Podcast Summary
Exploring the Opportunity in the Art Market with Scott Lynn of Masterworks: Masterworks, the largest buyer in the art market, recently raised $110M and sees significant growth potential in art as an unsecuritized asset class. They're investing in research and data analytics to unlock opportunities for investors.
Key takeaway from this conversation with Scott Lynn of Masterworks is the massive growth and opportunity in the art market, as evidenced by Masterworks' recent $110,000,000 fundraise and their position as the largest buyer in the art market. The investment in research and data analytics is a key focus, as is the belief that art, as the largest unsecuritized asset class, presents a huge opportunity for investment products. The investors' interest lies in the potential for art to rival the size and competition of other asset classes like venture capital and private equity. Masterworks' decision to stay private could be due to the early days of securitizing this asset class and the potential for significant growth and value creation.
Masterworks prioritizes operations over going public: Masterworks focuses on increasing art market liquidity through ETFs, investment products, and potentially a venture capital arm, while aiming to help emerging artists gain a foothold in the market.
Masterworks, a private company specializing in buying and selling art, is currently prioritizing its operations over going public. The company, which files for public offerings frequently, acknowledges the potential benefits of being publicly traded but does not have the resources to manage both at the moment. Masterworks is exploring ways to increase liquidity in the art market, such as creating exchange-traded funds (ETFs) and bundling art into investment products. The company is also considering supporting emerging artists through a potential venture capital arm, which could help new artists enter the market. With over $400 billion in sales annually, the art market is dominated by the top 100 artists, most of whom are deceased, making it difficult for new artists to gain a foothold. Masterworks aims to bring more capital into the art market and potentially help emerging artists by purchasing and promoting their work.
Masterworks' Picasso acquisition a small fraction of overall art market: Masterworks earns revenue from fees and profit sharing, restricts individual ownership, and follows a rigorous process to select art pieces for its platform, resulting in quick sales and limited offerings.
While Masterworks' $1 billion acquisition of a Picasso painting is significant, it represents only a small fraction of the overall $60 billion art market. Masterworks, which allows investors to buy fractional shares of art pieces, makes money through management fees and profit sharing when the art is sold. The company restricts individual ownership to 20% to prevent any single buyer from acquiring the entire painting. Masterworks' rigorous process for selecting art pieces to be listed on its platform involves reviewing hundreds of offerings and purchasing only a select few. Despite the limited number of offerings currently available on the platform, Masterworks' acquisitions team receives numerous offers and the pieces sell out quickly due to the art market's event-driven nature.
Masterworks bringing capital into art market, potentially driving up prices: Masterworks introduces new investors to art market, providing transparency and accessibility while believing in long-term returns of fine art asset class
Masterworks is bringing significant capital into the art market, potentially driving up prices due to the fixed or decreasing supply of art. This could be a positive development if it introduces new investors to the asset class and drives long-term growth. The platform's securitization model, which allows investors to buy shares in art pieces starting at a $20 per share IPO, provides transparency and accessibility to the art market. Masterworks' strategy is not a direct comparison to Bitcoin stacking, but rather a long-term belief in the consistent returns of the fine art asset class. Despite market volatility and economic uncertainty, the art market could be an attractive investment option for those seeking diversification and protection against inflation.
Exploring new products and building relationships in the investing world: Investors can build meaningful relationships and stay informed through communities and tools like TIP Mastermind, AT&T Business, and Yahoo Finance, while platforms like Masterworks prioritize research to help investors make informed decisions.
Building meaningful relationships and staying informed are key to success in the world of investing. In the TIP Mastermind community, investors come together to explore new products and build lifelong relationships, while events in New York City and Omaha help take these relationships further. AT&T Business supports entrepreneurs like Rainn Wilson in bringing innovative ideas to life, and tools like Yahoo Finance help investors stay informed about market trends and news. Masterworks, a platform for investing in art, also places a significant emphasis on research, having recently explored how art responds during inflation. While they haven't securitized a Jeff Koons sculpture yet, they would consider it. Overall, the importance of research, both on and off the platform, and the value of community and staying informed, are essential components of successful investing.
Art Investing as Inflation Hedge with Low Risk: Art investing offers low risk with potential inflation protection, but returns are lower than other investment classes. Losses on art purchases are rare, possibly due to loss aversion or declining supply.
Art investing, particularly in blue chip pieces, can serve as an inflation hedge with relatively low risk of significant losses. However, the returns are not as high as other investment classes, with contemporary art performing best at around 14% annually, modern impressionist and modern pieces at 6-10%, and old masters appreciating at or near inflation rates. Despite the lower returns, losses on the purchase of a painting at public auction are rare, with less than 10% of sales resulting in a loss and the magnitude of those losses typically being immaterial. The reasons for this trend are not fully understood, but could be due to loss aversion among wealthy investors or the declining supply of certain artists' works. Potentially, there could be ETFs created to invest in specific segments of the art market, such as contemporary or blue chip pieces.
Diversifying in the Art Market with Equally Weighted Portfolios: The art market offers equally weighted portfolios through platforms like Masterworks for diversification. Suggested minimum of 8-10 investments for adequate exposure. Economic downturns could still impact the art market due to the wealth effect.
The art market, historically difficult to equally weight due to the lack of securitization, is now offering equally weighted portfolios through platforms like Masterworks. Diversification is crucial in the art market, just as in any other asset class, with a suggested minimum of 8-10 investments for adequate exposure. The art market, while uncorrelated to the S&P 500, may still be influenced by the wealth effect and potential economic downturns. The most expensive painting ever sold was $450 million, and a $1 billion painting is not implausible given the existence of valuable pieces like the Mona Lisa. The securitization of art may make it easier for collectives of investors to purchase valuable paintings in the $1 billion range. Additionally, while the art market can be uncorrelated to the S&P 500, economic downturns could still have a drag on the art market due to the wealth effect.
Art Market's Resilience Amidst Economic Downturns: Historically, art market shows little correlation with stock market. Wealth effect fuels price rises as more billionaires created and buyers become wealthier. Museums could sell a portion of a painting, retain it for years, and investors receive proceeds, with museums having right of first refusal to buy back.
Despite economic downturns like recessions, the art market has historically shown negligible correlation with the stock market. Prices have continued to rise due to the wealth effect, as more billionaires are created and art buyers become wealthier. Jason Brett from 3six zero six also suggested an interesting strategy for museums to raise capital by selling a portion of a painting and retaining it for several years, while investors receive proceeds. Museums could potentially have a right of first refusal to buy back the painting if offered for sale. Additionally, Jason mentioned the challenge of displaying the vast amount of art in storage and the need to build relationships with museums to let more paintings live in public spaces.
Public.com's High Yield Cash Account and NFT Evaluation: Public.com's cash account offers a competitive 5.1% APY, while their stance on NFTs involves evaluating correlation and predictable price increases.
Public.com offers a high yield cash account with an impressive APY of 5.1%, surpassing many competitors in the market. This includes Robinhood, SoFi, Marcus, Wealthfront, Betterment, Capital One, Ally, Barclays, Bank of America, Chase, Citi, Wells Fargo, Discover, and American Express. While it may not be the absolute highest interest rate, it's a notable contender. This high yield cash account is a secondary brokerage account with Public Investing, offering FDIC insurance through partner banks. Regarding NFTs, the team at 3six thirty six maintains an evolving perspective. They consider two primary factors when evaluating potential assets: correlation with other asset classes and predictable price increases. Historically, NFTs have shown high volatility and correlation with Ethereum and Bitcoin. However, recent observations suggest that correlation with Ethereum may be improving. Given the early stage of NFTs, any potential investment would likely be made as part of a fund to mitigate risk and volatility. For those seeking financial advice, trusting the source is crucial. NerdWallet offers expert guidance to help individuals make smarter financial decisions, from credit cards to savings accounts. By comparing and considering various options, individuals can optimize their financial situation. In conclusion, the discussion covered Public.com's high yield cash account offering, the evolving perspective on NFTs, and the importance of trustworthy financial advice.
Exploring crypto and NFTs: Opportunities and Challenges for Masterworks: Masterworks is considering features like virtual galleries and user profiles to enhance user experience in crypto and NFT markets. They also see potential in community aspect and lifestyle opportunities, and are open to collaborations and monitoring DAOs.
While Masterworks is exploring the potential of crypto and NFTs, the unregulated nature of these markets poses challenges and risks, particularly for retail investors. Masterworks, which focuses on investing in physical art, is considering implementing features such as virtual galleries and individual user profiles to enhance the user experience. The company also sees potential in the community aspect of Web 3 and is open to exploring lifestyle opportunities, such as physical galleries or clubs, for its investors. Additionally, Masterworks is looking to collaborate with experts in the crypto and NFT space to expand its knowledge and capabilities. The emergence of decentralized autonomous organizations (DAOs) in the art world is also being monitored by Masterworks as a potential development to watch.
Masterworks: Investing in Art with Traditional Signals: Masterworks differentiates itself in art investment by using traditional art world signals, while acknowledging the potential of NFTs but not yet convinced of their intrinsic value as investments.
While DAOs and NFTs offer unique experiences and access to art, Masterworks differentiates itself as a platform focused on art investment. The art market, historically an outperformer with negligible correlation to public equities, deserves a place in a diversified portfolio. Masterworks looks to traditional art world signals, such as museum acquisitions and artist recognition, to gauge the cultural significance of potential investments. While NFTs are global by nature and can offer unique opportunities, Masterworks is not yet convinced of their intrinsic value as investments, particularly given the lack of institutional acceptance and the varying quality of NFT art. Masterworks accepts crypto payments via BitPay but encourages diversification beyond crypto.
Measuring an artist's value beyond their work: Google Trends and internet interest can influence an artist's value, but the correlation with price increases is unclear. NFTs and decentralization provide new ways for artists to sell directly to collectors, potentially disrupting traditional art marketplaces.
Awareness and internet interest play a significant role in the value of an artist's work, even if the actual work itself is easily distributed and accessible. Monet, as an example, is a highly valuable artist despite his works being widely reproduced and distributed. This awareness and interest can be measured through metrics like Google Trends, but the correlation between these metrics and eventual price increases is not always clear. Additionally, the scarcity of an artist's work and the number of publicly available pieces are important considerations for collectors, but these metrics are not easily accessible to the public. NFTs and decentralization offer artists a new way to sell their work directly to collectors on the blockchain, potentially disrupting traditional art marketplaces like Masterworks.
Exploring Art Investments through Web 3: Start with Masterworks, diversify investments, consult professionals, and research extensively before investing in art through Web 3.
While blockchain technology can facilitate art transactions with ease, the role of galleries and intermediaries in representing artists, communicating their stories, and building collector interest remains significant. For those new to investing in art through Web 3, it's recommended to start by creating an account on Masterworks (www.masterworks.io), scheduling a call with their membership team, and diversifying investments over time. Additional resources, such as research from Citi, can also be found online. Remember, start slow, start small, and always consult a professional before making any financial decisions.
