Masterworks is a fintech platform for buying and trading shares in multimillion dollar works of art by artists such as Banksy, Basquiat, Picasso, and more. The platform sells fractional shares of securitized, physical art offerings, not nonfungible tokens.
Launched in 2017, Masterworks makes it relatively effortless to invest in fine art by handling the entire process of selecting, buying, storing, and if applicable, selling the artwork.
As of April 1, 2024, the platform has more than 900,000 members, with 405 artworks purchased, and well over $900 million in assets under management. Masterworks aims to acquire new artwork weekly, allowing investors to participate in future offerings and further diversify their art investment portfolio.
Read our review to learn about Masterworks’ minimum investment, how the platform works, and ways to invest.
Masterworks
Fees
1.5% annual management fee.
20% of any profits.
One-time cash “expense allocation”
TIME’s take
Masterworks provides everyday investors a chance to access what has traditionally been an exclusive market with high entry costs. While the best online brokers typically stick to traditional asset classes, such as stocks and bonds, Masterworks offers something unusual: the opportunity to invest in fractional shares of fine post contemporary artworks without having to buy and manage an entire piece (or collection) on your own. This means you can diversify your portfolio with an alternative asset class (Postwar Contemporary Art) that has historically shown strong returns over certain time period (‘95-’23) without spending millions of dollars.
Masterworks has a solid reputation across their individual exits, but the platform isn’t suitable for all investors. Fine art investments generally have less liquidity and higher risks than stocks and bonds. It’s best for investors who are comfortable with the art market’s unpredictable nature and keen to diversify their portfolios further.
Pros and cons
Pros:
- Accessibility. Masterworks allows fractional ownership, making investing in fine art accessible to more investors.
- Regulation. Masterworks securitizes each artwork by filing an offering circular such as this one for a Banksy piece with the Securities and Exchange Commission (SEC).
- Research. The platform provides expert analysis on individual offerings and the contemporary art market.
- Trading market. You can sell your shares early through Masterworks’ secondary Trading Market (though there are no liquidity guarantees).
Cons:
- Liquidity risk. Art investments have less liquidity than traditional asset classes. l Masterworks has a secondary market but doesn’t guarantee it will provide enough liquidity or a reliable means of monetizing your investment.
- High fees. The platform charges a 1.5% annual management fee and takes a 20% commission on profits when it sells the artwork.
- Investment minimums. Masterworks does have a set investment minimum (though it is often waived), but the threshold may still out price some would-be investors.
Who should choose Masterworks?
Masterworks is best for investors who already have a diversified portfolio of traditional assets and want to further diversify by adding an alternative investment with historically negative, noncorrelated returns. Investors should have a higher risk tolerance (financially and emotionally) and be comfortable with the art market’s inherent illiquidity and unpredictability. Of course, investors should also be looking for high potential returns.
“Postwar and contemporary art has appreciated over time at 11.5% annualized from ‘95 to ‘23, outpacing traditional asset classes like equities,” says Matt Sutherland, SVP of communications, content, and partnerships at Masterworks. “We believe that investors should consider investing with Masterworks if they are exploring the benefits of alternative investments, such as the potential to both enhance a portion of an overall portfolio performance and manage portfolio risk.”
According to Sutherland, 2019 UBS report shows that a 5% allocation to postwar and contemporary art has improved a traditional “60/40” portfolio’s price appreciation in 98% of five-year periods and 100% of 10-year periods. “We believe this asset class can be an attractive diversifier for investors’ portfolios.”
Masterworks permits those who are not U.S. residents to invest, except for residents of countries under embargo by the U.S. government.
How does Masterworks work?
Masterworks’ research team uses proprietary data to identify the artist markets with the most momentum fewer than 3% of artworks pass its diligence process. Its acquisitions team selects a good piece at a fair price and then purchases the work, typically acquiring “blue-chip” artwork from major auction houses, private collectors, and established galleries. Masterworks then files an offering circular with the Securities and Exchange Commission (SEC) to securitize the artwork, so anyone can invest.
Masterworks typically holds the artwork for three to 10 years while looking for a good opportunity to exit the investment. Its private sales team collaborates with top collectors in the art world, sells the work directly to them, and then sends you your pro rata proceeds after fees. To date Masterworks has had almost two dozen offering exists (22) by artists such as Banksy, George Condo, Cecily Brown, and Simone Leigh.
If you want to cash out early, you have the option to sell your shares on the trading market. However, Masterworks doesn’t guarantee the market will “provide enough liquidity, a reliable or effective means of monetizing your investment, or valuing your shares.”
The platform’s “My Portfolio” page serves as a dashboard to track your investment(s) in real-time.
Ways to invest with Masterworks
Masterworks offers shares of individual artworks, and you don’t have to be an accredited investor or a high-net-worth investor to participate. While Masterworks experts vet the quality of each artwork it offers, you’re responsible for designing your own art investment portfolio. The Masterworks website offers good research and support tools to help you compare available investments.
Once you select an artwork, you’ll buy shares through the platform with zero trading fees. There’s an option to invest your individual retirement account (IRA) earnings through Masterworks’ partnership with Alto IRA, an alternative asset investing platform.
Steps to open an account with Masterworks
Any investor can create a free account on the Masterworks website. However, every investor is required to complete a consultation call with a Masterworks Advisers representative. “We want to make sure that an art investment is suitable for the investor’s portfolio and goals,” says Sutherland. “The vast majority of our investors have never invested in art before, so these conversations are very educational in nature.”
Masterworks fees and costs
Masterworks charges two fees: an annual management fee and a performance fee. The 1.5% management fee is based on the total value of your account and deducted in equity each year (meaning it gradually reduces the number of shares you own). The 20% performance fee is Masterworks’ share of any profits. It uses these fees to offset the costs of managing the artwork, including storage, insurance, and SEC regulatory fees.
How does Masterworks compare?
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1.5% annual management fee.
20% of any profits.
One-time cash “expense allocation” | 0% - 2% (varies by investment type) | 1% to 1.25% management fees (additional fees may apply); Income REIT has a 4.5% maximum fee, and Apartment Growth REIT has a 4.75% maximum fee |
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TIME Stamp: Fine art is taxed at a higher rate than traditional asset classes
It’s essential to consider how your investment will be taxed to avoid any surprises at tax time. Masterworks investments are taxed at the long-term capital gains rate for collectibles (including art and coins), which tops out at 28%. (There’s an exception if you own 10% or more of a single artwork investment. In that case you’re taxed at your ordinary tax rate, up to 37% for 2023). The rate is higher than the long-term capital gains tax rate on traditional investment assets, which is capped at 20% for the wealthiest taxpayers.
Still, Masterworks says its investments are set up to be tax efficient, with no double taxation, no mark-to-market taxes (you owe taxes only when the artwork is sold), and no tax withholding, even for foreign investors.
Masterworks
Fees
1.5% annual management fee.
20% of any profits.
One-time cash “expense allocation”
Frequently asked questions (FAQs)
What is the minimum to invest in Masterworks?
The minimum investment varies by investor. This depends on whether or not the investor is an accredited advisor.
Is Masterworks legit?
Masterworks is a legitimate platform for investing in fine art. The company has been in business since 2017, and all its offerings are filed with the SEC and eventually qualified prior to soliciting investment. Payouts are processed about one week after a sale announcement, and you can expect the payout to reach your account within about three to five business days, depending on how you receive the payment.
What is the return on Masterworks after fees?
According to Sutherland, Masterworks has sold almost two dozen offerings. The artwork includes Cecily Brown (77.3% return, after fees), a George Condo (39.3%), and a Sam Gilliam (33.1%) and representative returns ranging between 10%-20%. You can view the individual returns for each of Masterwork’s sold paintings on its website.
How can I contact Masterworks?
If you have questions about Masterworks or are interested in investing, you can fill out the contact form or call (203) 518-5172 between 9 a.m. and 6 p.m. EST.
