Masterworks and Other Fractional Platforms Are Transforming Alternative Investments

  • Investment
  • 05.06.2023 08:00 am

For high net-wealth individuals and institutional investors, sinking funds into assets like fine art, antiques, high-end wines or luxury watches is nothing new. But the new breed of fractional investing platforms, led by Masterworks, has been bringing change to centuries-long practices. 

Why invest in alternative assets?

Alternative investments offer a number of benefits. They help diversify your portfolio, which can reduce your exposure to risk. Alternative investments can bring higher returns than traditional investments like stocks and funds, for those who choose carefully and/or have access to expert knowledge about such assets. 

Typically, alternative investments have a low or negative correlation with the stock markets, so people often turn to them when stock markets fall and uncertainty is high. These assets can serve as a hedge against market downturns, and lower volatility for stocks-based portfolios. 

But due to the major spending involved, this world has been largely closed to retail investors — until now. Masterworks and other digital investing platforms have given rise to a new approach to alternative investments, called fractional investment. Fractional investing platforms invite people to buy shares in these assets, lowering the barrier to investment and opening it up to retail investors who aren’t necessarily highly wealthy. 

For example, Masterworks invests in individual paintings by up-and-coming artists, establishes a holding company for each acquired work, and splits each one into several shares. Investors can buy as many shares as they like and wait for the painting to be sold, when they’ll receive a proportional share in the profits. Alternatively, they can trade their units on the Masterworks platform. 

Vint applies a similar approach to fine wines, Gilded does it for Swiss gold, Investables enables split investing in luxury watches as well as cars and alcohol, and Ember makes it possible for individuals to own a partial stake in luxury real estate and vacation rentals. There are many more fractional investment platforms for alternative assets. Together, they are driving change in the previously sealed atmosphere of alternative investing. 

Here are some of the ongoing ripple effects of alternative fractional investing platforms. 

1. Democratized access 

In the past, even if you could pull together enough money to buy a piece of contemporary art, you would still have had to get in touch with someone selling it. It usually required knowing the right people, and meeting complex, and often unsaid, entry requirements. 

New digital platforms divide assets into smaller fractions, lowering the minimum investment threshold and allowing more people to participate in owning a single artwork. It’s also easy to discover and meet entry requirements to online alternative investments, which unlocks the doors to previously exclusive markets. 

And lowering the barriers is working; since 2017, when Masterworks was founded, over $625 million of art has been sold through fractional investments, according to art market research firm ArtTactic.

2. Improved transparency

The aforementioned exclusivity contributed to a murky investing environment. It was difficult to access clear information about different assets, and comparing their value was very challenging. Knowledge was almost as valuable as the assets themselves, and often just as hard to come by. 

In contrast to the dealers and traders of the past, digital platforms deliver detailed information about investment opportunities, including historical performance, risk factors, and investor reviews. 

Newer technologies like blockchain also enhance transparency and security, strengthening ownership verification for both fractional and outright investors. 

3. Better decision-making 

Previously, only industry professionals or people with personal experience could confidently predict which artworks, vintages, or brands would increase in value and which would fall. If you couldn’t draw on this kind of expertise, you were essentially gambling blind. 

Today’s fractional investing platforms put more data tools in the hands of investors. You can now map historical trends and track performance metrics. Predictive analytics deliver forecasts for different market scenarios, helping investors assess the potential risks and returns of alternative investments. Research reports, expert opinions, and educational resources all help level the playing-field. 

Social media channels, online communities, and investment forums also enable people to share recommendations and news about alternative investment opportunities. Together, these information sources empower everyone to take a more active role in managing their investments. 

4. Streamlined processes

Even for high net-worth and institutional investors, investing in alternative assets could be convoluted and take a lot of time. 

But fractional investing platforms simplify the experience for everyone. They apply technology to offer user-friendly interfaces, real time data, and automated transactions, making it far easier for people to keep track of their own assets. 

Digital platforms also improve liquidity around assets that are typically highly non-liquid. Traditionally, you’d need to hold onto alternative assets for a long time, and allow a large window of time to sell them and liquidate their value. But many fractional investing platforms offer a secondary market where people can buy and sell their fractional shares, which makes it far quicker and simpler to exit your investment before it matures or is sold. 

5. New communities 

Fractional investing platforms form the foundations for new communities around the world. Online forums, social media groups, and specialist platforms bring together like-minded individuals to talk about alternative investments. 

In these communities, people share knowledge, network, and learn from each other’s experiences. 

These communities can spread the word about fractional investing in alternative assets, which drives their popularity even more. In this way, all kinds of investors can learn more about alternative asset classes, discover new opportunities, and improve their own decision-making.

Fractional investing is blowing a wind of change into alternative assets

It’s possible that some traditional investors lament the arrival of fractional investing for alternative investments. But all in all, the new approach of digital fractional investment platforms is good for everyone. Improved transparency, information, processes, support networks and access widens the market, and means that all investors can make better decisions about alternative investments. 

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