Buyers Cool on Owning Fractional Shares of Art—for Now

Yet, across age groups, only 14% said they were likely to invest in fractional art in the coming 12 months; among younger buyers under age 35, 18% were “likely” to do so, the survey found. That’s a big drop from a year ago, when 61% of those surveyed said they would invest in fractional art within the year, said ArtTactic, an art data and analysis firm. 

Softer conditions in the art market may explain this downturn in demand, the firm said. 

Against that backdrop, the most established firm in the business—New York-based Masterworks—continues to buy works of art to fractionalize and sell to investors. 

In May, Masterworks reported that it had bought more than 415 artworks since the company started in 2017 and had raised more than US$1 billion in capital.

So far this year, through early July, the company purchased 46 artworks at a cost of US$53.2 million that were publicly filed with the U.S. Securities and Exchange Commission, according to a spokesman for Masterworks. The company also bought an unknown number of works that are on its balance sheet but won’t be filed with the SEC until the firm offers shares in them to investors. Other artworks have been purchased to be sold through private placement fund vehicles to accredited investors, the spokesman said.

In researching Masterworks’ public SEC filings, ArtTactic saw submissions in 2023 for 175 works that had been purchased for nearly US$309 million, a nearly 40% increase in acquisition cost from a year earlier. In the first quarter this year, ArtTactic found that the firm had filed to sell 12 paintings for a total value of nearly US$10 million; that’s down from 43 works purchased for nearly US$72 million that were filed with the SEC in the first quarter last year, the firm said.

Those who invested in paintings purchased by Masterworks and subsequently sold have made impressive returns so far, according to ArtTactic. As of June, the company had publicly sold 23 of its 400-plus works, realizing a total of nearly US$65 million on purchases costing nearly US$42.8 million, ArtTactic said.

For example, Sam Gilliam’s Tracing, 1971, was sold by Masterworks for nearly US$1.65 million after they owned it for 2.2 years. The painting was originally bought for US$700,000, leading to a 135.7% total gross return, which does not include fees or the net return to investors, ArtTactic said. The report did not include purchase dates for the works.

Cecily Brown’s There is a land of pure delight, 2011, was bought for US$810,000 and sold 1.9 years later for US$1.8 million, a 122% total gross return, while Yayoi Kusama’s Infinity Nets T.I.T. was bought for US$1.1 million and sold 2.9 years later for US$2.25 million, a total gross return of 104.5%, ArtTactic said.

The lowest total gross return realized by Masterworks so far was 18% for Andy Warhol’s Flowers, 1964, which was acquired for US$3 million, held for eight months, and then sold for US$3.5 million, ArtTactic said.

There are several other firms with fractional art platforms of one kind or another, a handful of which ArtTactic also details in its report. One is Artex, which is based in Liechtenstein and regulated by the Financial Market Authority of that country within the European Markets in Financial Instruments Directive.  

In March, Artex Global Markets sold 550,000 shares in Art Share 002, a public limited liability company that used the funds to purchase the Francis Bacon triptych, Three studies for Portrait of George Dyer, 1963, valued at US$55 million. The shares were sold via a private placement for US$100 a piece to qualified investors in Europe and the U.K. 

The appeal of buying slices of a work of art instead of a whole painting that could be hung on your wall, is the chance to participate in a market sector that has ballooned in value over the past 20 years, ArtTactic said. 

“Access has always been a big hurdle in the art market,” the firm said. One reason is price, but ArtTactic also notes that the market “can often feel impenetrable and intimidating to those on the outside,” who aren’t well-connected to dealers and art world insiders. The firm also says the art market’s “unregulated nature … scares many potential investors.”

Through buying a theoretical slice of art for US$1,000 or more, an investor can participate in an exclusive market where blue-chip works often climb in value. ArtTactic’s survey found that 79% view fractional ownership as a way to get access to art they otherwise couldn’t afford, while 43% said it allowed them to create a portfolio they thought had potential (versus relying on a fund manager). 

But, as with any investment, fractional ownership of art bears the risk that a painting could lose value or not find a buyer. In fact, 71% of potential investors surveyed worry it could be difficult to exit a fractional ownership stake as the secondary market isn’t fully developed, ArtTactic said. The survey also found 48% worry about the sector’s lack of transparency, and 43% believe the market isn’t sufficiently regulated.