Banksy and Joan Mitchell are some noted artists on the investment boards of the platform. According to the Artnews News Intelligence reports, Masterworks sold only three artworks from its portfolio and takes a 1.5% annual management fee, plus 20% from an artwork sale. (plus, other fees can apply.) The company holds the artwork for 3-10 years and does not accept anyone over the age 70 as a potential investor. Yieldstreet was founded in 2015 with funding of $328.5 million and $150 million in Series C funding last year, looking toward a range of mid-career to blue-chip contemporary artists and artworks to be sold over the life of each fund. Each fund is set for five years with a possibility of an extension of one to two years. Yieldstreet’s Art Equity Fund IV was recently unveiled, which holds work by artists Damien Hirst, Jean-Michel Basquiat, Edward Ruscha, among others. Fees range from 1%-4% per year with offered exposure to real estate, legal, and supply chain investments. Former chairman of Christies postwar and contemporary, Loic Gouzer, launched Particle in 2021 along with founder Adam and Shingo Lavine with crypto brokerage Voyayer. The company divides each artwork into a 100-by100-square grid, resulting in 10,000 unique “Particles,” which are then minted as NFTs and sold on the Avalanche blockchain. With 15 million in seed funding, the company’s first purchase was a Banksy’s artwork titled ‘Love is in the Air’ for 12.9 million. The website states, NFT technology and the unique Particle process allow for the decentralization of art collecting and the ownership experience. The company plans to place the artwork in the Particle Foundation, a non-profit trust and physical museum, to display the collection. The merging of NFT and physical artwork is setting trends in real estate, fashion, and collectibles for a new buyer experience. Democratization of artwork allows interested parties the ability to invest with limited funds in a masterpiece. For instance, with NFTs, an automatic market with affordable tokens offers a percentage of ownership in an NFT. NFT sales have continued to enter the auction sector, for instance, Christie’s NFT sales totaled $150 million, including the landmark sale of Beeple’s Everydays: The First 5000 Days (2021) for $69.3 million. Sotheby’s NFT sales reached $80 million. According to The Art
Market Report with Art Basel and UBS, only 5% of the second-tier auction houses surveyed had sold NFTs in 2021, although 28% had not but were planning to do so in the next one to two years. Fractional donations are also gaining popularity for their tax advantages which now play a role in the purchasing decision of the ultra-high net clientele and art collectors, many of whom purchase at top art fairs around the globe. While increasing demand for jewelry and art for investment continues to surge as we are hopefully coming out of the pandemic, values continue to climb at auction. Fractionalization has become a topic among museum trustees and art collectors, and now the general public is looking to find alternative ways to collect and potentially attach a charitable donation. Economists Jiangping Mei and Mike Moses found inflation-adjusted returns of 2% over 250 years and 4.9% over 125 years. Estimated returns vary based on the period, sample, and methodology, so reviewing the artwork holding times, whether 1-3 years or longer, leaves uncertainty. Of course, many of these studies do not account for the fees associated with the care, long-term storage of artwork, and art expert services related to purchasing an artwork. The auction, private dealer and/or art advisor commissions for serving as the intermediaries still play a vital role in the one-off transaction and acquisition of artwork. Art dealers have often formed syndicates from the founders of museums to art galleries historically pooling funds. Is this different than these new emerging art fund companies offering art as an investment alternative? If one speaks to their banker and UHNW home offices of the top banking firms, many state art investment is rising in both a social and intellectual appeal, not always a financial one, yet a new group mindset of owning an artwork among other noted professionals remains appealing. As part of investment strategy, the new language and idea of “ownership” shifted conversations with many key financial advisors reporting and clarifying to investors that they should expect lower returns on artworks than other investments. Art investment funds have indeed existed for decades, so why has anyone heard of one having a smashing success, or will this be on the horizon? Risk or reward for a slice of the pie... time can only tell. July 2022
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