As a partner with Masterworks for the past few years, I've been following their growth in recent years. It's been a while since I've published a deep dive on the company. So this post provides an update on their Masterworks performance, growth, track record, and explains how art could help improve your portfolio.
Masterworks is an art investing platform. It was founded in 2017 and began launching offerings through the SEC in 2019.
I first connected with CEO Scott Lynn in 2020 and caught up again with the Masterworks team to get many updates for this performance review. Now let's jump right in.
Masterworks Historical Performance Review:
Here's a look at Masterworks historical performance annualized from their first three sales, on an individual basis, and the appraised value of their entire art portfolio.
Overall annualized track record from 2019 to Dec 31st, 2021: +15.8%
Individual Sales
- Banksy’s “Mona Lisa”: +32% net IRR (2019-2020)
- George Condo's “Staring into Space”: +31.7% net IRR (2020-2022)
- Albert Oehlen’s “Doppelbild”: +33.8% net IRR (2020-2022)
Outside of their exits, the overall collection of work has appreciated nicely as well. If they were to sell everything today, the entire Masterworks collection is estimated to fetch over $500 million.
Masterworks Assets Under Management And User Growth
Masterworks was featured in Bloomberg in Q3 of 2020 for being a new leader in the democratization movement. At that time, they managed roughly $36 million in assets under management and had roughly 80,010 users on the platform.
Recently, Masterworks had an unprecedented spike in user growth and is accelerating at a rapid pace. Today, Masterworks manages over $500 million and has over 400,000 users.
Historically, investors had to buy paintings for a couple million each to get exposure to this asset class. With Masterworks, however, investors can buy shares across multiple paintings to diversify their portfolios. Experts at Masterworks handpick the works themselves, which saves you a lot of time and hassle trying to find interesting deals.
Investors can realize gains in one of two ways. You can either sell the shares yourself on their secondary market or wait until Masterworks sells the painting. You’re free to do either but most wait for the latter.
Masterworks plans on buying over $1 billion worth of art by 2023. This would make them the largest buyers of art in the world.
Today, a new painting launches on their platform nearly every six days. With more financial institutions like Deloitte and Citi recognizing art as a major asset class and the rising demand for alternative assets, Masterworks expects their investor base to continue growing.
What’s Driving Masterworks’ Success?
Masterworks’ performance and growth rate is being driven by a few key factors.
- An experienced Acquisitions team
- Superior Data Analytics
- Acceptance of Art as An Alternative Asset Class
Scott Lynn, the founder and CEO of Masterworks, built his team to help clients unlock the power of art investing. Years before filing their first offering, Masterworks built the largest private database of art auction sales records in the world. They also offer their data and help construct art asset reports with institutions like Citi and Deloitte.
Their in-house team analyzed over 5 million data points to track the appreciation rates of artists and their work. Using this proprietary database, they can identify which paintings and artists are accelerating in value the fastest. This is how they determine which art is considered investment grade.
Through October of 2021, Masterworks has been offered over $10 billion dollars worth of art. But they’ve only purchased 3% of the artwork that met their criteria. In addition, they buy most works at a discount to fair market value. In other words, they aim to purchase the highest quality works at excellent rates.
They also strive to acquire paintings with historical appreciation rates between 10-30%. And as you saw earlier, the sales to date have handed investors the upper end of that threshold.
Their own expertise aside, there’s been a growing demand for alternative assets and the acceptance of art as an asset class in the financial community.
According to Deloitte, only 53% of wealth managers believed art should be included as part of a wealth management service in 2014. This consensus has overwhelmingly grown in strength since then.
In 2021, this statistic jumped to 85% of wealth managers. Deloitte even claimed in their recent report that “art is an essential part of any wealth management offering.”
Art As An Asset Class And Its Place in Portfolios
A thoughtful allocation to art can help manage risk in a portfolio and may ultimately generate attractive returns over time. Here are some of the key benefits of art as an asset class:
- Potential for significant appreciation
- Protection from inflation
- Diversification
One of the best advantages of art as an investment is its potential to appreciate. If you look at contemporary art — art created after World War II — you’ll notice it has appreciated 14.1% per year for the last 25 years on average. That beats the S&P 500, which returned only 9.9% annually over that same time period. What’s more, it’s also outpaced gold and real estate by over 2x in that time. But there’s more to art than just attractive growth.
Art may also help manage risk in a portfolio and can generate attractive returns over time. Since it’s a physical asset, you’ll find it’s most similar to gold and real estate.
Plus, art can also provide protection from inflation. According to Masterworks data, when inflation is above 3%, contemporary art prices appreciate by 23.2%. This growth rate far exceeds that of traditional hedges like gold and real estate.
In their words, “art’s most attractive investment quality over the long-run has been its’ diversification potential.”
Given the unique properties of art and how it drives value, it benefits from being an uncorrelated asset class. According to Citi, art has a near zero correlation factor to developed equities — the lowest correlation of any major asset class.
For instance, during the first seven months of the pandemic, art as an asset outpaced the 10 other major asset classes according to Citi’s data. And, it’s proving its resilience again.
Even with the recent stock market turmoil, an expert said “the art market is carrying on as normal.”
Art Market Outlook
The art market behaves in a peculiar manner. It doesn’t ebb and flows like the stock market, however, there is a science to it.
According to Masterworks' CEO, “Investing in art is like buying a call option on the ultra-wealthy — when the 1% do well on a global basis, prices will tend to go up.” Further, with the growth of countries like China, more capital has been flowing into art than ever before. The total net worth of American billionaires rose about 70% during the pandemic.
Thanks to this surge in wealth, the art market boomed in the past year.
Last November, over $1.6 billion worth of art was at auction houses in less than two weeks. And in all of 2021, over $65 billion worth of art was bought.
The Chairman of the Christies auction house boldly said, “People don’t care if they have to pay $1 million for a piece that’s priced to sell for $60,000, they're making up their own rules.” The Wall Street Journal even declared that “art is among the hottest markets on Earth.”
High Demand For Art
Masterworks believes this high demand will continue to push the value of art up more and more. And it’s already beginning to show.
Andy Warhol’s silkscreen portrait of Marilyn Monroe sold for $195 million at Christie’s earlier this May. That's enough to buy nearly 400 Miami homes.
The Wall street journal observed this sale “underscored the global strength of the high-end art market at a time of volatility in broader financial markets. Collectors often regard fine art as an investment hedge because art values don’t necessarily move in tandem with securities.”
Since many experts have slashed their stock returns of less than 5% for the next 10 years, art has positioned itself as possibly the most desirable type of asset you can find.
Deloitte estimates the wealth held in the art to be worth $1.7 trillion, which is roughly 2x larger than Bitcoin’s entire market as of 2Q2022. But they predict that number to grow by $1 trillion by 2026. In other words, more capital has been flowing into art than ever before.
Masterworks Performance In 2024 And Beyond
Masterworks has attracted investors with its expertise and ability to innovate. They have brought the order of the financial world to the elusive art market. In other words, this platform has helped transform art into an investable asset class.
Being able to invest in smaller portions across artworks, allows you to diversify your diversification in real assets.
Masterworks is an example of how investing in the world is changing and backing art as an asset class. Their story is only beginning. The more they build their track record and grow, the more they can offer to their clients as well.
If you want to add art to your portfolio, you can get priority access to Masterworks here.
Invest In Private Growth Companies
In addition to investing in fine art, consider investing in private growth companies. Investing in private companies is where you might be able to find the next Google, Meta, Figma, Apple and more. Personally, I allocate about 10% of my capital to venture capital.
The most interesting fund I'm allocating new capital toward is the Innovation Fund. The Innovation fund invests in:
- Artificial Intelligence & Machine Learning
- Modern Data Infrastructure
- Development Operations (DevOps)
- Financial Technology (FinTech)
- Real Estate & Property Technology (PropTech)
Roughly 35% of the Innovation Fund is invested in artificial intelligence, which I'm extremely bullish about. I don't want my kids asking me in 20 years why I didn't invest in AI or work in AI today.
The fund's investment minimum is also only $10, as Fundrise has democratized access to venture capital as well. Most venture capital funds have a $200,000+ minimum.
Financial Samurai is an investor in Fundrise and Fundrise and Masterworks are sponsors of Financial Samurai.
Sam, Thank you for providing an update on Masterworks.
I have liked Masterworks in the 20 months that I’ve invested with them. I invest because of all the reasons you noted above, and equally because I love many of these artworks. Since I’ll likely never get to buy one of these in full for $MMs, I’m happy to be invested in slices at least, much like investing in Fundrise / CrowdStreet, but in a different asset class. I’ve bought shares in 15 artworks so far (9 in initial offerings, 6 on their secondary market). One of these was the “Staring into space” work by George Condo, which fetched upwards of 30% in returns, before fees. Overall appraised IRR for my portfolio is trending at 15%, before fees.
Since I started investing these, I’ve visited SFMOMA and NY MOMA and have enjoyed modern art from various artists (Joan Mitchell, Yayoi Kusama, Mark Bradford, George Condo, Gunther Forg, Sam Gilliam, Keith Haring, Andy Warhol, Cecily Brown, Basquiat) – it has opened up a new window for me, which in itself has been very rewarding!
Looking forward to continuing the relationship with the company. Like what they do and how they do it.
I was in MW for a couple of years. I thought the customer service was pretty bad when I needed to liquidate and sell my shares. I had a bad experience. Would never go back to that platform. I have been in Fundrise for 3 years and is one of the best decisions I ever made investing wise….truly fantastic platform.
Curious whether your experience would have been different if you did not have to liquidate? Most investors on MW are investor over a multi-year period. Thx
I just recently signed up with Masterworks. Hoping to make my first investment in Art in the coming weeks. I think it’s important also to point out that they charge a 1.5% annual fee and take 20% of any future profits.
Capital gains is 28% on collectibles last I checked. It has to be taken into account.
Personally, investing in things people may decide they don’t need seldom tempts me.
I’ve invested in 12 paintings through Masterworks. One of them was Doppelbild, which was one of the 3 sales so far and I got my money paid out… OTOH the number of “users” must be much larger than the number of actual investors. You are supposed to invest $10k minimum per painting. So the largest number of people $500 million could be split amongst is less than 50,000.
I think that’s always the case no? 80/20 rule. A minority of investors will dominate the market, while the majority will sit back and dabble or watch.
When creating an investing marketplace, it’s always going to be tricky getting the supply of investments and number of investors right. Takes years. Hence, why I’m happy to review Masterworks in more detail two years later.
Thoughts on art vs crypto?
Both RE and equities generate reoccurring revenues (rent/sales).
Art, gold, crypto are all supply and demand. Reasons to prefer one over another?
One is more defensive, one is more speculative. Very different types of investments.
Shot you an e-mail, but no response.
Nice to see an update on them and that they’re doing well. Seems like they’ve had good growth and are gaining traction. I haven’t bought any art except just local artist pieces for my home. The most I’ve spent is about $400 on an oil painting. I don’t know much about art history or art appreciation but it seems quite convenient to be able to invest in small tranches with a platform like Materworks. Thanks for the company updates.
It’s like buying a classic Ferrari versus buying a Honda Civic. You might spend a fortune on the classic Ferrari, but it may ironically make you way more money than the Honda Civic, which is guaranteed to depreciate.
This is an area that is radioactive for me. The art world is so rife with fraud, forgeries, incompetence (appraisers) and a lack of accountability toward all of this that I would only buy art I personally saw being made and then took delivery from the artist’s studio myself. It’s really that bad.
Can you tell me about your negative experiences? Always good to know what to watch out for. I will ask Masterworks to address these concerns as well. Thx!
Some feedback from Masterworks in their words:
A few things:
– We’re co-invested alongside our users in every painting.
– Every single painting and transaction of ours goes through a due diligence process by the SEC and third party appraisers.
– We won’t even buy a painting if it’s slightly the wrong shade of blue, let alone even consider a painting that might be a fraud. We’ve been offered over $10 billion worth of art, and only purchased 3%. That rigor comes from extreme diligence.
As with everything, investing in Masterworks does come with these risks, but it’s much less likely to happen here than it would as it does in the stories you hear on TV.
I’m a master class investor. 1% of my NW.
However, it’s not really clear to me how things are going. They have sold I think two paintings, they acquire a lot! It’s long term I know. None of my works have been appraised at this point.
Is there any data to show the appreciation in the secondary market? I haven’t had the time to look into that.
I also wonder given they are buying so much will they have some kind of impact on how the market behaves? Will buyers treat them differently at auction? No clue. Wonder if there are any analogous situations in other markets.
Probably would be cool if they created a fund you could invest in b/c as the other poster said who knows if what I picked are the right picks. I diversified across 4-5. They’re probably working on that.
I’m with them too
They have the secondary market data available on the website.
I’ve thought about their impact on the art market too, but I read there’s something like over $60 billion worth of art transacted every year. So, they probably have a long way to go before making any noticeable impact.
They created something like a fund product as your describing – I think it’s spread over 50-100 paintings or something. I think they started doing that a few months ago, just ask them about it.
Biggest thing for me is that it’s uncorrelated and does well during inflation – doesn’t hurt that their last exits did better than my stocks did :)
I invested in art through Masterworks a couple of months ago. I liked the data backing up the appreciation of art vs other asset classes. I also had the thought that the wealthy are just getting wealthier and buying more art so, naturally, the value of art would go up. The tricky part is selecting art that will increase in value so you kind of have to have faith in Masterworks doing its research. I asked Masterworks if they had ever sold artwork at a loss and they said they had not. I know that past performance is not a guarantee for future performance but it did provide me with a little more confidence to invest a small amount to test it out.