Julia Heckelman
For most people, owning an original piece by Banksy, Monet, or Picasso is unimaginable. The fine art market has long been reserved for those with exorbitant wealth. However, the rise of fractional art ownership has substantially lowered the bar to entry for art investing. While purchasing a fractional share of an art piece is more attainable, being a shareholder in such an asset requires reimagining conceptions of art patronage and traditional investing.
Though it may seem counterintuitive to purchase art that can never be personally displayed, fractional art ownership presents a unique opportunity for investors and art aficionados alike. This revolutionary approach to art investing rose to prominence through the emergence of Masterworks, which hails itself as the “first platform for buying and selling shares representing an investment in iconic artworks.”[1] Owning a fractional share of a piece is more than a novelty conversation starter. Masterworks highlights the investment potential, reporting that contemporary artwork prices have “outpaced the S&P 500 by 131% from 1995–2021.”[2]
The process outlined by Masterworks is remarkably straightforward. Masterworks acquires pieces of artwork and creates a limited liability company in the name of each piece.[3] Then Masterworks securitizes the artwork by filing an offering circular with the Securities and Exchange Commission.[4] After between three and ten years, Masterworks will sell the artwork and distribute pro rata proceeds to shareholders.[5] Shareholders may also sell their shares in the interim on the Masterworks trading market.[6]
Despite the platform’s potential for broadening the market of art investors, Masterworks is not a neighborhood flea market. The investment minimum is $15,000.[7] Masterworks also charges a 1.5% annual management fee and a 20% cut of the profits of a sale.[8] In an evaluation of the company published by Forbes, the magazine asserts that these fees are relatively high compared to other types of managed investments.[9] While it praises the platform’s ease of use, Forbes notes that “art is a relatively high-risk investment, with no recurring income stream.”[10]
Fractional art ownership via a platform like Masterworks is not accessible to everyone, but it signals a new era of fine art investing. Widewalls identifies a few other key players in the fractional art ownership market including: Mintus, Sygnum, Artemundi, Fractional.art, Yieldstreet, Particle, Rares, and Artory/Winston.[11] Mintus, a company based in the United Kingdom, offers a platform similar to Masterworks available only to sophisticated investors, high net worth individuals, or accredited investors.[12] However, other companies have integrated blockchain technology into the fractional art ownership market. For example, Sygnum and Artemundi partnered to tokenize a Picasso painting on the blockchain, enabling fractional ownership in the form of “Art Security Tokens.”[13]
Some may hesitate to see the worth in owning something as intangible as a piece of a painting, but it is not a development to be ignored. As more companies build upon the idea of fractional art ownership, it will likely continue to be of interest to entrepreneurs. Given the implication of complex laws across the areas of finance, art, and blockchain, attorneys should be sure to stay apprised of further developments.
[1] How It Works, Masterworks, https://www.masterworks.com/about/how-it-works [https://perma.cc/MP4J-CPDR] [http://web.archive.org/web/20230203175036/https://www.masterworks.com/about/how-it-works] (last visited Feb. 2, 2022).
[2] Id.
[3] See Masterworks FAQ, Masterworks, https://insights.masterworks.com/masterworks-faq/faq/ [https://perma.cc/L7GR-9F6X] [http://web.archive.org/web/20230203175409/https://insights.masterworks.com/masterworks-faq/faq/] (last visited Feb. 2, 2022).
[4]See How It Works, Masterworks, https://www.masterworks.com/about/how-it-works [https://perma.cc/MP4J-CPDR] [http://web.archive.org/web/20230203175036/https://www.masterworks.com/about/how-it-works] (last visited Feb. 2, 2022).
[5] See id.
[6] See id.
[7] See Masterworks FAQ, Masterworks, https://insights.masterworks.com/masterworks-faq/faq/ [https://perma.cc/L7GR-9F6X] [http://web.archive.org/web/20230203175409/https://insights.masterworks.com/masterworks-faq/faq/] (last visited Feb. 2, 2022).
[8] See id.
[9] See David Rodeck, Masterworks Review 2023, Forbes (Nov. 22, 2022, 10:56 AM), https://www.forbes.com/advisor/investing/masterworks-review/ [https://perma.cc/YGZ7-8A52] [http://web.archive.org/web/20230203175613/https://www.forbes.com/advisor/investing/masterworks-review/].
[10] Id.
[11] See Eli Anapur, Fractional Ownership – A New Model of Art Collecting, Widewalls (Sept. 7, 2022), https://www.widewalls.ch/magazine/fractional-ownership-art [https://perma.cc/3ACU-L9YS] [http://web.archive.org/web/20230203175830/https://www.widewalls.ch/magazine/fractional-ownership-art].
[12] See How It Works, Mintus, https://www.mintus.com/how-it-works [https://perma.cc/H62X-8Q5M] [http://web.archive.org/web/20230203175949/https://www.mintus.com/how-it-works] (last visited Feb. 2., 2022).
[13] See Sygnum Bank and Artemundi Tokenize a Picasso on the Blockchain, Sygnum (July 15, 2021), https://www.insights.sygnum.com/post/sygnum-bank-and-artemundi-tokenize-a-picasso-on-the-blockchain [https://perma.cc/FR6H-ULJF] [http://web.archive.org/web/20230203180153/https://www.insights.sygnum.com/post/sygnum-bank-and-artemundi-tokenize-a-picasso-on-the-blockchain].