The Ugly Economics of Investing in Fine Art #shorts
Channel: InvestOrama
Date: 2022-02-04

Investing in art: this is a breakdown of the costs associated with investing in art via Masterworks, taking a hypothetical example of a painting that doubles in value.

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This is part of a series on Building the Portfolio of the Future. I'll be looking at alternative asset classes and the platforms that democratize them to decide if I invest or not. I will do the due diligence, read the research and the small print instead of just sharing the marketing materials.

ACCESS MY NOTES ON ART INVESTING (NOTION DOCUMENT)
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TRANSCRIPT
Let's look at the economics of investing in art via Masterworks, with a simple numerical example.
Assume a painting that doubles in value.
It is initially sold by owner 1 at $1 million. It goes through an auction house like Sotheby's. Then is bought by Masterworks who will do an IPO of the painting. Ultimately owner 2 will buy it for $2 million, again through an auction house.
The auction house will add a 20% Buyer's Premium.
Then Masterworks adds an 11% Markup.
So investors buy the painting for $1.3 million
Owner 2 will ultimately buy it for $2 million through an auction house, with another 20% fee.
That implies Masterworks got $1.67 million from the sale.
That's a gross profit of $335000. And Masterworks takes a 20% cut so the net profit is $268000 or 20%.
Overall the 100% appreciation in art has delivered a 20% return after fees to Masterworks investors.

#shorts