Art Investing Through Masterworks

An Artistic Spin On Investing

Investing, as a concept and practice, has been around since the ancient days of Babylon. Even in Ancient Rome, people were recorded as investing in roads, aqueducts, and silk road infrastructure for the sake of trade. Sharing in the profits, of course. From ancient times, into the development of bond, securities, and then the first manual formations of partnerships/stock exchanges, into what we now know as the “stock exchange,” …investing has been around for a very long time.

Over the course of history, over many centuries, what investing is, has kept evolving to match the modernity of the civilizations it was in. Today, even though we are relatively “advanced” with our digital stock exchanges, special devices, robo-advisors, and algorithms… investing still seems to be evolving. The most recent trend being that of fractional investing.

Fractional investing is simply the practice of buying partial shares of stock, rather than whole units of stock, allowing access for more minor investments to yield returns, as well as leaving room for more investors to get involved with a single companies stock. It has the advantage of letting those with less capital invest, at lower risk, with chance of return, and helps to increase the diversification of portfolios.

Although fractional investing has been around for decades, it has recently had an increase in popularity due to the availability of technology and apps that facilitate it. In recent years especially, as more personal investment apps such as M1 Finance, Robinhood, Acorns, and Betterment have all allowed for everyday people to invest from the convenience of their own smartphone.

One of the most interesting developments in the fractional investing world, though, is the emergence of an investment platform called Masterworks.

What is Masterworks?

Masterworks is a platform that allows investors to invest in blue-chip art, such as works by artists like Warhol, Monet, and Basquiat, without having to purchase the entire piece themselves. Instead, investors can buy shares in an artwork and then sell their shares when the artwork is eventually sold, either through the platform or at auction.

One of the main benefits of art investing through Masterworks is that it allows individuals to invest in high-value art pieces that they might not have been able to afford otherwise. Investing in art through Masterworks also allows individuals to diversify their investment portfolios, as the value of art does not necessarily follow the same trends as stocks and bonds.

Has Masterworks Been A Good Option?

Return on Investment

One of the key indicators of success for an art investment platform is the return on investment (ROI) it offers to investors. While it’s too early to say definitively how well Masterworks’ investments have performed, the company claims to have generated an average annualized return of 32% across its first five offerings, which is an impressive figure. However, it’s worth noting that past performance is not necessarily indicative of future results, and art investments can be subject to volatility and risk.

Market Share

In terms of market share, the company has grown significantly since its founding in 2017. It has raised over $200 million in funding and has over 200,000 registered users. The company has also facilitated the sale of several high-profile artworks, including pieces by artists such as Basquiat, Warhol, and Banksy.

Masterworks has carved out a niche in the art investment space by focusing on blue-chip artworks from well-known artists. This strategy has allowed it to differentiate itself from other art investment platforms and attract a specific type of investor. However, the broader market for art investments remains relatively small compared to other asset classes, so capturing market share may be a gradual process.

Product Offering

Masterworks has been praised for its focus on offering high-quality art options to investors. The company employs a team of art professionals who carefully select artworks for investment based on factors such as historical importance, provenance, and market demand. This ensures that the artworks offered on the platform are of a high caliber and have the potential to appreciate in value over time.

Brand Position

As for Masterworks itself, the company has been successful in terms of growth and fundraising. The company has raised over $130 million in funding, with a reported valuation of over $1 billion. Masterworks has also expanded its offerings to include additional artists and works, and has continued to grow its user base. As of yet, it has no real competitors.

Recommendation

Speaking as a credit analyst, while Masterworks has been successful in terms of its growth and the number of artworks it has facilitated the sale of, it is worth noting that investing in art can be risky, and investors should carefully consider the potential risks and rewards before investing.

Additionally, the company’s profitability for clients, customers, and shareholders will depend on the performance of the specific artworks that they invest in. Like any investment, there are no guarantees of profitability, and investors should carefully consider their own financial situation and investment goals before making any decisions.

Overall, while it’s still too early to say definitively how successful Masterworks will be in the long term, the company has shown promise in terms of generating returns for investors, carving out a niche in the art investment space, and offering high-quality art options.