How to Invest in Fine Art (Without Being Rich)

How to Invest in Fine Art (Without Being Rich)

all right so I am excited today I’ve
Scott Lynn the CEO of Masterworks on and we’re gonna talk a little bit about
Crowdfunded Fine Art which is kind of a new unique thing that was new to me and
you know and Scott’s team reached out and anyway so we get to kind of chat about
this and I’m trying to think of the best way to kind of start this conversation
so I’ve done a review about Fundrise and I think people can understand or you
know the Crowdfunded Real Estate thing has been around you know for a few years
and I think some people have gotten that but you guys are doing Crowdfunded Fine
Art so maybe do a compare and contrast if you will between the two sure yeah so
Fundrise is actually a very comparable company to Masterworks and it was one of the founders of Fundrise that’s actually an advisor for Masterworks but we’re doing
a very similar model of what they are except that we’re using Blue Chip Art rather than real estate as the main assets that investors can invest gotcha
okay all right so this begs like just tons of questions so let’s start with
you I’m assuming you have some sort of background in investing in art is that
true yeah so my background has really been in starting technology companies as
well as investing in art for maybe the past 15 20 years so I think it’s this
really interesting unique asset class that has historically outperformed the
S&P is uncorrelated but the only way to invest in it is if you have a couple
million dollars to buy a painting so it’s this it’s it’s a it’s a very interesting
asset class but also very inaccessible at the same time all right okay so let’s
talk about the thing that a lot of people are interested in so you
mentioned the has beaten the S&P for last ten or fifteen years I don’t know
we said specifically I read on the site that you guys was it was it was a Wall
Street Journal or somebody was talking about in 2018 this is the best
performing asset class what yeah so I mean as a new new investor to this I
mean me this is a new idea to me I’m thinking all right what can I expect in
terms of returns now I know very very little about
art but I know that that seems like a generally wildly volatile market am i
incorrect in that or their averages to kind of assume well I think I think I
think it’s think about the art market very similar to any other market so very
high level the way to think about art today is that there’s approximately 1.7
trillion dollars in assets and these are really paintings that sit between ultra
high-net-worth collectors homes and that’s a number that’s that’s published
by Deloitte out of that this year somewhere between 60 and 70 billion
dollars in art will sell so there’s different there’s different segments
within the art market what we like to focus on is something that we refer to
as the blue-chip segment and we very narrowly defined the blue-chip segment
is art created by the top 100 most selling artists so if you look at just
the top 100 artists and Picasso’s at the number one the number one of those 100
but if you look at the top 100 artists approximately 62 percent of the market
overall from from a dollar perspective is related to those those top 100
artists if you have a very few number of artists that control the majority of the
value and within that segment we actually think the volatility is
reasonably low so if you invest in a Monet today our data shows the
likelihood of that painting selling for less than what you you purchase it for
at some point in the future is less than 10% yeah so you have this very very
interesting asset class that does appreciate quite well with reasonable
low levels of volatility yeah okay so I would liken that to you know saying that
stocks are wildly volatile is you have penny stocks that are and then you
have blue chip stocks like your your reference that are much more stable and
the likelihood of you losing all your money on them is very slim okay so that
makes sense to me because yeah like in my mind I’ve always just thought of you
know investment art is you know you have no
idea what’s gonna happen and a lot of people think of that about stocks until
they actually under stand you got to sort them into
different categories and treat and such right yeah you don’t know and a lot of
people asking the question which I don’t have any data to support this but this
is just sort of a hunch but they say you know when does art start becoming
investment-grade and I think the price point that that are generally starts
becoming investment-grade in today’s market is somewhere around a million
dollars for painting so to your point you know if you’re purchasing a painting
for less than a million dollars it’s probably somewhat of a you know a
potentially risky risky decision somewhat speculative yeah okay
that makes sense all right so let’s talk a little bit about the platform you know
and for people who maybe aren’t familiar with the crowdfunded thing you know and
I’ll go ahead and give you my dummy downed version of this and you can fill in any
mistakes and things I’m missing here but the gist of it is is that you guys go
out and buy this million five million dollar painting and me and a whole bunch
of other investors who are maybe in for a thousand dollars or something we are
part owners of this painting and then you know we share in the profits of that
as well is that simplified and accurate yeah that’s correct so we so may be to
use a real specific example so we go out and we purchase a five million dollar
painting your example we then turn around and we sell that painting to
investors in our cost plus management fees our management fees are between 150
basis points and 200 basis points per year depending on the painting plus 20%
of future profit or carries so very similar to to how a hedge fund
structures with fees but that’s how we structure our fees all right so that leads
another question are you required to be an accredited investor to participate
with you guys yeah well you’re not required to be an accredited investor to
invest in in this painting so these are these are reggae paintings very similar
to the Fundrise concept that we talked about where anyone can invest in them
all right so I’m trying I’m thinking through a lot of this and in light of my
experience with Fundrise so we so if I go sign up today and I invest
$1,000 is that that’s just one painting and that’s it correct practice yeah so
you so so really what we encourage investors to do is to think of this as a
longer-term process where you’re building a portfolio or diversification
amongst a number of blue chip paintings mm-hm as we as we launch paintings
gotcha okay okay and then I’m assuming in you know you’re
pretty much locked in until you guys sell that painting correct
yeah that’s that’s the way that the again we encourage people to think about
it I mean we we do have plans to launch trading markets and other mechanisms to
help get investors liquidity if they need in whatever investor should assume
that they’re locked in for the the life of that painting until the painting is
sold okay and then I take the question that follows is is there a general
timeline that you guys want to turn it over with it I mean do shoot for five
years you know what yeah so we so we guide people to think of the whole the
whole period is somewhere between three and seven years okay so those are right
after seven years where investors can force us to start a sale process okay so
we you know for a whole bunch of different reasons the probably aren’t
worth going into it’s hard to sell a painting within the first three years
after purchasing a publicly at auction so we really think of that whole period
is somewhere between three and seven years all right so when I was just over
in your website and when I go over there and I see it says like you know you have
a piece of art sitting up there that I guess presumably you guys are trying to
get so it’s a Andy Warhol over there and it says 95% reserved so does that mean
that you guys are waiting until you get enough investors to participate and then
you guys go out and buy it is that correct no sorry so we based on how
regulation works in the US we have said to purchase these paintings with their
own balance sheet capital and then we filed them with the SEC to qualify them
and then we turn around and we sell the painting to investors at that point in
time so these two paintings here have been filed with the SEC
the Warhol has actually been qualified we’re waiting on a letter from FINRA
called a no action letter but as soon as that happens we didn’t process payments
for all of those investors that are preserved okay so the way to think about
that reservation is those are people that have committed to reserve added a
payment method but we haven’t yet charged them because we have a pursuit
clearance from SEC or FINRA alright so if I’m going over there and investing
over to site and investing $1,000 today you know I click the get started button
or whatever is that what’s gonna happen do I get to choose whether I want to be
part of this Monet or Warhol in this case yeah so you could choose either
those paintings you can reserve shares and or a payment method speak to a sales
person if you like and then as soon as we’ve received clearance from the SEC
and FINRA we will send you an email you’ll click a link and we’ll the final
agreement and we’ll process your payment cool all right man well this is a
fascinating idea I really do like it I like I mean really I love all the
different ways that are coming out to invest these days and this is a unique
one I haven’t heard of and excited what you guys are doing so anyway thanks for
taking a few minutes and anybody watching definitely go check out their
site right it’s a correct yeah
yeah all right anything else you want to add anything I missed
no I think that’s it I think that’s it I appreciate appreciate you having me on
and you know if there’s any questions were always available for for people to
answer them cool all right appreciate it Scott thanks for taking time okay
thanks Bob

4 thoughts on “How to Invest in Fine Art (Without Being Rich)

  1. Neat idea. Sounds like their fees are pretty large on the back end. Also seems like a very long time to just wonder if it's going to work out well or not.

  2. Really seems to be like a hedge fund… The are literally "selling" the painting to inverstors after buying so they don't take any risk in case the painting loses value… Still interesting idea though

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