Photo by Anggun Tan on Unsplash
In a turbulent economy, art investment funds find strength in numbers.
When the economy takes a sharp left turn, investors generally look to stabilize their portfolios. During Covid, the economy has been up, down and sideways. Consequently, art funds have been attracting more and more attention from investors recently, as a means of both diversifying their portfolios and hedging against inflation.
Advances in fintech have also made it possible to seamlessly and securely fractionalize art investing. Fractional art investments allow collectors to boast partial ownership of iconic artworks which they could rarely afford otherwise — think Jean-Michele Basquiat, Joan Mitchell, and Willem de Kooning. As with every investment, there’s still risk involved, but that risk is hedged by expert advisors and portfolio managers with backgrounds in the worlds of both art and finance.
This interview is the first of an ongoing series, in which we speak to prominent art funds in order to compare and contrast what they offer and to whom.
For this interview, we sat down with Masha Golovina, Director of Acquisitions for Masterworks.io, a fund based in NYC and Boulder, Colorado (also known as “Silicon Mountain” for its tech-heavy economy) that was founded in 2017.
Masha earned degrees in Economics and Art History from UC Berkeley and Duke. She spent several years working for Citi Bank before ultimately joining Christie’s Auction House, where she held the title AVP of Risk and Profitability Management.
As with almost all investment funds, the language around fiduciary duties, SEC regulations, risk and returns can be utterly overwhelming for the uninitiated. Here, Masha gives us the low down on Masterworks.io — its mission and methodologies — in plain English.
This interview has been edited for length and clarity.
Masha Golovina, Director of Acquisitions for Masterworks.io
AA: Please give our readers an introduction and overview of Masterworks.
MG: Masterworks is an art investment platform — with specific identified assets — that allows anyone to allocate as little as $10,000 to art. I've been with Masterworks for three years; when I joined, there were about ten employees. Now, there are almost 70.
Our portfolio has over $200 million in art under management and an acquisitions budget of $300 million for 2021. As of December 2019, we had raised $10 or $15 million, so we’ve seen a tremendous amount of growth in the last year alone. At this point, we’re trying to grow the business, as any startup would.
We're very financially focused in terms of how we present information to our investors, and we're focused on the art market and historically significant movements. Our primary strategy is to acquire works by blue-chip artists with limited downside risk.
We take care of everything for our investors, which includes sourcing the painting, research, contracts, insurance, shipping, storage, and so on. Masterworks has effectively created a one-stop solution for those interested in participating in the art market, but who don’t know where to begin.
AA: What is the process like to begin investing with Masterworks? How do you vet or select your investors?
MG: Investments on our platform can be as low as $10,000 — that’s very different from your typical art fund, which usually requires a minimum investment in the six-figure range.
We want people on our platform who are serious about being part of the Masterworks community, who are excited about continuing to invest with us, who want to learn about the art market and the artists they invest in through Masterworks.
Potential investors go through an interview process with a member of our investor relations team. We will walk our investors through which paintings are currently available and how to invest with us, and that helps us to understand each investor’s goals. We recommend diversifying across a number of paintings and working with our investors to make sure whatever they're investing in is right for them.
AA: The art world is often called an “unregulated financial industry” — how does Masterworks comply with SEC regulations and what kind of contracts does it use?
In terms of regulations, the SEC and FINRA both look at what we're doing. That gives our investors a lot of confidence versus an entity that didn't go through the same legal steps and the same due diligence that we do on each and every deal.
When we acquire a painting for Masterworks, we use very detailed and transparent agreements. Our attorneys model our contracts based on the best practices in the industry, which are usually the auction houses. We don’t operate on handshake deals, which can be common in the art market.
When we are purchasing an artwork, we cover everything from the outset — including who is responsible for what costs, when the seller will be paid, and that the work must be received by Masterworks in the exact same condition as it was when we inspected the work. Many collectors are now used to working with auction houses, so they have experience with more detailed contracts. Again, these contracts are intended to ensure that everything goes right for both parties.
AA: Could you share an example of an artwork or two that Masterworks has bought with our readers?
MG: One painting I really love that Masterworks bought recently was a Barkley Hendricks painting entitled Selena/Star. He has the attention to detail of a Renaissance master. The subject is the daughter of one of his friends, and she’s depicted in this Botticelli-esque pose that’s set against a really striking, vibrant yellow background. It’s an extraordinary painting that we were able to acquire at auction.
Barkley Hendricks is an incredibly important artist known for his portraits of Black and Latinx subjects. He drew on the European tradition of portraiture and made it his own.
I've also always loved Abstract Expressionist artists. I think AbEx is one of the most interesting time periods in art history in America — and it's highly mythologized.
Masterworks acquired a beautiful Joan Mitchell painting entitled Rhubarb, which we purchased almost a year ago. It was painted during her Paris years and has a very interesting color palette that’s a little bit different from her other pieces — the composition is divided between heavy swathes of black, and then hints of coral pinks and red hues throughout the rest of the canvas. It's a really special work.
AA: Once you’ve purchased a piece, where does it go and for how long? And, are investors required to hold their shares in a work until that piece has sold?
MG: We are caretakers of these objects. We store them in a state-of-the-art fine art storage facility. Of course, everything's insured, and the physical well-being of the art is our number one priority.
A couple of the works we’ve purchased have actually gone out on loan. For example, we acquired a work through Phillips that had been sold by a museum in Amsterdam in order to fundraise amidst the pandemic, so we loaned it right back to them. That was just a really nice thing that we were able to do, and we were happy to do it.
That work is, of course, on temporary loan — and will be sold at some point. We're happy to loan it to a museum for as long as we own it, but at the end of the day, our fiduciary obligation is to our shareholders.
We expect to hold onto each painting for roughly three to ten years, and we do advise our investors that these are illiquid holds. We have a trading platform for our investors; but, I think that most people who come to us do actually intend to hold on to their shares until we’ve completed the eventual sale of the artwork.
AA: What type of returns can a Masterworks investor expect? And, how do those compare to other types of investments?
MG: Art is very competitive with public equities, which has had annual returns of around 9% over the last 35 years. The Post War and Contemporary segment — art created after 1945, generally speaking — has outpaced other segments of the market with an average annual price appreciation of 15% between 1995 and 2020.
Masterworks takes a 1.5% annual management fee that's issued to us as shares, and when we sell an artwork over our offering price, we take a 20% carry on the profits.
So far, we’ve only sold one painting — a Banksy that we held onto for exactly one year. Our investors made a 32% return on that work, which is far from typical, but Banksy’s market just keeps going up. We own another Bansky, but the prices aren't predictable, and our projections are based on historical returns.
We did a lot of internal research to create our own art market index. This was a huge data collection project — we’ve gone back and recorded each time a work of art has sold at auction more than once and we aggregated a significant number of data points and what the price appreciation has been for those pairs.
As I mentioned before, Masterworks specifically focuses on acquiring blue-chip art. There are some artists that are no longer in the index because they had a quick rise and fall. Still, we think those metrics are important, and while they’re not the only metric we look at, they are metrics we publish. We think indexes are a good way to approximate price appreciation in the art market.
Scott Lynn, our founder, has been collecting art seriously for decades. I was really interested in his vision for the company and how we could really grow the art world. I think that’s the crucial contribution that Masterworks is making.
I have an art history background, so I can certainly speak to somebody that knows art history and loves talking about art. However, if somebody doesn't know much about art, but they're interested in investments and in other types of attributes that blue-chip art has, we can also speak to them on that level.
That's what's really helped us grow as a company. Everyone at Masterworks shares an interest in both art history and finance. We've all come together to unite those passions around a core mission and provide value, on numerous levels, to our investors.
Learn more about Masterworks.io by clicking here.