In recent art world news, investing in fine art has been typically limited to the very affluent, but startup Masterworks is seeking to bring about some change to the art market through the use of blockchain technology in which everyone can invest in fine art. Masterworks and its affiliated entities have developed an inaugural fine art platform that will allow the general public to invest in fine works of art.
The following is a brief summary of how the fine art platform 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 the company, this represents the first tokenized security offered under Regulation A of the JOBS Act.
The first painting set to be securitized is Andy Warhol’s “1 Colored Marilyn (Reversal Series),” which originates from a series of oil and silkscreen paintings completed by the late artist between 1979-1986. Masterworks will offer 99,825 shares priced at $20 for each share. The second painting to be securitized is Claude Monet’s “Coup de Vent” (1881). Both paintings are stored in a facility in Delaware, but are likely to be relocated to a gallery in New York in the near future.
The startup paid $1.8 million for the Warhol and $6.3 million for the Monet. The artwork will be offered on the platform at an aggregate amount that is 10% more than what Masterworks paid. The added 10% is said to cover various costs, including administrative, storage and other costs. After the offering, Masterworks may decide to sell the Warhol to a purchaser for value. Under such circumstances, all of the shareholders would be paid their fractional amount of 100% of the proceeds, less a fee of 20% of the profits, which is directed to Masterworks.
Masterworks intends to purchase additional artwork for sale on its platform in the near future. In view of the newly developed fine art platform, “[n]o longer will art owners need to sell a whole piece of artwork to a single buyer.” Instead, the company will be able to sell fractionalized shares of artwork to a number of investors throughout the world. The fine art platform will provide art owners 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.” In addition, institutional investors, such as art museums and the like, “will likely also take notice and invest in tokenized art securities to diversify their portfolios.”
This innovative development of the use of tokenized art securities in the art market is set to shift the paradigm for investing in fine art. Tokenized art securities provide a way for a vast new group of investors to actively participate in the art market that is now open to all.