Masterworks is opening fine art investing to the masses

Investors can buy into a Monet painting for $21.05 a share; a Warhol piece goes for $20 a share

By Sarah Min

Sep 27, 2018 @ 3:58 pm EST

For 15 years, Scott Lynn has been collecting midcentury artists. His collection of abstract expressionists includes Jackson Pollock, but he has a particular soft spot for Clyfford Still, one of the lesser-known artists in that movement. Although Mr. Lynn has seen his collection appreciate rapidly, he realized the asset class was too expensive for most people to invest in.

Enter Masterworks, an investment platform Mr. Lynn started in 2017 with a uniquely democratic approach. Instead of paying more than $2 million to purchase a painting, you can pull out a twenty to buy a share in it.

"When we ask people to invest in a Claude Monet or an Andy Warhol, it's very exciting because they haven't had the opportunity in the past," said Mr. Lynn, chief executive officer at Masterworks.

It could be an interesting idea for advisers' clients who want to invest in art but are wary of the big financial commitment.

"It could give a client that's very passionate about art some exposure and maybe some pride in owning a piece of valuable artwork," said Anthony N. Badillo, lead financial planner at Gen Y Planning.

Buying shares in art might also, however, be too new a concept for most investors to dive into.

If clients want to diversify their portfolio with any kind of art investment, whether in full or partial ownership, advisers should review what portion of their portfolios they can devote to it.

"If they're passionate about it and they really want to do it, we would want to learn exactly what they're investing in, and we would make sure that it's not a significant amount of it, that it would be small enough that they would sleep over it, but large enough that they're pursuing something they're passionate in," Mr. Badillo said.

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Since 2017, Masterworks has acquired Warhol's "1 Colored Marilyn (Reversal Series)," which is currently being reserved for 2,030 people. Priced at $2 million, it is being offered for $20 per share. Investors can invest in the painting with just $1,000. Meanwhile, 742 people are interested in reserving their shares for Monet's "Coup de Vent," which is being offered for $6.9 million, at $21.05 per share.

For investors, Mr. Lynn said, the process is very much like buying a share in a company when it goes public. Masterworks files an offering document for each painting as a special-purpose vehicle with the Securities and Exchange Commission.

Investors who are interested in purchasing art should consider how paintings similar to the one they're purchasing have appreciated historically, Mr. Lynn said. They can look at lesser-known emerging artists, or, like Masterworks, they can consider household names.

"We're focusing on those blue-chip artists who have a track record and will continue to be important in the future," Mr. Lynn said.

In 2019, Masterworks hopes to make a trading platform available on which investors can buy or sell its shares. After they've purchased shares and are shareholders of a painting, they can also vote to keep or sell the painting if a collector makes an offer for it.

For custodial reasons, investors who purchase shares in paintings won't be hanging their investments on their walls. But the process of purchasing shares can help advisers evaluate the client's priorities and, still more, review their net worth to assess the best uses of their funds.

At the moment, Masterworks' paintings are in storage. The company is planning to open a gallery next year to house the collection, which will be open to the public.

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