What is Masterworks and how does it work?

Masterworks is an online platform where you can buy and sell shares in valuable, well-known artworks. The company chooses and buys art based on its popularity, and then makes it available for public investment through the SEC. They sell artwork directly to collectors, while shareholders can also trade shares on the company's marketplace. After holding the artwork for a period of 3 to 10 years, the company sells it and distributes the funds to shareholders.

Receive new reviews from Fintorial

How risky is Masterworks?

3/5
— Moderate Risk

Investing involves a number of significant risks and uncertainties.

- Each Masterworks issuer focuses on investing in a single artwork, which comes with inherent risks.
- Insurance might not fully cover all possible scenarios of loss, and the coverage limits could be lower than the fair value. These scenarios encompass physical damage, market risks, economic risks, and fraudulent activities.
- Short-term art market trends can cause prices to go up and then down, which can result in investors losing all or a large part of their investment.
- The secondary market might not be a reliable way to sell shares or accurately represent their fair value.

How liquid is Masterworks?

2/5
— Moderate Liquidity

You can trade shares on the platform's secondary market, but there are limitations on what you can do and how you can do it.

- Artwork is usually held for a long time and is not easily sold. There is no guarantee of finding a buyer or getting a fair price within a specific timeframe.
- There is no guarantee about when or if funds will be distributed.
- You might have to wait before you can trade your shares. They can only be traded 90 days after the completion of an offering. Orders can be submitted at any time, day or night. However, they can only be processed during the trading hours of 8:30 AM to 5:30 PM ET, Monday through Friday (excluding holidays).
- The completion of your order depends on the presence of other active orders and the availability of shares.
- When Masterworks is about to finalize a deal to sell a painting, all trading on the secondary market for that investment is paused, and any active orders are canceled prior to any public announcement.
- Only investors from specific countries can sell their shares on the secondary market: Portugal, Sweden, Belgium, Austria, Romania, Australia, UK, France, Netherlands, Switzerland, Spain, New Zealand, Italy, India, Ireland.

How volatile is Masterworks?

3/5
— Moderate Volatility

Short-term fluctuations in the art market can significantly influence the valuation of artworks, often leading to rapid increases in prices followed by sudden declines. This volatility can be particularly risky for investors who may be looking to capitalize on these trends, as the unpredictable nature of the market can lead to scenarios where they lose a substantial portion, if not all, of their invested capital.

Consequently, individuals investing in art for short-term gains must be prepared for the possibility of facing considerable financial losses if the market takes an adverse turn.

What is the average rate of return for Masterworks?

12.6 %
— Moderate Return

Profits are only earned if the company sells the painting or if an investor sells their shares. Based on the company's analysis, Contemporary Art has shown a compound annual growth rate of 12.6% between 1995 and 2022.

What is the minimum investment amount for Masterworks?

$ 15,000

The minimum investment amount is $15,000, which can be used to purchase one or multiple assets. Rather than offering a brokerage account directly, Masterworks allows users to open a wallet account provided by Templum. This account can be used to deposit funds and engage in trading on the primary market.

What is the investment time horizon for Masterworks?

3-7 years

Masterworks keeps the artwork for 3 to 10 years.

Who can invest in Masterworks?

International

Individuals, corporations, or entities from anywhere in the world, including the U.S., can invest in Masterworks' offerings. They utilize a Cayman structure that enables taxation of any profits in nearly any country of residence.

To join, you need to complete a membership application and then take part in a phone interview.

Is Masterworks regulated or audited?

SEC Regulated

Masterworks provides an offering circular to the Securities and Exchange Commission for each artwork, allowing public investment.

Every art investment goes through a yearly review by AGD Legal, a division of AGD Global Advisors. Additionally, an audited financial statement is released by April 30 each year, along with an unaudited financial statement by September 30.

Is Masterworks insured?

Yes

Every piece of art is protected by an insurance policy provided by Lloyd's of London, ensuring up to $500 million worth of art at a single location.

However, it's important to note that not every type of loss may be fully covered by this insurance. The policy's coverage limits may not always match the artwork's fair market value. Potential risks that could exceed the scope of the insurance include physical damage to the artwork, fluctuations in the art market, broader economic uncertainties, and instances of fraud.

Does Masterworks distribute payouts?

No Recurring Payouts

The company doesn't generate revenue, so investors will only see a return on their investment if the painting is sold later for a higher price.

What are the annual fees for Masterworks?

Masterworks charges a 1.5% yearly fee in equity, diluting your stake over time, not out-of-pocket cash. They also take a 20% cut on profits from art sales above the initial price. Additionally, there's a one-time charge for sourcing, securitization, and platform fees per investment.

How do I handle my investments in Masterworks?

The platform enables buying shares and potentially selling them again on the secondary market.

How does Masterworks get taxed?

For US taxpayers, your investment will be subject to the collectible gains rate, which is the same as your regular tax rate but capped at 28%. If you own 10% or more of a single painting investment, then you will be taxed at your regular tax rate.

The company gives you a Consolidated Tax Statement, a free tax document that has all the taxable items you need to know in one place.

Masterworks doesn't make foreign investors pay US taxes. They also don't hold back any taxes for foreign investors.

How many investors are on Masterworks?

Since its start, Masterworks has attracted approximately 810,000 investors and presented 344 paintings for a total of $882 million in investments.

Who is the CEO of Masterworks?

Scott Lynn, the CEO of Masterworks, is a tech entrepreneur who focuses on starting and growing businesses on the Internet, advertising online, and investing in art.

Receive new reviews from Fintorial