Introducing the Fine Art Market: A New Way To Invest
with Scott Lynn
with guest Scott Lynn #MakingBank S5E35
Investing in assets has always been a huge part of the economy and the way that people run businesses. Trading stocks, investing in real estate, etc., have always been a way into the business world. However, a new market asset is making an appearance — and it’s been one that’s been around longer than the rest!
Scott Lynn, art collector and founder of Masterworks, joins us today on this episode of Making Bank to talk about investing in Fine Art. Finding his passion for artwork at a young age, he’s always been interested in the art market and how it works. However, he noticed that there wasn’t an efficient way to invest and collect and trade fine art…so he came up with his own company that helps people to do so!
Learn how he started his company, how to invest, and what the future holds for Masterworks and his journey!
Creating an Art Market
Scott first started Masterworks because he realized that there was a massive asset class out there of artwork that was worth 1.7 trillion dollars but has never been securitized. The only way for investment was if you had millions of dollars to buy a painting. And to Scott, that sounded ridiculous in this age. So, he grabbed the opportunity and created this system that allowed people to invest in the paintings that they wanted, just like investing in companies and stocks.
“If you need diversification across 10 or 20 paintings, you know, you’d have to have hundreds of millions of dollars to build a well-diversified portfolio. So, it’s almost impossible to do that by just buying paintings.” Scott explains. Masterworks allows people that don’t have the excessive resources they need to invest money into artwork. They can put whatever amount they want in, and gain money through that.
Masterworks lets investors allocate how much they want to spend on paintings. Scott always suggests spreading that investment money over multiple different paintings to build that sort of diverse portfolio that in turn will pay off along the way.
So, who is investing in these paintings right now? Scott says he mostly works with self-directed investors. These are people that don’t come from family offices or institutions on the platform. Rather they are people that tens of thousands of dollars over their entire lifetime. Sometimes he has the investors that are putting in 500 dollars, but more times than not it’s the people that consistently putting in the thousands of dollars.
Investments and Returns
Art is much like real estate; it grows in value and appreciates in time. It’s more of a long-term sort of investment. If a painting triples in value over time, then after fees and expenses, your shares are at roughly the same rate.
A lot of the time, it can depend on the artist. “For example, an artist like Monet who was very established, very predictable in the art world, the returns are kind of high single-digit. Whereas some mid-career living artists, the returns can be above 20% a year.” Depending on the segment, who the artist is, and what specific painting you’re investing in, it can change the baseline of what you’re getting from your investment.
At any asset class, the higher the return, the higher the volatility of risk. The lower the return, generally the lower the volatility to risk. “So, we try to figure out when we talk to our investors on the phone, how do they think about investing? What is the risk tolerance and then guide then into specific artists based on feedback,” Scotts says of his advice towards the investors he works with.
The Future of Art Investments
Looking into the future of art investment, Scott doesn’t know where it’s going to go. But some people believe it’s going to get big. “We’ve had a whole bunch of people…that have this thesis that real assets are going to skyrocket in value because of the devaluation of the dollar in particular.”
Despite that, the art market is different than any other market out there — so it’s a bit unpredictable. The one good thing about the art market is that it rarely gets touched by politics or policies implemented that change the market around. The art market stays pretty predictable and is one of the truly global asset markets out there right now.
For Scott and his company, his plans focus on building secondary markets so that people can trade shares in paintings. “The way we view the business is we’re in the early stages of securitizing the asset class and creating an investment product for an industry that’s been around for hundreds of years.”