Masterpieces sold to Banksy mona-lisa for $1.5 million in October 2019, offering an internal rate of return of 32% net of costs and fees to investors.
Courtesy of Masterworks
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Masterworks, a nearly 4-year-old New York-based company that enables retail investors to buy equity in valuable works of art, expects to be the world’s largest art acquirer this year.
This ambition will be spearheaded, in part, by Evan Beard, who recently left his role as head of artistic services at
Bank of America
Private Bank to lead private sales at Masterworks as Executive Vice President. The bank’s Drew Watson, who was part of the artistic services team, now leads the division.
For Beard, who turned Bank of America art lending into a US$10 billion business during his six years there, Masterworks represents a new wave in the convergence of art and finance. , giving access to the world of noble art to a wider range of collectors.
“It’s the only company driving the democratization of art ownership as an asset class,” Beard says.
Masterworks’ approach is to buy works of art either privately or, in some cases, through third-party guarantees on works at public auction. Once purchased, the art is placed in a special purpose vehicle and registered with the United States Securities and Exchange Commission. Then shares in the work are issued to the public.
The company is currently an “active acquirer,” using data to determine which segments of the contemporary art market and which artists are likely to do well, Beard says.
When an artwork is finally sold, meaning within three to ten years, according to the company’s website, investors get a return. The strategy gives buyers exposure to an asset class that is uncorrelated to stocks, bonds, real estate or even alternative assets such as hedge funds or private equity, he says.
Currently, Masterworks has over 360,000 investors in over $400 million worth of artwork. This portfolio is expected to grow exponentially as Masterworks expands its offering through financial advisors and large brokerage firms, Beard said.
“The future is for art to be part of a strategic asset allocation model on the street, even if it’s a small exhibition,” he says.
The company also plans to make the Masterworks brand more visible in the art market as a whole, as it primarily shifts from buying art to selling, which Beard was brought in to do.
“You’ll start to see Masterworks have a more pronounced presence in more of the traditional art market,” he says.
This strategy could be executed through art fairs and an expanded physical gallery in New York, according to Beard. Currently, Masterworks has a small space at its headquarters at 225 Liberty Street in midtown Manhattan for its private clients, where works by Jean-Michel Basquat, Andy Warhol, Claude Monet, Banksy and Kaws can be seen.
Beard’s expectation is that, “all down the line, we will not only be the biggest buyer of art, we will also be the biggest seller”.
US collectors who purchase shares in a Masterworks painting may elect to sell them in the secondary market before the work is sold and proceeds are realized. For example, a collector is currently selling 10 shares of Los Angeles artist Mark Bradford
Value 47, for $20.40 per share or $204. The painting has an implied value of US$1.8 million, according to the Masterworks website.
Given Beard’s background in art lending, it’s possible the company will explore ways to leverage his portfolio or individual works to improve returns. “It’s something to think about,” he said. Additionally, the company intends to work more closely with private banks, including Bank of America’s.
While retail investors may benefit from access to art once beyond their reach, the question is whether the transaction brings aesthetic value or pleasure to the buyer. But, says Beard, buying stock in a painting simply presents a new way to interact with art that’s “not as far from aesthetic as you might think.”
This has been evident with the rise of digital art and non-fungible tokens, or NFTs, he says. Also, he expects investors to benefit from a digital image of the work they have participated in, and access to the firm’s market research reports.
“Individual investors who come to us [and] who may not know all the intricacies of this market, will embark on an interesting journey of knowledge,” he says.