A fraction of genius The new way to own art
Investing in art has always offered something unique. Art, unlike stocks, bonds, or other traditional assets, is a thing both physical and emotional. For art collectors, there are few pleasures that compete with the privilege, on a daily basis, of gazing upon a Picasso or a Basquiat – not least when it’s to be had within your own home. Perhaps it’s little surprise, therefore, that the enforced pause during the Covid-19 pandemic was followed by a surge in global art market activity
But looking at art isn’t for everyone. The recent appetite for art’s tangible qualities has also been met with a counter-swell of interest in its most in-tangible of properties: its investment potential. Nowhere is this more evident than in the rise of fractional ownership, and the host of online platforms bidding to make it possible.
“The recent appetite for art’s tangible qualities has also been met with a counter-swell of interest in its most in-tangible of properties: its investment potential.”
Fractional ownership is a simple idea: assets, such as an artwork, are divided up into individual shares, each of which can be bought by investors. Currently, the largest marketplace for fractional art ownership is US-based Masterworks, founded in 2017 by collector Scott Lynn, after he witnessed his own art collection appreciate in value. Masterworks boasts of having purchased more than 400 artworks since its conception, many of which have been sold for varying returns.
UK-based companies are also turning to the fractional ownership model. London-based Mintus, founded by former Microsoft executive Tamer Ozmen in 2020, invites its clients to invest in ‘alternatives’ – including art, but also real estate and emerging sectors such as shipping. Navigating via Mintus’ blockchain-based investment and ownership platform, prospective investors can browse a curated selection of artwork portfolios. Each of these is accompanied by detailed information to assist investors to make informed decisions. After selecting an art portfolio, clients choose the number of shares they wish to purchase and complete the transaction online. Post-purchase, they can monitor their investment through the Mintus platform, which provides updates on valuation, market trends, and potential opportunities for selling their shares.
Masterwork's standout acquisition is an Andy Warhol’s 1966 Self-Portrait, valued at
$6.8mn
Before artworks are offered to clients, Ben Clark, President of Mintus, explains that they must first pass an initial in-house screening with the company’s dedicated ‘Art Investment Committee’, comprising a team of art, finance, and legal experts. This is followed by an independent third-party valuation. Only artworks that receive unanimous agreement across the committee on its proposed acquisition price, and investment potential, will reach Mintus clients. To date, the company’s standout acquisition is an Andy Warhol 1966 Self-Portrait, valued at $6.8 million in March 2022 by a leading appraiser.
Fractional ownership offers several compelling advantages compared to traditional ownership – most notably, diversification. “Investors gain access to high-value assets—such as art, real estate, or rare collectibles—without the significant capital investment typically required for outright ownership,” Mr. Clark says. “By enabling investors to spread their funds across multiple assets, fractional ownership mitigates the impact of any single asset’s potential volatility.” Add to this the ability to outsource maintenance and management responsibilities to the ownership platform, and fractional ownership offers a more convenient, hands-off investment experience.
“Between 1995 and 2022, contemporary art specifically has appreciated at a compound annual growth rate of 12.6%, outperforming the S&P 500 (9%)”
Why art? Unsurprisingly, the platforms themselves are bullish about the asset’s investment potential. Perhaps the most repeated claim for art’s investment prowess, repeated on the Masterworks website, is thus: between 1995 and 2022, contemporary art specifically has appreciated at a compound annual growth rate of 12.6%, outperforming the S&P 500 (9%). The company also states that art also shows low correlation to other asset classes such as real estate and US corporate bonds, giving it value during times of financial stress.
The reality of art’s overperformance is more complicated: global stock markets endured a difficult time since the turn of the century, particularly in the wake of the financial crisis. Likewise, the art market recovered well from its enforced pandemic-era pause with two years of growth (a period that coincided with the recent boom in fractional ownership). But its recent performance has been more muted. According to the latest Art Market Report, sales in the art market fell by 4% year-on-year in 2023, to an estimated $65 billion. Against a backdrop of high interest rates, inflation, and political instability, sales were thinner at the top end of the market, and the performance of some of the major art markets diverged. That said, values remained above the pre-pandemic level of $64.4 billion in 2019.
This being the case, the growth of fractionalisation may say less about art, and more about the technologies that make it possible. “Online marketplaces and blockchain technology provide secure and verifiable transactions, enhancing trust and minimising fraud risks,” Mr. Clark says. “Digital platforms supply detailed information, historical data, and analytics, enabling investors to make informed decisions. Additionally, smart contracts automate and streamline the buying, selling, and management processes, reducing costs and making fractional ownership more accessible to a wider audience.”
Of course, not everyone is interest in owning a Warhol by the fraction. Traditional ownership will always appeal to collectors who value exclusivity, direct control, and may not prioritise art’s investment properties. Guy Vaissière, Director, Valuations & Fiduciary Services, Europe at Gurr Johns, a global art advisory and appraisal group, notes that the most established buyers remain “more interested in owning art outright,” thereby enjoying the Mr. Clarke fits of ownership themselves. That said, he does not rule out its potential. “Fractionalisation in the art world in still in its infancy, with many people watching its development with interest.”
Regardless, fractional ownership is already beginning to reshape the demographics of who owns art. A recent survey from Deloitte and ArtTactic, an art market research platform, found that 21% of collectors were interested in investing in art through a fractional ownership model. But the figure was significantly higher for those under 35 years old, at 43%. Not looking at art may have widespread appeal.
Mr. Clark counts a diverse set of investors among his clients, including “high-net-worth individuals, seasoned collectors, and cultural enthusiasts who see art as both an asset and a passion investment.” Echoing Mr. Vaissière, however, he acknowledges the “growing overlap with traditional financial investors.” This new wave includes younger, tech-savvy global professionals and individuals from diverse financial backgrounds looking to diversify their portfolios. “These newer investors may not possess the same level of expertise or capital,” Mr. Clark says. “But they are drawn by the potential for appreciation and the prestige associated with art investments.”
To satisfy this demand, Mintus plans to expand its collection with more “strategic acquisitions” from emerging (and re-emerging) artists with strong market potential, as well as iconic pieces from more established names. According to the Mintus website, these are currently held in a climate-controlled, specialist art storage facility in Delaware.
For now, the market for fractional art ownership itself remains but a fraction of a much broader market. But as the practice gains wider acceptance, it may lead to a more dynamic and inclusive art market, where traditional ownership coexists with innovative investment models. “If fractionalisation becomes a mainstream product within the art world, then one may see investors beginning to influence values,” says Mr. Vaissière. “Currently, this seems a long way off.” However, momentum continues to build. The recent launch of Artex, a Liechtenstein-regulated ‘stock exchange for art’, began by offering shares in a major work by Francis Bacon. Mr. Vaissière confirms: “The art world is watching the ongoing development of this exchange with interest.”
Out on Loan Are you thinking of loaning out your art to a gallery or museum? We’ve put together a 6-step checklist to help you ensure your prized possessions are fully protected while they’re away.
1.
Check your existing insurance policy covering the artwork(s) you wish to loan out. Your broker will be able to advise whether there is automatic cover for all transits and exhibition period. If there isn’t, re-consider whether you have the right policy to suit your requirements.
2.
Review the current market value of the artwork and ensure it is adequately insured while on loan.
3.
Ensure you have a loan agreement in place between you and the borrower. This should include: details of the work(s) including the values; a description of when the insurance cover begins and ends and who is responsible for it; a section about condition checking; a section about how the works are packed and shipped; a section on how the works are to be handled and displayed including atmospheric conditions if appropriate.
4.
Request that you are named as additional insured and loss payee, if taking out borrower’s insurance. You should ask your insurance broker to review the policy and highlight any differences in cover compared with your own, such as cover for terrorism or re-framing.
5.
Ensure that condition reports are completed and held securely on file. Reports should be carried out immediately prior to packing for transit (including high-res photographs), and following their return to your premises.
6.
Ensure a professional fine art packer and shipper is used to transport the work. This will help to protect your artwork against the normal hazards associated with transit or storage.
Contact
James Ferrer
Head of Fine Art, Lockton Specie & Fine Art