New Platform Offers Fractionalised Art

Art has always had a certain allure. News reports centre around the elegant international events populated by celebrities and multi-million-dollar sales of artworks at black-tie auctions, but beneath the glamour is a firmly established market that has proven to have low correlation to traditional investments.

At a glance, the art market has proven to be an effective long-term investment. ArtPrice, an art market sales database and analytics firm, have developed an index of the top 100 artists at auction (composition). Titled the ArtPrice 100 Index, it has outperformed the S&P500 by 363% from 2000 to 2023 as per it’s most recent update in January this year.

As the market has grown, art as a form of investment has become increasingly discussed and understood to be a complementary alternative asset to a diversified portfolio. Yet, market growth has also concurrently seen the most desirable artworks increase in price, often vastly beyond the means of most investors. For instance, according to ArtPrice data, the average price for an Andy Warhol painting at auction in 2000 was $360k. In 2022, the average price was $4.4m. Moreover, these costs only illustrate the price of acquiring the artwork, let alone the logistics of transporting, storing, and insuring the work.

The resulting paradox is one where interest in art market investment has never been so high, but it has also never been so out of reach from most investors. One solution that has arisen is fractional ownership, which has already proven itself successful in the realm of stocks and shares trading. In the words of Thierry Ehrmann, CEO of Artmarket.com and founder of ArtPrice, “In financial terms, investing in art masterpieces has never been so costly, with auction prices nowadays often reaching eight or nine figures in US dollars. But, at the same time, thanks to joint ownership solutions, it has never been so easy.”

Joint ownership solutions

Mintus is a very interesting, new company in the joint ownership solutions trend. They check all the boxes of the Morgan Stanley/Oliver Wyman, trends that will shape the future in the next 10 years: Alternatives, Shared Economy, Fractionalisation/Digitisation, and ESG.

Founded in 2020, it is the first FCA-regulated investment platform democratising access to artas an alternative asset through fractionalisation. Launching with Art, Mintus now is building partnerships in other alternative asset classes such as PE/VC, Renewable Energy. The company’s advance technology is getting big interest from some of the top financial industry players as it is able to make investments and management of alternatives easy with its regulated platform that runs on smart contracts.

According to Bevan Duncan, COO, Mintus is the first Europe-based, regulated investment platform allowing you to own a share of multi-million-dollar artworks from leading Post-War and Contemporary artists.

The global value of the art market is estimated at $1.7tr and in 2022, there were over $67bn’ worth of transactions. Whereas the global value of the private equity market is estimated at about half a trillion dollars.

There have been a number of reports commissioned over the past few years, including by Citi and UBS, recommending that asset allocators consider putting 3 to 10%, depending on the rest of the mix of the portfolio, into contemporary fine art to improve diversification and improve overall risk-adjusted returns, he says during a recent Opalesque TV interview.

Art deserves a place within illiquid asset holdings

Looking at over 100 years of data, art has underperformed equities but outperformed bonds, according to the Citi Global Art Market 2015 report, which also notes that, over time, there is a clear link between art prices and the global economy. The report concludes that art deserves a place within illiquid asset holdings for those who would otherwise hold art for many reasons. However, successful investment in art appears to be much more a question of identifying relative value than it is of gaining exposure to the market as a whole.

In an article produced a year ago, Citi adds that the Covid pandemic forced the art industry to adapt and shift to digital. This shift has given a wider range of people access to the art world than ever before and increased both the geographic and demographic diversity of buyers. The rise of the market for a new art medium – non-fungible tokens, or NFTs – generated sales of almost $25bn in 2021. “NFTs are not only a new way to consume art and collectables, they are disrupting the traditional art ownership model through a kind of democratisation.”

Note that Mintus do not sell NFTs. They sell shares in highly-valued physical artworks through an online platform.

A Survey of Global Collecting in 2022 by Art Basel and UBS notes that global imports of art and antiques increased 41% in 2021, with double-digit increases continuing into the first half of 2022 compared the same period in 2021. Median expenditure by HNW collectors increased in all markets during the first half of 2022, especially in France, Mainland China and Hong Kong. At $180,000 over the first six months of the year, it was higher than the entire year in 2021 ($164,000). Almost three-quarters of collectors surveyed had purchased work at an art fair in 2022, compared with just more than half in 2021. 95% of the HNW collectors surveyed said they had purchased works of art without viewing them in person.

Buying art as a tangible, illiquid asset for its P/Eratio is certainly a valid – and pleasant – portfolio diversifier. And now it is possible to start really small.

How to overcome the major barriers to entry into art investments

Historically access to the art market has beenlimited to ultra-high-net-worth individuals and a small handful of institutions that have extensive experience in investing in art, he says. This is because there are a number of structural barriers to investing in the art market.

The first one is simply the ticket size. Mintus targets “investment quality” art, where each piece can cost anything between $1.5m to $20m.

Then, there is accessibility. This type of art is scarce. There are, for example, only so many Warhols, Picassos and Hockneys. “You can’t just walk into a gallery and procure one of these. And if you did walk into a gallery, you’d probably be put onto a long waiting list.”

On top of that, there might be strings attached to some acquisitions: you might not be able to sell them within a certain period of time, or you may be asked to buy another piece of art to donate to an exhibition or a museum as a condition.

Furthermore, buying art for investment purposes implies a different kind of process than buying it as a collector.

Then you have the fees. If you buy art from a gallery or at an auction, you may pay fees anywhere between 20 and 50%.

The final structural barrier is the storing and insuring of the art, a costly affair.

“Mintus has built a platform with the art expertise and strategic relationships that remove these structural barriers and make art an investable asset class,” he says.

Before joining Mintus, Duncan, a chartered accountant, was the managing director of the Strategic Equity division at Gresham House, a specialist alternative asset manager in London.

Mintus’ three pillars

Mintus is built on three foundational pillars, he says. The first is trust: the business spent significant amount of time getting its UK FCA authorisation and is now the only authorised art investment platform in Europe.

The pillar also stands for transparency: transparency about the purchases, the fee model, the valuation reports, and the team.

The team includes, among others, chairman Maarten Slendebroek who was CEO of Jupiter Fund Management; founder and CEO Tamer Ozmen,who used to run Microsoft’s advanced solutions team; Brett Gorvy, chief curator, who was Christie’s’ worldwide chairman; Ben Clark, President ofMintus Art, who previously held executive positions at Christie’s and international art advisory Gurr Johns. The board members include Chris Kaladeen, who heads Rothschild & Co’s insurance and asset management investment banking business and Janet Goldsmith, a former managing director of Universal Studio’s Digital.

The second pillar is its technology platform, whichis private blockchain-enabled and allows the firmto issue any number of shares. The smart contracts enabled capabilities of the platform point to a keen eye on the future developments in the field and allow Mintus to offer its platform to financial institution under a SaaS model, whilst it has also incorporated AI technology into its art evaluation process. AI-led big data analysis adds a supporting opinion to the expertise of the team, offering new perspectives on the investment potential of artworks and their current valuations. “It’s very scalable and well invested,” Duncan adds.

The third pillar is the art supply and selection process: through its relationships with institutions, galleries, artists or individuals, Mintus has accessto more than $12bn worth of artwork. The firm is looking to bring approximately $150m of artwork onto the platform this year. All this, he adds, will go through a very rigorous selection approach, and will be handled in a private equity investment process adapted to the art market.

A private equity investment process because the team at Mintus includes experienced private equity investors and investment bankers.

The process, besides being extremely data-driven, leverages independent art experts and independent valuation houses, and the overall screening process is extremely thorough. “We’ve got a very structured methodical investment process which then comes together in a detailed investment committee paper,” Duncan explains, “which is then reviewed by our art investment committee – which is chaired by Brett Gorvy.”

How investors can dip their toe into art as an asset class

Qualifying retail investors can access art on Mintus.com.

“We are really looking to democratise the asset class and open that up to qualifying investors,” Duncan says. “They can obviously increase their allocation to alternatives through art specifically.”

Alternatively, he adds, UHNWIs and institutionscan access a diversified portfolio of art on Mintus’ platform through two fund structures that were launched recently, both with a minimum investment requirement of $100,000. The first is a $60m AMC (Actively Managed Certificate), Luxembourg-based, listed on the Vienna Stock Exchange, in which investors can invest through ICE. The second is a $150m Cayman feeder fund product. To this end, Mintus adds a point of difference to its competitors, showing a keen focus on accommodating high value investments from family offices into already diversified offerings.

Since Duncan’s interview, Mintus has closed its first painting – the 1960s Andy Warhol – and has already begun exploring sales opportunities with the aim of achieving a 20% IRR for investors. Concurrently, it has begun sourcing and building its first portfolio or ‘basket’ of fresh paintings by contemporary artists, providing an interesting alternative to the single painting investment model. Meanwhile, the other current opportunity, a painting by market stalwart, George Condo, remains available for investment.

You can watch the full Opalesque.TV interview here.