Commercializing Fine Art

Forbes has an interesting article on startup Masterworks, which is buying what they considered undervalued fine art and selling shares to art investors for as little as $20 per share. The art fund is not that unique, but they are also connecting it to blockchain technologies. The article does a good job in explaining the process involved.

Now fine art investing, as opposed to collecting, can be frowned upon by many, but it is a legitimate art market sector, and with that, there is potential assignments for art appraisers and for fine art advisory.

Forbes reports

Investing in fine art has generally been the provenance of the very wealthy. Only they can  afford the lofty prices that masterpieces and iconic works of contemporary art command.

One company is looking to change all this using blockchain technology. Very soon, average Janes and Joes with $20 in their pockets will be able invest in fine artwork created by Andy Warhol, Claude Monet and others.

NY-based startup Masterworks and its affiliated entities have created the first art platform to allow the general public to invest in fine works of art. Here’s how it works: Masterworks purchases artwork they deem to be undervalued, and then offers qualified investors the opportunity to purchase shares in a special purpose entity (limited liability company) that owns the specific work of art. Share ownership is maintained by a transfer agent and recorded on the Ethereum blockchain. The Ethereum blockchain is an open source, distributed computing protocol which enables users to record transactions securely and immutably.

Once the Securities Exchange Commission qualifies the exempt offering, the shares will be issued pursuant to a Regulation A+ (of Title IV of the JOBS Act) offering, which allows private companies to raise up to $50 million and enables the general public as well as accredited investors to participate. According to Masterworks, this will be the first such tokenized security offered under Regulation A of the JOBS Act.

The first painting to be securitized is Andy Warhol’s “Colored Marilyn,” from a series of oil and silkscreen paintings completed by the artist between 1979-1986. Masterworks will offer 99,825 shares at a price of $20 each. The next painting in the pipeline, “Coup de Vent,” is by Claude Monet. Both pieces of artwork are stored in a facility in Delaware, but will likely move to a gallery in NYC in the near future.

Masterworks paid $1.8 million and $6.3 million, for the Warhol and the Monet, respectively. The artwork is being offered on its platform at an aggregate price which is 10% more than what Masterwork paid. The additional 10% covers administrative, storage and other costs. After the offering, Masterworks may choose to sell the Warhol to a purchaser for value, in which case, all of the shareholders will be paid their fractional amount of 100% of the proceeds, less a fee representing 20% of the profits which will go to Mastworks.

Masterworks plans to purchase additional artwork for sale on its platform. So, likely there will be more fine art for sale from Masterworks in the near future.

Currently, if investors want to trade their shares (or the tokens that reflect the share ownership), they will have to do so privately. But one imagines that a robust exchange for tokenized art securities will emerge soon which would bring substantial liquidity to a market that has long relied on a handful of art dealers, auction houses and galleries, to match buyers and sellers. Masterworks has indicated that it intends to create such an exchange.

No longer will art owners need to sell a whole piece of artwork to a single buyer. Instead, they will be able to sell fractionalized shares of artwork to many, many investors (worldwide). Art owners will also have the added benefit of being able to retain possession of their art, even as they sell off parts of their collections (or even part of a single piece of artwork) to groups of individuals. Institutional investors will likely also take notice and invest in tokenized art securities to diversify their portfolios.

No doubt, tokenized art securities will dramatically upend the paradigm for investing in fine art. Paintings created by the Masters and other iconic artists are not only scarce assets (like gold or diamonds), but they are also unique, one-of-a-kind treasures. Tokenized art securities provide a way for a whole new swath of investors to participate in the art market, injecting liquidity in an otherwise illiquid marketplace and driving the price of art upward (at least initially) as increasingly more investors are drawn to art.

Andy Warhol’s pop art movement changed the way we look at art forever; he made art accessible and exciting for the masses. How fitting that his art once again sparks a movement, courtesy of Masterworks, to allow Everyman and Everywoman to participate in the new art economy.

Source: Forbes 

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