Masterworks operates as a regulated investment platform enabling retail investors to purchase fractional shares of high-value artworks. Founded on the principle of making fine art investment accessible to everyday people, the platform has grown to manage over $1 billion in collective investments across nearly 450 paintings from over 150 countries.
The mechanics of Masterworks follow a straightforward process. The company’s curatorial team identifies and acquires artworks from galleries and private collectors, targeting pieces by established artists including Basquiat, Picasso, and Banksy. Once acquired, each artwork is transferred to a climate-controlled storage facility with full insurance coverage. Masterworks then creates a special-purpose limited liability company for each piece and files it with the SEC under Regulation A, which permits security issuers to solicit investment funds from the public under strict guidelines. This securitization process converts the physical artwork into tradeable shares that individual investors can purchase through the platform.
The fractional ownership model fundamentally reduces entry barriers to art investment. Rather than requiring substantial capital to purchase an entire artwork, investors can buy shares at lower price points, democratizing access to a market traditionally reserved for high-net-worth collectors. Investors retain flexibility through a secondary market where they can sell shares before the artwork is sold, or alternatively hold shares until Masterworks sells the piece and distributes proceeds.
Masterworks generates revenue through two mechanisms: a 1.5% annual management fee covering storage, insurance, and maintenance costs, and a 20% commission on profits when an artwork is sold, with the remaining 80% distributed to shareholders. This dual revenue structure aligns company interests with investor returns.
The platform operates under substantial regulatory oversight. The SEC tightly regulates every offering, and Masterworks’ salespeople hold Series 7 licenses, requiring they understand fiduciary duties toward clients. The company implements Know Your Customer verification protocols and screens users against the Office of Foreign Assets Control list to prevent money laundering. The UDAAP rule prevents deceptive practices, ensuring Masterworks discloses all investment-related information and maintains investor focus.
Recent infrastructure improvements have enhanced international accessibility. Masterworks integrated J.P. Morgan Payments’ currency conversion technology, automating local payment processing and foreign exchange without manual intervention, significantly reducing operational costs and increasing international transaction completion rates.
What is Masterworks? How can you invest in Art without spending a huge amount of money, these are the questions answered in the article.
Cover image: Loin, Jean Michel Basquiat. Image courtesy of Masterworks
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