number of shares held), minus their percentage of profit.

Art as an Alternative Investment Class

As traditional markets continue to become more volatile and unpredictable, savvy investors are increasingly considering alternative investment classes, such as fine art, to diversify their stock market focused portfolios. According to Deloitte’s Art & Finance Report 2019, the global art market is estimated to be worth at least $1.7 trillion, and has historically shown stable growth and lower correlation to stocks and bonds.

Can You Cash Out Early?

Masterworks has recently introduced a secondary market on its platform, allowing investors to trade shares of their art investments with other users. This is a significant development, as it offers investors greater liquidity by enabling them to buy and sell shares without waiting for the artwork to be sold in the traditional art market.

You can cash out your fractional shares at any time by selling them back to another user through the Masterworks marketplace. Prices for fractional share sales vary depending on demand from other Masterwork users.

Keep in mind though, there is no guarantee that there will be any interested buyers on the secondary market.

• There is no transaction fee for buying and selling shares through the Secondary market.
• Shares will be available for transactions 90 days after the closing of the offer.

It’s important to note that Masterwork’s secondary market is only open to U.S. citizens who have a bank account with a U.S.-based bank.

Masterworks Pricing & Fees

Masterworks are generous when it comes to trading fees and is very transparent with its pricing and fee structure.

You won’t be charged fees for the following:

• Your initial investment in the artwork
• Selling shares to another investor on the secondary market.

Masterworks charges two sets of fees for the following:

• A 1.5% annual management fee based on the total value of your account. Deducted from equity annually, diluting your shares. There is no option to pay the fee in cash.
• Masterworks will profit 20% from the sale of artwork to the open market. These fees contribute to managing artwork, storage, appraisals and insurance, and SEC regulatory fees.

Masterworks Features

Masterworks has several aspects that attract investors. The team is extremely talented, and their determination and experience help investors earn maximum profit. Below are some highlighted features offered to their investors:

Excellent Art Investment Research

Users are provided with very good research resources on the fine art market and industry including a contemporary art prices database that tracks thousands of pieces of artwork. You can search for specific famous artists and research artist markets, including the purchase prices for their work.

They also provide users with an abundance of articles and videos teaching a plethora of art investment offerings and strategies.

High Potential Industry

Surprisingly, artwork has historically produced a higher rate of return than stocks, bonds, mutual funds, and real estate. The average annual return on art investments over the past 26 years has been 14.1%. By comparison, the S&P 500 has earned 9.9%.

Crème De La Crème

When it comes to securing the big names in fine artwork, Masterworks has it in the bag. They often feature famous paintings and pieces of art by Jean-Michel Basquiat, Joan Mitchell, Picasso, Banksy, and many more 7-8 figure artworks. The process of finding these types of pieces for sale has value itself.

Great Customer Support

Great customer service is hard to come by these days. Masterworks offers customer support via phone and email.

You will have the ability to connect with an art specialist where you can discuss your goals, risk tolerance, and everything investing.

User Interface and Ease of Use

Masterworks has put significant effort into creating a user-friendly platform that caters to both new and experienced investors. The website is clean, easy to navigate, and offers all the necessary information in a clear and concise manner.

The platform offers a comprehensive dashboard where investors can easily monitor their investments, view detailed information on each artwork, and access research and educational materials. This allows investors to make well-informed decisions and manage their art investment portfolios efficiently.

Mobile App

Masterworks has a mobile app available for both iOS and Android users. The app offers a seamless experience, making it easy for investors to access their accounts, monitor their investments, and stay updated on the latest art offerings on the go.

The app also features push notifications, allowing users to receive important updates and alerts related to their investments, upcoming offerings, and news from the art market.

Educational Resources

Masterworks offers a wealth of educational resources to help investors better understand the fine art market and make informed investment decisions. These resources include articles, videos, podcasts, and webinars covering various topics such as art market trends, investment strategies, artist profiles, and art valuations.

By providing these educational materials, Masterworks empowers investors to take control of their art investment journey and make better decisions based on their individual goals and risk tolerance.

Community and Social Engagement

Masterworks has an active presence on social media platforms such as Facebook, Instagram, Twitter, and LinkedIn, where they share news, updates, and insights about the art market and their platform. By engaging with their community through these channels, Masterworks creates a sense of connection among investors and fosters a network of art enthusiasts and investors alike.

In addition to their social media presence, Masterworks also hosts exclusive events and webinars for their investors, providing a unique opportunity to learn from industry experts and connect with fellow investors.

Masterworks Performance

Masterworks has purchased millions of dollars worth of paintings since it was founded, to the tune of more than $200 million. They’re easily a top buyer in the space, with over $750M+ in securitized paintings.

Because they haven’t been around all that long, Masterworks has only a few exits from their investments. With such limited data, Masterworks still claims that on average you will see a 30% annualized return.

Masterworks has a very successful track record, but there are always risks associated with investing. There is no guarantee that all shares will be tradeable or liquidity through the secondary market.

Remember, fine arts is a highly subjective investment vehicle.

Masterworks Strengths

Diversification

Masterworks gives the opportunity to diversify assets through investing in pieces of artwork. It has revolutionized the investment world.

Data

Masterworks provides the user with access to their database on the art and fine art markets. You can search for a specific artist and ongoing prices. The platform provides complete information about recent sales and annual investment returns.

Anyone Can Invest

Masterworks is available to anyone to invest and you don’t have to be an accredited investor. The platform was established and designed specifically to help investors of all kinds from wealthy investors to everyday investors.

Masterworks Weakness

Users Design their Own Art Investment Portfolio

Although investors are charged an annual management fee, they still require you to design your own portfolio.

No big deal if you have knowledge of contemporary artwork but, not ideal for the average Joe.

Thankfully, Masterworks experts assess the quality of each piece and only list those that they think have good investment potential. Additionally, Masterworks pre-vets artists to take all the guesswork out. So theoretically, any investment you make should see good returns.

High Tax On Fine Arts

Fine art is taxed as a collectible and at a long-term capital gains tax rate of 28%. Compare that to traditional long-term capital gains tax rates of 20% and the extra 8% can add up.

How It Works

Masterworks has streamlined the process of acquiring, securing, and transforming high-quality artwork into investable assets. Here’s how:

Art Selection & Acquisition Guided by a rich database of contemporary art prices and market trends, Masterworks zeroes in on artworks that display promising momentum. Their acquisition team, armed with these insights, negotiates and purchases select pieces. However, it’s worth noting that a mere 3% of artworks make the cut through their rigorous evaluation.

Securitization After an art piece is secured, Masterworks undergoes a legal process to file it with the Securities and Exchange Commission (SEC). This registration allows the artwork to be divided into individual shares, which are then made available for investment on their platform. The brilliance of this approach is that it opens the doors for both accredited and non-accredited investors to own a stake in premium art.

Investor Onboarding For prospective investors, the process is straightforward. To join, you request an exclusive invitation. Once you’ve provided your details, you’ll embark on a guided journey to map out your investment preferences, complete with insightful return projections.

What sets Masterworks apart is its personalized phone interview, scheduled at your convenience. This conversation is an opportunity to tap into expert insights, ensuring you make informed decisions. Remember, the goal is to hold onto the artwork for a span of 3-10 years, which aligns with the liquidity expectations of other alternative assets like private equity.

The Exit Strategy When the timing feels right, Masterworks leverages its private sales team to sell the artwork. Upon a successful sale, profits, after accounting for any associated fees, are distributed proportionally to the shareholders. For those looking for earlier exits, there’s a secondary marketplace where shares can be traded among investors. However, it’s essential to understand that this marketplace doesn’t guarantee instant liquidity. In some instances, holding onto the shares until the artwork’s final sale might be the only route.

Additional Nuances There are some limits in play; for instance, no investor can hold more than 10% of shares for a given artwork. Once the shares of an artwork are fully subscribed, there’s a minimum 90-day waiting period before you can explore selling them on the secondary market. This secondary trading opportunity is currently exclusive to U.S. investors with U.S.-based bank accounts. Instead of a conventional brokerage account, investors transact through a wallet account facilitated by Templum, a multi-asset investment platform.

Who Is Masterworks Best For?

Masterworks is best suited for investors eager to venture beyond conventional assets like stocks or bonds. This platform holds allure for those seeking a hedge against inflation and desiring additional protection for their broader investments.

Contemporary art has shown to deliver impressive returns, with top-tier artists often eclipsing benchmarks like the S&P 500 or even tangible assets like real estate.

It’s worth noting that Masterworks doesn’t offer regular income streams as it doesn’t dispense dividends. Additionally, the promise of liquidity isn’t always certain, despite having a secondary market for U.S. participants.

So, while there’s potential to surpass market returns, it’s not a guarantee. For those reluctant to grapple with the initial costs, maintenance demands, and intricacies of direct art trading, Masterworks offers an attractive alternative choice, seamlessly integrating art into their investment mix.

Masterworks Alternatives

Fractional investing has gained traction, and Masterworks now has several contenders in the alternative investment domain. Here are a couple of notable ones:

First, there’s the Yieldstreet Prism Fund. Different from Masterworks, this fund enables users to invest in art used as collateral, deriving returns from the debt’s interest. Instead of having partial ownership of the art piece, your returns are generated from the interest.

Although this model might have lower potential returns, the associated risk is also diminished, especially if the art’s value unexpectedly drops. Their fee structure is comparable to Masterworks, hovering around 1.5% annually. It’s a more traditional form of investment, lacking the allure of the long-term gains typically associated with art.

Then there’s Otis. It mirrors Masterworks but ventures beyond art, encompassing collectibles, including rare comics. The intent is to offer a more tangible investment experience. However, Otis’s dual focus seems to dilute its efficacy. Traditional collectibles don’t consistently appreciate in value like fine art does. Given this inconsistency, the fees Otis demands seem disproportionate to the potential returns it promises.

Masterworks Review Final Thoughts

There’s no doubt Masterworks is an innovative, art investment platform that allows you to diversify your investment portfolio with alternative assets. The ability to invest in multi-million dollar artwork is appealing and so is having it all managed for you.

With a valuation of over $1 billion dollars, Masterworks isn’t going anywhere and will be a relatively safe alternative investment.

So, if you’ve been thinking of investing in the art market but don’t have a spare couple of million laying around, then Masterworks is the option for you.