Fine art has long been a popular alternative asset class among the ultra-wealthy, but the capital required to buy paintings (which often cost in the millions) — not to mention the knowledge of which ones to buy and how to properly care for them — makes it unrealistic for most people.
Masterworks aims to solve that problem by offering ownership shares in blue-chip paintings, thus giving average investors a potentially enticing way to diversify their portfolio.
This Masterworks review will help you decide if the platform is a good idea in your situation. We’ll explain the details of how it works, break down the fees, and compare the pros and cons.
If you’re already familiar with how the platform works, you can skip to my analysis, which details why I chose not to invest.
Masterworks provides fractionalized fine art investment opportunities. The company lets non-accredited investors buy ownership shares in blue-chip paintings, charging a 1.5% annual management fee and a 20% fee on all profits. Most Masterworks’ paintings are held for 3 to 10 years, and there's an option to try and sell your shares on a secondary market if you want to liquidate prior to a sale. Due to a high fee structure and risks with investing in individual works of art, Masterworks isn't an ideal alternative investment to construct a balanced portfolio. Instead, it's an option for art-loving investors who already have a well-diversified portfolio and who are interested in learning about art investing with limited initial exposure.
- Handles the entire process of buying, storing and selling art.
- Open to non-accredited investors with low investment minimums.
- Masterworks’ returns since inception, based on internal appraisals (minus fees), have slightly outpaced the S&P 500.
- Masterworks is a new company with a limited track record.
- Liquidity on the secondary market isn't guaranteed.
- There’s an interview and application process required to access the platform.
Masterworks at a Glance
Masterworks is an online art investing platform founded in 2017 by Scott Lynn, who created the company after realizing that the long-term growth opportunities offered by fine art were inaccessible to most investors.
If you learned about Masterworks through an advertisement, there’s a good chance you’ve seen or heard the company compare contemporary art returns to the S&P 500. We’ll touch on that in greater detail later in the article. However, it’s important to note from the outset that art indices tracking returns prior to 1995 do not show such strong performance.
The chart below is the one Masterworks highlights to demonstrate potential returns:
Unlike traditional art investing — which requires you to travel to auction houses to find and buy famous paintings — Masterworks lets eligible investors purchase shares of blue chip art (defined as art that costs $500,000 or more) online.
The idea is that this kind of fractional ownership makes investing in art more practical for people who can’t afford to buy and store paintings worth millions of dollars.
The Masterworks Investment Process
Buying and selling blue chip art can be more complex than investing in individual stocks. In this section, we’ll discuss the Masterworks investment process, from account creation to generating returns on your assets.
Creating a Masterworks Account
The Masterworks platform is open to non-accredited investors in the United States.
Masterworks requires prospective investors to fill out an application and “request an invitation” to the platform. While they mention a waitlist to join the platform, going directly to their homepage from a browser tab (at the time of publication) allows you to “skip the waitlist.”
After your application is submitted, Masterworks’ customer service team conducts a phone interview with you, during which you’ll talk to the company about your investing goals and how the art investing process works.
When discussing changes to your portfolio with another person, we suggest always working with a fiduciary — i.e., someone legally or ethically required to act in your best interest. Masterworks’ advisers are not fiduciaries, which can create a conflict of interest.
As such, if you’re considering investing with Masterworks, it’s essential to understand where fine art fits into your financial plan before the phone call.
That said, you do get access to view the offerings available on the platform prior to the interview, as shown in the example below.
After the interview, if the company thinks you’re a good fit for art investing, they’ll help you open your Masterworks account so you can start buying shares of blue chip artwork.
Masterworks does not provide information about how they determine fitness for the platform. However, there are reports that higher net worth investors are encouraged to make larger investments.
Searching for Investment-Grade Art Opportunities
All of the art available on Masterworks is hand-selected by the firm’s researchers based on its potential long-term value. If the Masterworks team thinks a piece of fine art could be a good investment, it acquires that work from an auction or gallery sale.
According to the company, less than 2.2% of artwork that gets reviewed passes this analysis process.
When Masterworks purchases art pieces, it files an offering circular (a type of prospectus) with the Securities and Exchange Commission (SEC). This SEC filing lets Masterworks turn blue chip art into an investable securities.
By turning its holdings into securities, Masterworks makes it possible for people to purchase fractionalized shares. Investors receive a K-1 from Masterworks each year, which can increase the cost of your tax return.
Making an Investment
After Masterworks buys and securitizes artwork, the company lists each piece on its marketplace. At the time of initial publication in July 2022, there were just four investment opportunities on the platform, as shown in the screenshot below:
From here, account holders can purchase artwork shares to add to their portfolios. The sale period for each piece of art on the marketplace lasts 90 days.
Masterworks states that there is no minimum investment requirement for account holders. However, you’ll need to have enough cash on hand to cover the cost of at least one share of whatever painting you want to invest in.
The cost of a single share can vary, though a look at Masterworks’ marketplace shows that most share prices are between $15 and $40.
Selling Your Investment
Selling fine art isn’t as streamlined as trading shares of mutual funds and stocks. Liquidity is always a concern with an alternative asset class like fine art, so this is something to keep in mind before opening a Masterworks account.
With Masterworks, you have two options for selling any ownership shares you have in a piece of fine art.
Option 1: Wait for Masterworks to Sell the Art
Your first option is to hold onto your shares until Masterworks sells the underlying painting. Masterworks states a target hold period of 3 to 10 years.
If you hold your ownership shares until Masterworks decides to sell the painting, you’ll receive a share of the profits from the sale.
Masterworks distributes 80% of earnings from paintings to shareholders based on the number of shares each investor owns.
Keep in mind that Masterworks is not required to adhere to that 3 to 10 year target period. It has no obligation to sell the securitized artwork. This means there’s a possibility that your investment could be tied up indefinitely.
Option 2: Sell Your Shares on the Secondary Market
If you don’t want to wait for Masterworks to sell the artwork, your other option is to try and sell your shares on the company’s secondary market, which allows you to liquidate your assets (and gives others a chance to gain shares of past offerings).
The secondary market is a nice idea in theory, but there is no guarantee that you’ll be able to sell your shares at any given time. Masterworks has a relatively small number of active investors (under 500,000 as of the time of writing), so it’s reasonable to think that your potential liquidity via this secondary market is relatively low.
The image below shows an example of sell and buy orders on the secondary market:
As a seller on the secondary market, you set a desired price per share and then wait for offers from interested buyers. The minimum number of shares required for listing on the platform is five, and there’s a 1.5% wire fee upon sale.
Buying shares on the secondary market potentially gives you the ability to acquire shares at a discount. Of course, as a seller that means you may end up losing money in order to liquidate your assets.
Looking at the current offerings, sellers significantly outnumber buyers. For example, for the Bansky painting, “Exit Through the Gift Shop,” 60 people are looking to sell and only three are looking to buy. While sellers are asking for a minimum of $19.99 per share, the highest bid price on the buy side is $18.80.
At the time the painting was acquired in December 2021, Masterworks valued it at $7,428,000. Selling shares at $18.80 would value the painting at $7,010,000.
Masterworks Fees
Masterworks has a 1.5% annual management fee that it levies based on the value of your account. Additionally, the company takes a 20% cut of any profits it earns from selling paintings.
Any trades that you make on Masterworks’ secondary market are fee-free, except for the 1.5% wire fee.
There are no other fees on the platform.
Masterworks vs. Yieldstreet
Yieldstreet is another popular online platform for investing in alternative assets, such as art, and offers unique accredited investor opportunities. Here’s a look at the similarities and differences between Masterworks and Yieldstreet:
| Masterworks | Yieldstreet | |
| Investor requirements: | Open to non-accredited investors. | Open to accredited investors only. |
| Minimum investment: | None. | $10,000 for artwork. |
| Fee structure: | 1.5% annual fee + 20% of profits from sales. | Fees vary from investment to investment. |
| Investment offerings: | Shares of ownership in a specific painting. | Shares in a fund that invests in art and art-backed loans. |
| Liquidity: | A secondary market is available, but share liquidity is not guaranteed. | While there is a secondary market on Yieldstreet for some alternative assets, no such market exists for art. |
There are some advantages to art investing through Yieldstreet, especially if you’re hoping to generate passive income from your investment before it matures. However, Yieldstreet’s high investment requirements — including the need to be an accredited investor — make it impractical for most people.
Learn more in our in-depth Yieldstreet review.
Masterworks FAQs
Masterworks is a legitimate company that offers real investment products. The company owns all of the art that it lists on its marketplace and all of its offerings are registered securities with the Securities and Exchange Commission (SEC). But there are risks involved with investing in art, and returns are never guaranteed.
Masterworks charges a 1.5% annual management fee + 20% of the profits it makes from selling art. If you sell shares on the company’s secondary market, there’s a 1.5% wire fee.
Masterworks accepts non-accredited, U.S.-based investors. However, while Masterworks is open to most investors, as explained below, it’s not the right choice for everyone.
Is Masterworks Right For You?
If you’re considering investing in art with Masterworks, there are some essential things to know before you start.
First off, understand there’s some important context surrounding the 13.8% returns since 1995 statistic often cited by Masterworks.
Since this is the hook that gets a lot of investors interested in the platform, it’s important to recognize that this figure comes from a December 2020 Citi research report performed on a specific art sector during a particular period.
The indices used to track performance in the Citi research were the Masterworks.io All Art, Contemporary Art and Impressionist Art price-weighted indices.
However, other indices that aim to track the prices of art show different results.
For example, from 1950 to 2021, the Sotheby’s Mei Moses Index (see screenshot below) posted a compound annual growth rate of 8.5%. Remember, this figure excludes any potential costs and fees.
From 1950 to 2021, including dividends, the S&P 500 returned 11.54%.
On the front page of its website, Masterworks links to the same Citi study, saying:
“[…] the long-term correlation coefficient of 0.12 between Art and the S&P 500 Index, which is a very low level of correlation. This is why we believe that contemporary Art plays a key role in diversifying any portfolio.”
However, a Stanford Graduate School of Business study found that art investments don’t improve the risk-return profile of a traditional portfolio.
“Using a large sample of 20,538 paintings that were sold repeatedly at auction between 1972 and 2010, we find that paintings with higher price appreciation are more likely to trade. This strongly biases estimates of returns. The selection-corrected average annual index return is 6.5 percent, down from 10 percent for traditional uncorrected repeat sales regressions, and Sharpe Ratios drop from 0.24 to 0.04. From a pure financial perspective, passive index investing in paintings is not a viable investment strategy once selection bias is accounted for.”
Another important aspect of investing in fine art is that paintings are taxed as collectibles. While stocks have a maximum long-term capital gains tax rate of 20%, the long-term tax rate for collectibles is 28%.
I’d bring these points up with anyone considering investing in art.
When it comes to Masterworks specifically, I correlate investing through the company (and the limited offerings they make available) to using an active fund manager for an alternative investment class.
That’s because Masterworks isn’t offering you the ability to invest in the S&P 500 of the art world. Instead, they allow you to invest in a few specific paintings they are willing and able to purchase and securitize.
As such, I’d liken it to investing in individual stocks, or a handful of real estate deals, as opposed to the S&P 500 or a publicly-traded REIT.
As more of an active fund manager, Masterworks has performed well. They calculate their net annualized return as 14.3% from inception in 2018 through March 2022. With dividends, the S&P 500 has returned 13.36% from the start of 2018 through March 2022. However, these returns are based on internal appraisals, not independent third-party appraisals. Additionally, these returns include all Masterworks paintings held to date.
As of November 2022, Masterworks has successfully exited eight paintings, with annualized gains ranging from 9.2 to 39.3%.
My stance is that if one invests in art — be it on Masterworks or anywhere else — it should be for personal reasons rather than portfolio diversification or the expectation of better returns than a traditional retirement portfolio would provide.
Masterworks Review: Final Verdict
When you purchase a fractionalized share of a painting, you don’t get the benefit of hanging the art on your wall. So in the end, you’re paying hedge fund type fees to invest in an asset class that has been shown to provide little benefit for the average investor. Given that, I think there are better alternative investments out there.
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Disclosure: I am a paid partner of Yieldstreet, a company that operates an online investment platform, and have been compensated for referring investors to Yieldstreet investments. This financial relationship may influence the content, topics or posts made on this platform. The views and opinions expressed on this platform are purely my own. This content is not intended to provide investment advice. Investing involves risk, including loss of principal. Please carefully review Yieldstreet’s Offering Circular before making any investment.
From what I’ve read I tend to agree, I assume that is why they have fairly high fees, it’s the only way they can really make money. (I’ve also heard the main reason they want to contact you is for the pushy salesman approach, which is never a good sign)
Thank you for the article. Very helpful and got all the information I need. Keep it up!
I see one glaring issue with Masterworks. Now that they advertise on a Website, everybody knows that they purchase paintings for real cheap and sell them for 10 times that amount. Knowing this, why would anybody want to buy from them?
Hey Martin,
Just my two cents…
…When a buyer and seller come together, for whatever reason that may be, and they settle on a price, they both feel good about that price for their own reasons. i.e., the seller may have a debt to pay off.
So, I don’t think sellers will stay away from Masterworks since they’re just trying to flip it for a profit, and they think they can make that same profit on their own.
More concerning is the fact that Masterworks has only bought AND sold a very limited amount of paintings.
Well written and informative article. Thank you.
“and we could not find evidence of any potential investors being turned away” that’s a surprise – I was turned away. They also told me about $1000 minimum, which contradicts the text in this article.
Maybe it’s the consequence of me not living in the United States. But on the website it is written that international investors are accepted. So again, contradicting this article.
If you want to know more details about my rejection, feel free to contact me on my email.
[Editor’s note: This comment was submitted anonymously with an invalid email address. We’re publishing it for the benefit of our readers, but we cannot verify its legitimacy.]
I am not based in the U.S. and was accepted after a telephone interview. At the time, a minimum $2,000 USD investment was required. I did not feel that the interview was a sales pitch in disguise, nor do I recall the representative trying to up-sell me. The interview felt like a legitimate attempt for the representative to understand my investment profile, disclose the risks, and answer questions. I asked questions about storage, insurance, appraisals, taxes, and repatriating funds. All but one of my questions was answered on the phone to my satisfaction and the last question was answered later after the representative sought clarification from a someone senior in the company.
It says only from certain foreign countries, not all.
I just had my interview. I didn’t feel too pressured. they did want to close a sale today, but it was easy to put that off. I guess the entry price has substantially jumped to a minimum investment of $15,000! I would take that as a bad sign that they are having trouble getting investors to cover their expenses. Thank you for your article — very helpful in deciding not to invest on this avenue!
I greatly enjoyed the information and viewpoint presented in this article. I do believe there there are some key points missed in the discussion of the various historical performance studies cited here. The Stanford study tracked sales of 20,538 paintings over a 38 year period. The Sotheby study tracks “all art” sales for a 71 year period. Both of these would undoubtedly include lower priced, less sought after works of art, as well as highly sought after masterpieces. Masterworks only targets the highest of “high-end” paintings. I think to get an accurate idea of what you could expect from investing with Masterworks, you would need to track sales of artwork of top artists, or perhaps you could set a minimum sales price of $1M. What the referenced studies have done is akin to tracking all sales of collectible cars, versus sales of Ferraris, McLarens and Bugattis. I decided to invest with the belief that Masterworks employs art experts with the capital to make very selective purchases of world class, highly sought after paintings. Masterworks only makes money when art is sold and they take 20% of profit after expenses are paid. It’s in their best interest to make as much money as possible with each sale. I did not find the on-boarding phone call to be high pressure at all. We discussed my financial situation, the percentage of my total investment portfolio that I was interesting in moving to Masterworks, my tolerance to risk, etc. The gentleman was not pushy in any way and was very informative about both Masterworks and art in general. I invested money in two paintings with the expectation that I will not see a return for several years, and if I do need those funds there is always the secondary market.
The majority of my investment portfolio is still in stocks and will remain so, but diversification is a good thing. I have some money is commercial real estate, I’ve invested in a couple start-up businesses, and now I have a little money in fine artwork. I don’t see Masterworks as any different than those other non-market investments.
I think that this discussion is constructive. One thing that was not mentioned in the article is that MasterWorks actually has a physical gallery where investors can go to take a look at their paintings, which I think is pretty cool. For me, personally, the opportunity to get access to assets that I could not otherwise afford is inspiring. I was a bit suspicious in the beginning, but my overall experience has been very positive so far. The customer service has been outstanding – I’ve received swift and professional replies to all my questions. This makes me also willing to pay a higher fee than for many other assets. I think that MasterWorks has also managed to choose their investments well. Something that requires work and therefore, comes with a certain price.
So, the expected return as advertised is 13.8%. From that subtract 20% profit at sale and the annual 1.5% management fee per year. If I assume the expected return at sale after say 7 years, without compounding, 13.8% turns into 4.2%. From that the Uncle Sam takes another 28%. If that’s right, wow!
Thanks for sharing . When I spoke to them I was told they would also get a share. Do you know if that is the 1.5% fee or did you forget to add that ?
Hi Erika,
The 1.5% fee mentioned is an annual management fee. If they mentioned receiving a share, it’s likely they were referring to the performance fee. Masterworks charges a 20% performance fee on the profit generated from the sale of artwork. This fee is separate from the 1.5% annual management fee. I hope this clarifies any confusion!
Yes, during my interview they indicated Masterworks retains a partial ownership in the piece so they have “skin in the game” — interviewer’s words.
The Masterworks advertised rate of return is the ANNUAL rate of return, and is NET of all fees and expenses. In other words, the returns achieved are 13.8% per year, net of fees and expenses. If you invested $10,000 and Masterworks sold the painting exactly three years later, your actual payout would be $10,000 x 0.138 x 3 = $4,140.
I had two interviews/phone calls. The first call with Hunter Zhang. I was told “MY” minimum investment is $20k based on my available liquidity. I stated I didn’t want to invest that much and would rather start with a much smaller amount. The reply was basically call back when I was ready to invest the $20k. My second call (about a year later) was with Brendan Miles. After reviewing notes from my last call he asked me what’s my current liquidity. I told him, but also stated I only had $5k – $10k to invest this time. He told me as a “fiduciary” he does not recommend that I invest if I only have $5-$10k to place. I replied okay, thanked him for the time and hung up. #redflags
They suggested investing 5% of your liquid assets in the artwork. But I was told the minimum for any one piece was $15,000 and that is what their documentation indicates as well.
I have known about Masterworks for a while, and while I remain interested in the company, I also made the decision not to open an account. But for me, the reasons really came down to the art. On my “interview” I asked them where the art is held while Masterworks owns it (in warehouses), and what level of insurance they hold on the artwork they own (never got a good answer). I guess I could get past not being able to hang the art above my fireplace, but it seems completely backwards that an art lover would spend a bunch of money buying a fractional ownership of artwork (that they presumably think is compelling) only to have it sit in moth balls for a decade. At least have a “Masterworks Gallery” where people can go view this stuff.
After reviewing my current portfolio and goals, the interviewer suggested that it was not in my best interest to invest with them. However, he continued to answer questions at my request. He mentioned that he was a fiduciary agent and was obligated to advise me in my best interest. I observed that of all the artworks sold, none had a holding period exceeding three years, and only one came close—perhaps the average holding period was one year. The minimum investment cited was $500. They also openly discussed tax issues, as well as a management fee of 1.5% per year and a sales fee of 20% of the profit.
My experience with them seems to be markedly different from yours.
I gave $600k to a company three years ago with the promise of making a huge profit. But in reality, my capital has gone down by 5% since I started investing with them (I’m not a US citizen).
They assured me that I could sell my shares on the 2nd market whenever I wanted to. Since the return is negative, I decided to sell my shares. But as a non-US citizen, they don’t allow me to sell my shares, and I am stuck with them until they decide to sell the painting.