Angelica Villa | ARTnews

April 26, 2023

With the major May auctions around the corner, the Art Business Conference has landed in New York for the first time since before the pandemic with a full slate of panels that examine the state of the art market and art finance. In spring 2020, a new trend was rising: firms that put artworks into securitized funds for fractional ownership investment.

The 2023 conference opens today in a very different financial environment that sees those same firms in rocky waters.

The Art Business Conference was founded in 2014, just as collectors started to dip their toes into using art as collateral for loans, the precursor of fractional funds. Four years later, Deloitte estimated that that sector was worth $20 billion.

In May 2020, Morgan Stanley analysts released a wide-ranging report on how artworks could be used as financial vehicles: they could be placed in trust to shield fortunes from inheritance taxes (as Succession cheekily referenced with its recent nod toward “investment impressionism” after a certain character’s untimely death), or they could be used as collateral for loans. In 2021, Bank of America, Goldman Sachs, and JPMorgan reported growth in their art loan businesses by up to 30 percent over the previous year.

The Morgan Stanley report also gestured to the new area of securitized funds, but it took the pandemic to rev that up. In the following months, booming tech stocks, low-interest rates, and a rise in disposable income fueled bubbles in alternative assets, namely cryptocurrencies, NFTs, and so-called “meme stocks.” But newer fintech players splitting equity in artworks among retail investors also saw their growth supercharged.

The best-known firms, Yieldstreet, Mintus, Masterworks, and Securitize, have slightly different business models. Still, they all promise to unlock art’s investment potential to a population beyond the elite collector class. In 2021 Masterworks raised $110 million in a series A funding round, Yieldstreet raised $100 million in series C funding, and Securitize raised $48 million in its series B capital round.

This past January, however, the financial papers of record declared the end of “cheap money,” as central banks ended a period of ultralow interest rates and quantitative easing that defined the global economy of the last 15 years. Now, with global interest rates hiked and inflation running high, there are far higher barriers to attracting investors to alternative assets.

As ARTnews reported in December, Masterworks used its sizable cash runway to purchase more than $450 million worth of paintings, while cutting over two dozen employees as it struggled to reach ambitious sales targets. Former staffers revealed that the cost of netting retail investors was an ongoing challenge.

Mintus has faced a similar hurdle, an anonymous source familiar with the company’s business strategy told ARTnews. A more restrictive regulatory environment in the United Kingdom, where Mintus is based, forced it to pivot from retail to institutional investors and family wealth offices. The cost of marketing to regular investors while adhering to regulatory standards was too high in the face of a prospective recession, the source said.

Vedat Mizrahi, Mintus’s CFO and chief economist, told ARTnews that the company’s focus is on “mass affluent” individuals, an industry term used to describe those with at least $100,000 in investable assets. “We have always been of the view that mass retail is not the right client category to target for alternative assets due to the complexity and relatively more illiquid nature of the asset class.”

Yieldstreet, which bills itself as an alternative investment platform and has funds in real estate, law, and art, cut at least two employees from its small art-focused division, Athena, according to former employees, speaking on the condition of anonymity. Athena launched a series of art equity funds last year.

Its fourth fund, launched last May, holding works from Ed Ruscha, Cy Twombly, and Sol LeWitt, among others, has yet to be fully bought into nearly a year later. A former Yieldstreet employee familiar with the funds told ARTnews that the weak selling is a sign the company and its peers have yet to bounce back from a dip in investor interest that began last summer. (A Yieldstreet spokesperson declined to comment on the extent of the layoffs.)

A wealth adviser based in Florida…READ MORE