Art investment funds can find strength by working together in a volatile economy.
Investors look for ways to stabilize their portfolios when the economy makes a sudden left turn. During Covid, the economy was up, down, and sideways. Art funds have been attracting increasing attention in recent years from investors as a way to diversify their portfolios and hedge against inflation.
Fintech advances have made it possible for art investors to invest in fractional artwork securely and seamlessly. The fractional investment in art allows collectors to own iconic works of art that they would not be able to afford. Think Jean-Michele Basquiat, Joan Mitchell, and Willem de Kooning. There is still risk with any investment. However, it’s mitigated by portfolio managers and advisors with experience in both finance and art. Think of Joan Mitchell, Jean-Michele Basquiat, and Willem de Kooning.
In this interview, Masha Golovina is the Director of Acquisitions at Masterworks.io. The fund was founded in 2017 and has offices in NYC, Boulder, Colorado (also known for its “Silicon Mountain” due to its high-tech economy).
Masha holds degrees in Economics and Art History from UC Berkeley and Duke. She worked for Citi Bank for several years before joining Christie’s Auction House as AVP of Risk and Profitability Management.
The jargon around SEC regulations, fiduciary obligations, and risk can be overwhelming for the uninitiated. Masha explains in plain English the mission and methodology of Masterworks.io.
Please provide our readers with an overview and introduction to Masterworks.
Masterworks is an art investment platform with identified assets that allow anyone to allocate $10,000 or less to art. Masterworks has been my employer for about three years. When I started, there were ten or so employees. There are now almost 70 employees.
We have over $300 million in acquisitions for 2021 and more than $200 million of art in our portfolio. We raised $10 to $15 million as of December 2019. This means that we have seen tremendous growth just in the past year. As a startup, we are trying to grow our business.
Our investors are primarily interested in the financial aspects of our information, while we also pay attention to the art market’s historical movements. Our primary strategy is to purchase works by blue-chip artists with minimal downside risk.
We handle everything for our investors. This includes the sourcing of the painting, contract negotiations, insurance, shipping, and storage. Masterworks is a one-stop solution for anyone who wants to get involved in the art world but needs to learn how.
How do I invest in Masterworks? How do you select or vet your investors?
Our platform allows investments as low as $10,000. This differs from your average art fund, which requires a minimum of six-figure.
Masterworks is looking for people interested in learning about the art market and artists they are investing in and those who are committed to continuing their investment with us.
Interviews with our Investor Relations team are conducted for potential investors. Our investors will be shown which paintings are available now and how they can invest. This helps us understand their goals. We suggest diversifying your investment across several images.
Masterworks is a company that has a contract with the SEC. How does this comply with SEC regulations?
Masterworks register each painting at the SEC so that they can be qualified for investment. This allows us to accept investments from Retail Investors instead of Accredited Investors.
SEC and FINRA are both interested in what we do. This gives our investors more confidence than an entity that has yet to undergo the same legal steps or perform the same due diligence as we do for each deal.
We use transparent and detailed agreements when we purchase a painting. Our lawyers model their contracts after the industry’s best practices- usually auction houses. We do not operate handshake agreements, which is common in art.
We cover all the details from the beginning when purchasing artwork. This includes who pays what, when, and in what condition the work should be returned to Masterworks. Most collectors have worked with auction houses and are familiar with the more detailed contracts. These contracts are designed to ensure everything is done correctly for the parties.
Can you give us an example or two of the artworks that Masterworks purchased?
One of the paintings Masterworks recently bought, which I love very much, was a Barkley Hendricks entitled Selena/Star. The attention to detail is that of a Renaissance Master. It’s his friend’s daughter, portrayed in a Botticelliesque pose, set against an incredibly vibrant, yellow background. We were fortunate to be able to acquire this extraordinary painting at auction.
A significant artist, Barkley Hendricks, is known for his portraits depicting Black and Latinx people. He took the European tradition of painting portraits and made them his own.
I have always been a fan of Abstract Expressionists. AbEx was an exciting period in American art history. It’s also a time that is highly mythologized.
Masterworks acquired a beautiful Joan Mitchell entitled Rhubarb that we bought almost a year ago. It was painted in her Paris years, with a color palette different from her other works. The composition is divided into heavy black swathes, coral pinks, and hints of red hues. It’s a fantastic piece.
What happens to a purchased piece, and how long does it stay in your possession? Are investors required to keep their shares until the work is sold?
We take care of these items. They are stored in a modern fine art storage facility. We ensure everything and place the highest priority on the physical safety of the artwork.
A few of the pieces we purchased were loaned out. We bought a bit through Philips, which had been sold to a museum in Amsterdam to raise money during the pandemic. So we loaned it back to them. We were delighted to be able to help in this way.
This work will, of course, be on loan for a short time and then sold. While we’re willing to lend it to a gallery as long as it is ours, in the end, it’s our fiduciary duty to our shareholders.
We will hold on to each painting for approximately three to ten years and warn our investors that they are illiquid investments. Our investors have access to a trading platform, but most people who contact us intend to keep their shares until the final sale.
What kind of returns can Masterworks investors expect? How do these compare with other investment types?
Public equities have had an annual return of around 9% for the past 35 years. Art is also very competitive. Post War and Contemporary art- artwork created after 1945- outperformed other segments with an average price increase of 15% per year between 1995 and 2020.
Masterworks charge a management fee of 1.5% per annum, issued as shares. When we sell a work over its original price, we carry a 20% profit.