Masterworks is an art investing platform designed for investors who want to acquire fractional ownership of blue-chip art. But does it provide easy entry into the world of blue-chip art investment? Read our Masterworks review and find out!
Based in New York City, Masterworks allows people to invest in fine art that’s worth millions of dollars, letting you diversify your portfolio with a promising asset class.
But is investing in art with Masterworks worth it, and what is the value for art connoisseurs looking to diversify their investment portfolios?
Our Masterworks review will give you a clear idea of the platform’s strengths as well as how you can use it to invest in the art world.
Masterworks Review: Overview
Masterworks was founded in 2017 by Scott Lynn.
After discovering that fine art yielded better risk-adjusted returns than other asset class types, Lynn created the fine-art investment platform to provide an accessible and financially viable space for art investing.
Lynn is a noted contemporary art collector for nearly two decades, who also founded a digital lending provider, Payability, in 2014.
His fine-art investing platform includes a team of leaders and advisors who are avid art collectors and have founded companies worth over $1 billion.
Masterworks aims to outperform the S&P 500 with the knowledge that blue-chip art has outperformed it by 180% since 2000.
Additionally, the total value of the art industry is estimated at around $1.7 trillion.
Highly Vetted Blue-Chip Art Investment
The platform offers Masterworks investors the opportunity to buy shares in highly vetted fine art, which is an asset class that continues to appreciate.
According to its website, Masterworks was the first platform that allows people to buy and sell art shares.
You can purchase fractional ownership of the million-dollar art that Masterworks secures, with pieces from Andy Warhol, Claude Monet, and other acclaimed artists.
While there are other art investment platforms on the market, Masterworks’ vetting is in a league of its own.
Masterworks Review: How Does Masterworks Work?
Through its research team, Masterworks uses proprietary data to explore the art market.
The data then picks out which market has the best momentum, providing the highest risk-adjusted returns.
From there, Masterworks takes the best available asset at the best price before it purchases artwork.
It then securitizes the artwork by filing an offering circular with the Securities and Exchange Commission, paving the way to invest in fine art.
It’s important to note that no individual investor can hold more than 10% of the fractional shares of a piece of artwork at one time.
How Do You Make Money on Masterworks?
Masterworks looks for buyers or independent collectors who are interested in purchasing the artwork.
Once a prospective buyer makes an offer, the offer is reviewed and approved by a majority shareholder vote.
Eventually, Masterworks sells the piece of artwork so you can receive your pro-rata proceeds, and you’ll receive those proceeds after the fees Masterworks charges are deducted.
You can also use the secondary market to sell your shares, though it’s not as likely that you will profit unless the artwork appreciates in value.
How Investing in the Art Market Works with Masterworks
The investing platform holds your painting in a members-only gallery in New York, and it can hold the artwork for anywhere from three to 10 years.
Alternatively, you can sell your shares through Masterworks secondary market.
Investors can access information to see what the market is like before shifting their shares.
Investment Minimum for Fine Art Investing
There is no specified minimum investment required to use Masterworks, and you don’t need to be an accredited investor to use its platform.
While the website does give a number for a Masterworks minimum investment, one could exist.
Becoming a Masterworks Member
You must request an invitation if you want to join Masterworks, and this is the only way to invest in the artwork sold on the platform.
You will be contacted for a phone interview to go over some important details before getting the approval necessary to start investing in art.
Once you are approved, you become a fully-fledged Masterworks investor.
Then you have the exciting opportunity to invest in million-dollar artwork — maybe even a prized Andy Warhol painting.
Is Masterworks Legit?
Masterworks is a fully legal entity.
However, the company stresses on its website that it is not registered, licensed, or supervised by an investment advisor or broker-dealer by the Securities and Exchange Commission, the Financial Industry Regulatory Authority (FINRA), or equivalent financial regulatory authorities.
Though Masterworks is a legitimate platform, it’s a new and unestablished company, so there is limited historical data to analyze its performance or judge its full capabilities.
Potential Risks Investing in the Art World
While Masterworks offerings are enticing, investing in fine art can be risky.
However, the investment platform points out that there is an attractive historical appreciation with artwork, with a 14% annual appreciation rate for contemporary art as well as an S&P 500 annual return of 9% with dividends.
Masterwork’s research team works with established banks, such as Bank of America and CitiBank, to understand investment returns.
So the platform is regarded as a top buyer within the art market.
Masterworks Review: Is Masterworks a Good Deal?
Masterworks’ annual management fee makes it a bit more difficult for people who invest in a piece of art to see the full benefits.
The platform’s fee structure resembles that of a hedge fund, as Masterworks charges a 1.5 annual management fee and 20% of any profits.
And you may have to wait a few years, as you only receive profits after Masterworks sells the artwork.
However, you can sell your shares on Masterworks secondary market if you want to exit your position early.
Hedge funds typically charge 2% for annual management fees and 20% of profits.
Giving up one-fifth of your profits is a deep cut to take, depending on how well Masterworks performs with your investment.
To be clear, you’re not paying the 1.5% fee every year, as there is little to no liquidity in your investment.
The fee is paid as accrued equity; additionally, the payback period takes at least three years.
The hope is that the appreciation rates and value of the blue-chip artwork are promising within that period so you can make money from your art investment.
Masterworks only offers paintings within its portfolio.
While a painting can net you a nice annual return, it’s risky to rely on a single asset.
Much like real estate, art is an illiquid asset that takes time to increase in value for you to reap the full rewards.
Is Masterworks Free to Join?
Investing with Masterworks requires no membership fees, so you can join for free.
But you need to complete a vetting process before you are allowed to invest.
A subscription to the investment platform affords you access to its full range of services.
These services include:
- A Built-in Indices
- Trading Capabilities
- Secondary Market Information
Additionally, as a member, you can access its price database for free to understand which artist market is accelerating the most and offering enticing risk-adjusted returns.
You can easily create an account to use the Masterworks platform.
All you need to do is provide your name, phone number, credit card information, and email address.
However, while you’re finalizing your application to use Masterworks, you’ll need to schedule a phone interview to confirm your membership and gain priority access to its blue-chip art investment opportunities.
During the interview, you’ll run through the benefits and drawbacks involved when you invest in artwork.
You’ll also go over how art investments will diversify your portfolio and other topics before you can dip in the art market.
Is Masterworks Safe to Use?
Masterworks uses a stringent due diligence process while vetting artwork.
According to the website, only 1.8% of artworks it has reviewed have successfully passed its process.
Masterworks chooses blue-chip art from major auction houses, established galleries, and private art collectors.
Acquisitions are focused on artwork that represents a top 100 artist’s mature style.
The platform acquires a painting as long as it has an attractive cost relative to the value based on historical appreciation rates.
The artworks it approves also have established track records of several million-dollar sales annually.
Masterworks acquires artwork weekly.
An individual investor can participate in future offerings and keep looking to diversify their art investment portfolio.
How Easy Is Masterworks to Use?
Once your Masterworks account is set up, you can directly link to your bank account from the platform’s home page.
Though, you can only link and start making purchases once you have completed your phone interview and secured approval to use the investment platform.
Forms and access points are easily accessible once you’re ready to invest.
Furthermore, you can find SEC filings for each piece of art that’s available for investing.
How Is an Investment with Masterworks Structured?
By creating a Delaware LLC, Masterworks files ordinary shares offerings with the exchange commission SEC under Regulation A.
Issuers will use proceeds to acquire single artworks and titles to contribute to a segregated portfolio company in the Cayman Islands for the issuer’s benefit.
As a result, the issuer has no indebtedness, no other assets, and doesn’t conduct operations other than ownership, maintenance, and the eventual sale of the artwork.
Can You Invest Outside of the U.S.?
You can — but with caveats.
Masterworks states that they permit non-American residents to invest in the artwork on its platform.
However, if you live in a country under embargo by the U.S. government, you cannot use the platform.
Masterworks doesn’t take steps to qualify offerings in jurisdictions outside of the U.S.
If you live in another country, you need to be aware of its government restrictions and regulations.
You are advised to seek legal counsel if you’re unsure whether or not securities laws restrict your participation.
What Is Masterworks Secondary Market?
Masterworks facilitates a secondary market for investors that was established in early 2020, allowing you to buy or sell your shares at a moment’s notice.
If you own fractional shares, you can make a listing in the secondary market.
Additionally, if you’re buying blue-chip artwork, you can check out the listings on the secondary market and make a qualified offer.
You can also see historical data detailing what art is being sold as well.
The investment platform’s secondary market is a good way to garner liquidity from your fractional shares.
The Masterworks secondary market is only available to U.S. residents with a U.S. bank account; to participate, you need to create an account with Masterworks’ banking partners.
Any Masterworks shares held by an individual or joint account can be traded through the market.
What Are the Risks of Using Masterworks?
Masterworks is very transparent about the potential risks of using its services, and its issuers don’t expect to generate revenue.
As a result, investors can only generate returns on art investments if a painting makes a profit once it’s sold.
What circumstances allow you to sell your shares or trade them is uncertain, and the timing of a sale is also uncertain.
Masterworks lays out many potential drawbacks to make investors realize the magnitude of every investment it makes on the platform.
You can make a good profit on your art, but Masterworks offers no guarantees and underlines the risk of investing in a single asset.
However, Masterworks investors can always sell shares on the platform’s secondary market, so you aren’t forever locked in an investment until the artwork is sold.
This is a good option if you decide the platform is not for you.
Masterworks Review: Pros and Cons
Masterworks offers a quality space to make alternative investments that help investors with portfolio diversification.
Art can make good returns on an asset that is increasingly used to hedge against inflation.
However, as outlined, there are some potential pitfalls when investing in art with Masterworks.
Let’s start with the pros of this service.
Alternative Asset Class – For alternative investments that differ from real estate, stocks, and other common investment types, Masterworks offers something viable for investors. Artworks are real assets that have benefited from falling interest rates and provided protection in inflationary environments. Art can also easily appreciate in value.
Vetting – Masterworks does extensive due diligence to ensure that the blue-chip art it acquires is legitimate and has value. It also securitizes all the paintings it acquires, giving investors a greater comfort level when investing in art on its platform. All art must be reviewed, approved, and verified before its inclusion in the platform.
Convenience – Masterworks takes care of all the legwork for investors, and its investment facilities are more accessible than traditional art investing which is more time-consuming. All you need to do as an investor is bring enough capital to the table and understand the value of your investments.
Secondary Marketplace – You can buy shares or sell them via the marketplace at any time. It also offers you all the available information about the fine art you want to invest in and artwork values.
Customer Service – You can contact Masterworks using its email, firstname.lastname@example.org, or via phone. You will get a dedicated personal representative to answer all your investment questions when you contact the platform.
While there are a lot more pros to using the service, there are some cons to consider before investing in the art world.
Fees – The platform’s annual management fees and the potential cuts in profits mean that investors may not see the value they’re looking for with their investment returns unless the artwork is sold at a profit. Masterworks’ fees are equivalent to hedge funds.
Illiquidity – Fractional shares in fine art cannot be sold immediately. You have to wait at least three years before you can get a potential payout once a piece of artwork you’ve invested in has been sold.
Limited Portfolio – You can only invest in paintings on Masterworks. And, as the investment platform itself tells you, it’s risky to invest in one type of asset.
The Application Process – Going through a phone interview to get approved for the investing service may put off some investors.
Is Masterworks Reliable?
Considering the platform’s due diligence process and the lengths it goes to educate investors about the market, Masterworks is a reliable and transparent service that gives you access to all sorts of useful data.
Masterworks Review: Is Masterworks Right for Me?
If you like art and you are willing to wait to reap the financial rewards and want to optimize your portfolio, investing with Masterworks is right for you.
Investing in fine art requires patience, as it’s a long-term asset that sees increasing value as time goes along.
If you’re comfortable with the risks involved, you should give the platform some serious thought.
What Is Masterworks’ Cancellation Policy?
Unfortunately, Masterworks doesn’t offer refunds after an investment has been made on its platform and accepted on its end.
Final Masterworks Review: Is Masterworks Worth It?
Masterworks is a unique platform that allows you to try a new asset type with a lot of promise.
Art was noted as a safe harbor during the late 2000s market turmoil; and it was one of the few asset classes to record positive performances throughout 2018, which was another rough period for the equities market.
The return on investment for blue-chip art is high, and your long-term potential in art investing is fruitful, as it is an alternative asset.
However, you rely on a lot of forecasting, and you can’t move your shares right away.
But it’s an intriguing opportunity to check out if you want to own shares of art.
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