Add to shopping art: Masterworks dives into new forms of art ownership

Nige Glenday, CFO at Masterworks, talks about buying art, securitizing it, and allowing investments as part of their business model—and how it's decidedly not an NFT.

Video transcript

- Emily, we're going to turn our attention to the world of art. And take a look. You see that painting behind? Me that's James Armstrong.

Now, which would you rather? Would you like to own the actual painting, or something like it, that you can hang on the wall? Or would you rather own a series of ones and zeros, a digital code that is assigned-- and only one digital code-- assigned to that painting. But you can't hang the digital code on the wall. We call that an NFT.

Let's talk about what's happening in the world of art, and much more than just that, with masterworks CFO Nigel Glenday. It's good to have you here. And before we get into what I just described, because there are people who are happy to buy the ones and zeros and not put it on the wall. But I want to talk about your business, because this is a great opportunity.

Instead of having to pay $30 million for the painting behind me-- by the way, if you got $30 million, you can have it-- You kind of fractionalization, the ownership. Tell us how that works, because it lets those of us who don't have big wallets get into the art collecting world.

NIGEL GLENDAY: Yeah, that's right. We are the leading, and really the only, investment platform that makes physical art, in the blue chip art segment, available to investors. So we have a company that researches, acquires, and securitizes art in the contemporary art segment, at price points above a million dollars, for literally hundreds of thousands of investors who are investing in individual paintings, to build a portfolio.

- This is Emily here. I'm wondering what kind of returns should investors on your platform be expecting from the art that they're actually investing in?

NIGEL GLENDAY: Yeah, we don't project forward returns in the art market. But we do spend a lot of time understanding what the historical trajectory of the art market has been. And the contemporary art market, in particular, has returned, on average, close to 14% annually, over the last 25 years. So a tremendously interesting asset class, certainly relative to other sub-segments into the art market, and outperforming most traditional asset classes as well.

- So hypothetically, let's say you had a Picasso come up. And you broke it. It's worth, I'm going to say, a million dollars. You break it into different pieces of asset that individuals can buy for-- I don't know the increments-- 10,000, 50,000, or whatever. And then how long do I have to hold that increment, before I can turn around and sell it, hopefully, at a profit.

NIGEL GLENDAY: Yeah, what we do is really a classic securitization process. So we take an asset, in this case, artwork. It's dropped into its own company. And we sell shares in an SEC qualified process, all at a fixed price to investors. So it's a very similar tried and true process that works across different assets.

Now over time, our investors are holding these assets for-- or holding these shares, rather, for capital appreciation over time, as a private equity like cash flow profile, holding the asset, really, anywhere from 3 to 10 years, before eventual resale. But we do make secondary markets available for our investors. So there is liquidity action on an interim basis. And there is price discovery from that extent as well.

- Nigel I want to ask the question about, if you are one of the owners of the securities assigned to the artwork, do you get custody of it for a week, two weeks out of the year? Or are they held in museums?

NIGEL GLENDAY: Yeah, we get that question all the time. It's nothing we've done today. We certainly have investors that are very interested in doing that. We hold the inventory, or the portfolio rather, in storage. But it's very much on our roadmap to make it available for our investors to enjoy in various formats, down the road.

- One other thing that I definitely want to ask about was, masterworks executives have been pretty openly against NFTs so far. But just to cite one recent example, the artist Pak just sold their NFT project for nearly $92 million on Nifty Gateway, in what's been deemed the largest ever art sale by a living creator. Is your business missing out on an opportunity by not entering the NFT market?

NIGEL GLENDAY: No, not at all. The physical art market has been around for centuries. It's got a proven track record, in terms of buyers and Sellers and activities in the market. And that's one that's been totally untapped by the investor community, broadly defined, really, any type of investor, from institutions down to newer investors. So that's a massive addressable market for us.

NFTs are the new kid on the block. It's hard to tell what kind of staying in power it'll have, from an investment perspective. But what we can say is, there's a tremendous strategic asset that exists in physical art, that is the opportunity for masterworks.

- And Nigel, some of us are old school and like to actually physically own it and hang it. But lots of people like that idea of owning the code assigned. And it's only one code to that piece of art. And you've even said that your view on NFTs could evolve. What would that look like, if you evolve into, we've got to get into this?

NIGEL GLENDAY: Well, look, first of all, think about what an NFT is doing. NFT is imbuing a digital asset with artificial scarcity, right? We're in the business of NFTs, in a way. We're in non-fungible artwork. Artwork is, by definition, non-fungible.

What we do at masterworks, we create fungibility by issuing shares against physical artwork. Sure, NFTs as a means to have ownership around a digital asset may evolve over time. And if there are use cases for masterworks, we're certainly going to be open to them down the road.

- If you can get me a buyer, 30 million, that print back there is yours. It's actually on metal, so it's not a print. But we appreciate your insight into all of this. Nigel Glenday is masterworks CFO. We hope you will come back.