Masterworks Review 2024

Masterworks could be a good option for people who want to add alternative investments in fine art to their portfolio, but would prefer to avoid the costs, risk and hassles of buying entire works of art themselves. With a variable minimum investment, regular investors won’t need millions to buy valuable contemporary art on Masterworks.

Investing in art involves unusual risks, however. It can take three to ten years before Masterworks sells a work of art from its portfolio, and there’s no guarantee that art works will earn a profit when they are sold. According to Masterworks, the contemporary art market delivered an average annual return of 14.1% over the past 26 years.

That makes Masterworks best for customers who are willing to take on some extra risk for the chance of higher gains. In addition, potential investors should ideally have a passion for contemporary art and some basic knowledge of the art world, as you need to choose which art works you’d like to invest in.

For investors looking to generate ongoing income or who want simpler, safer alternative investments, Masterworks may not be a good fit. It’s also not ideal for investors who need liquidity. While it may be possible to cash out your shares early through the Masterworks secondary market, that’s not guaranteed.

To stay safe, it’s best to only invest money with Masterworks that you could afford to keep locked up for years until the platform eventually sells the artwork in which you’ve invested.

The company’s research team evaluates promising contemporary artists, and purchases artworks that they deem have a good likelihood of gaining in value over time.

After purchasing a work of contemporary art, Masterworks files with the Securities and Exchange Commission (SEC) to sell fractional shares in the work to investors via their platform. Registering each work of art with the SEC makes them qualified investments, allowing Masterworks to accept retail investors and accredited investors.

Once the SEC approves a filing for an individual work of art, Masterworks sells shares for 90 days to their members as a primary offering. You can decide how many shares you want to buy at the listed price. The company tends to price fractional shares at $20 each.

Masterworks holds works of art for three to ten years, until they find a good opportunity to sell them to collectors on the contemporary art market. These are a few examples of pieces of art the company has sold:

• Rhubab by Joan Mitchell; annualized net return of 17.8%
• Staring Into Space by George Condo; annualized net return of 21.5%
• Lady Day II by Sam Gillman; annualized net return of 33.1%
• Mona Lisa by Banksy; annualized net return of 32.0%
• Lured by Cecily Brown; annualized net return of 27.3%
• Coup de Vent by Claude Monet; annualized net return of 9.2%
• Doppelbild by Albert Oehlen; annualized net return of 36.2%

Once the sale of an art work is complete, Masterworks distributes all proceeds to investors who own shares in the work, prorated by the number of shares owned, minus its own cut of the profits (more on that below).

If you want to cash out your fractional shares before Masterworks sells a work of art, the platform offers a secondary market. Users can buy and sell shares to and from other Masterworks users, although there is no guarantee that there will be buyers your shares at the moment you want to sell. Secondary market prices entirely depend on demand from other Masterworks customers.

Note that the Masterworks secondary market is only open to U.S. citizens who have a bank account with a U.S.-based bank.

Masterworks charges two fees. First, they charge a 1.5% annual management fee based on the total value of your account. They deduct this charge in equity each year, gradually reducing the number of shares you own. You do not have the option to pay the fee in cash.

Second, if Masterworks sells a work of art on the open market after three to ten years for a gain, they keep 20% of the profits. Masterworks uses these fees to offset the extra costs that come with managing artwork, such as storage, appraisals and insurance, along with SEC regulatory fees.

Masterworks does not charge any transaction fees. You won’t owe anything for buying the shares initially or for selling them to another investor on the secondary market.

Masterworks is a privately held startup company based in New York City that was founded in 2017 by Scott Lynn. The company’s first acquisition was Andy Warhol’s 1979 painting 1 Colored Marilyn (Reversal Series), for a purchase price of $1.82 million. In October 2021, Masterworks raised $110 million in series A venture capital funding, at a total valuation just above $1 billion.