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Masterworks.io Investor Deck

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Masterworks.io Investor Deck

  1. 1. Masterworks Investment Opportunity INTRODUCTION 1www.masterworks.io
  2. 2. What is Masterworks? Masterworks is an investment platform for fine art.. 1. WE EXPERTLY SELECT AND ACQUIRE WORKS by blue-chip artists that we believe will appreciate into the future while having minimal downside risk. 2. WE SECURITIZE EACH ARTWORK by filing it as a public offering with the SEC and allow investors to fractionally invest in these great paintings. 3. WE’RE BUILDING TRADING MARKETS (available in 2019) for investors to trade their shares amongst one another. MISSION STATEMENT 2 WHAT DO WE DO? www.masterworks.io ..that provides superior risk-adjusted returns for all types of investors. 1. ACHIEVE SUPERIOR RISK-ADJUSTED RETURNS with an asset class that has consistently beaten the S&P 500 and has a low correlation to public equities. 2. GAIN INVESTMENT EXPOSURE TO THE HIGH- END ART MARKET through tradable shares backed by a single physical work of art. 3. RELY ON MARKET EXPERTS to source, purchase, and select investment-grade objects. Masterworks is democratizing a $1 trillion+ asset class that has previously been available only to ultra-wealthy collectors capable of spending millions of dollars to build a portfolio of investment- grade art.
  3. 3. Why Invest in Art With Masterworks? INTRODUCTION 3www.masterworks.io
  4. 4. Why Invest in Art With Masterworks? WHY MASTERWORKS 4 1. Achieve superior risk-adjusted returns, with an asset class that has has consistently outperformed the S&P 500 with better store of value characteristics. For example, in the 2008-2009 financial crisis, art declined 26% versus the S&P 500 which declined 58%. 2. Unleveraged, gross target returns of 12%, ranging between 9-15% per artwork, calculated based on historical performance of publicly available sales of similar paintings at auction. When compared with real estate on an unleveraaged basis, this would make art a top quartile investment. 3. Upside from future trading markets. Invest in paintings now before the become public, and receive the benefit of any liquidity premium achieved from the public markets. 4. Transparency. Even though the art market is the largest unregulated market, all of our offerings are filed with the Securities and Exchange Commission providing a new level of transparency to the industry. 5. Focus on blue-chip artwork with true scarcity value, which provides investors with attractive risk-adjusted returns over time. 6. Extensive art market relationships and expertise with auction houses, galleries, artists, and collectors to source the most attractive investment artwork opportunities. www.masterworks.io 45 90 135 180 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 POST-WAR & CONTEMPORARY ALL ART-W S&P 500 FTSE ALL-SHARE Mei Moses® World Collecting Category Indexes versus the s&p 500 total return index and the FTSE All-Share index without dividend reinvestment. ART VS. MAJOR INDEXES: LAST 50 YEARS
  5. 5. How Does it Work? HOW DOES IT WORK 5www.masterworks.io 1. We source artwork that meet our investment criteria. 4. We sell 35% of the offering to retail investors and up to 65% to family offices or institutional investors. 6. A collector makes an offer to buy the artwork. 3. We securitize the artwork by filing it with the SEC. 2. We purchase artwork with our own capital, taking principal risk. 5. We plan to open a trading market for each individual artwork so investors can trade shares. 7. If 51% of shareholders vote to sell, the painting is sold and the proceeds are distributed. 8. The painting is sold and the proceeds are distributed to shareholders.
  6. 6. Art Market Overview ART MARKET OVERVIEW 6www.masterworks.io
  7. 7. Why Invest in Art? ART AS AN ASSET CLASS 7 Blue-chip artwork created by established artists has developed into an attractive asset class. Expanding global wealth, scarcity value, and international marketability of masterpiece artwork can provide investors with attractive risk-adjusted returns, a store of value, and a hedge against inflation and currency movements. 1. Art Basel & UBS, The Art Market, 2016, P. 106–107 Post War & Contemporary Art, consisting of works created after 1945, has had an average appreciation rate of 10.85% since 1997. ‘THE ART MARKET’, 2016, P. 106 1. Attractive risk-adjusted returns. The returns on art have been strong over the last twenty to fifty years—the leading collecting categories, which Masterworks has identified for prospective acquisitions, outperformed the S&P 500 and Financial Times All Share indexes by a factor of 10%–30%. 1 2. Strong store of value. Masterpiece artwork benefits from a consistent market demand, even through market down cycles. During the financial crisis of 2008-2009, art markets declined less than 26% from their peak (and recovered shortly thereafter), as compared to the S&P which declined 57%. 45 90 135 180 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 POST-WAR & CONTEMPORARY ALL ART-W S&P 500 FTSE ALL-SHARE Figure 2: Mei Moses® World Collecting Category Indexes versus the s&p 500 total return index and the FTSE All- Share index without dividend reinvestment. 2 ART VS. MAJOR INDEXES: LAST 50 YEARS www.masterworks.io
  8. 8. Why Invest in Art? WHY INVEST 8 3. Art as a risk diversifier. There is weak correlation to US and global equity markets which makes art an attractive investment from a risk diversification standpoint. MeiMoses calculated a long-term correlation coefficient of 0.04 for art with the S&P 500.2 Similar analyses indicate that art market returns are only marginally correlated with equity markets on a lagged basis. Scarcity value of masterpiece artwork results in investment characteristics similar to gold, commodities, luxury real estate and other inflation-protected tangible assets. Similarly, art provides a natural hedge against cross- currency movements given global collector demand and can be bought and sold in any currency. 4. Driven by growth in global ultra-high-net- worth-individuals wealth. Art is among the top passions of the ultra-high-net-worth (UHNWI) community which drives demand for blue-chip artwork. 3 The number of millionaires has increased 170% since 2000 and number of UHNWIs has risen by nearly five-times. 4 Growth in millionaires is expected to rise another 22% by 2022 and 30% amongst UHNWIs over the next five years with a significant contribution coming from emerging economies, notably China. 4 5. A global market. The art market is not country-specific nor bound by geography. Major auction sales are held each year in New York, London and Hong Kong with the US holding the highest share of the art market at 41% (see figure 3), which has increased from prior years. Likewise, major art fairs draw collectors year-round from around the world. 2. Art Market Monitor, How Correlated Are Art Returns to Other Assets?, April 28, 2016, https://www.artmarketmonitor.com/ 2016/04/28/how-correlated-are-art-returns-to-other-assets/ 3. Wealth-X, World Ultra Wealth Report, 2017. P. 32 4. Credit Suisse, Global Wealth Report, 2017. P. 18. UHNWI defined as individuals with $50mm or more of total wealth 5. CNBC, Art and Real Estate Are the New Gold, Says Blackrock CEO, April 21, 2015, https://www.cnbc.com/2015/04/21/art-and- real-estate-are-the-new-gold-says-blackrock-ceo.html [One of] the […] greatest stores of wealth internationally today is contemporary art […] I mean that as a serious asset class. 5 - LAURENCE D. FINK, CEO OF BLACKROCK www.masterworks.io Rest of World 6% Spain 1% Italy 1% Switzerland 2% Germany 2% France 7% UK 20% China 21% US 41% Figure 3: Global Art Market Share by Value in 2017. 5 GLOBAL ART MARKET SHARE BY VALUE
  9. 9. How Much Should Investors Allocate to Fine Art? ALLOCATION METHODOLOGY 9www.masterworks.io 49% of ultra-high-net worth investors own fine art paintings 2 10 - 15% of wealth allocated to illiquid assets (real estate, art) depending on risk tolerance 4 3 - 4% of wealth allocated in fine art paintings and sculptures among art collectors 2 1. US Trust, 2018 Insights on Wealth and Worth 2. Barclays, Treasure Trends, Vol. 15 Wealth Insights 3. Wealth-X Worth Ultra Wealth Report, 2017 4. Citi Art Market Report, 2015 Chart: Global Financial Database, Citi Private Bank as of April 2013. TABLE 1: 40-Year Annual Return Correlation Matrix by Asset Class Asset Class S&P 500 DM Equities EM Equities 10-Year US Tsy Note DM Inv Grade Debt High Yield Debt EM Debt Hedge Funds* Private Equity* Real Estate Cash Comm (Broad Index) Gold Art S&P 500 1 0.92 0.64 -0.02 0.33 0.64 0.28 0.72 0.64 0.5 0.08 0.05 -0.21 0.11 Developed Market (DM) Equities 0.92 1 0.65 -0.12 0.28 0.67 0.28 0.76 0.81 0.6 0.07 0.12 -0.09 0.16 Emerging Market (EM) Equities 0.42 0.64 1 -0.37 -0.06 0.57 0.09 0.55 0.66 0.5 -0.07 0.43 0.12 0.16 10-Year US Treasury Note -0.02 -0.12 -0.37 1 0.76 0.01 0.59 0.00 -0.25 -0.1 0.16 -0.39 -0.14 0.02 DM Investment Grade Debt 0.33 0.28 -0.06 0.76 1 0.46 0.78 0.47 0.15 0.3 0.28 -0.35 -0.30 -0.09 High Yield Debt 0.64 0.67 0.57 0.01 0.46 1 0.29 0.68 0.64 0.6 -0.08 0.06 -0.15 -0.28 EM Debt 0.28 0.28 0.09 0.59 0.78 0.29 1 0.59 0.20 0.3 0.53 -0.28 0.00 0.09 Hedge Funds* 0.72 0.76 0.55 0.00 0.47 0.68 0.59 1 0.74 0.6 0.48 0.11 0.03 0.02 Private Equity* 0.64 0.81 0.66 -0.25 0.15 0.64 0.20 0.74 1 0.8 0.07 0.12 0.06 0.01 Real Estate 0.50 0.64 0.53 -0.07 0.30 0.64 0.25 0.58 0.77 1 -0.03 0.07 0.03 0.02 Cash 0.08 0.07 -0.07 0.16 0.28 -0.08 0.53 0.48 0.07 -0.03 1 -0.08 0.36 0.18 Commodities (broad index) 0.11 0.16 0.16 0.02 -0.09 -0.28 0.09 0.02 0.01 0.02 0.18 1 0.36 0.27 Gold -0.21 -0.09 0.12 -0.14 -0.30 -0.15 -0.18 -0.09 0.06 0.00 0.03 0.36 1 0.1 Art 0.11 0.16 0.16 0.02 -0.09 -0.28 0.09 0.02 0.01 0.02 0.18 0.3 0.1 1 For many art investors and collectors, art has become a meaningful part of their overall balance sheet and a diversifier of risk:
  10. 10. Our Investment Strategy and Financial Product OUR INVESTMENT STRATEGY 10www.masterworks.io
  11. 11. ACQUISITION PHILOSOPHY 11www.masterworks.io Deep Demand We analyze the global landscape to ensure robust and growing demand and look at a number of factors. The following are essential: (1) Top 25 artist within the major collecting categories of Post-War, Impressionist or Modern Art (2) Each artist has more than ten sales each year Attractive & Consistent Appreciation We collect and analyze data to assign our independent internal valuation and market appreciation rate The following are essential: (1) Valuation: Internal pricing assessment exceeds $2m, with emphasis on $5m–$15m range (2) 9% to 15% historical appreciation of similar works sold at auction Exceptional Quality We expertly assess qualitative aspects related to the specific work, commonly referred to as ‘connoisseurship’ The following are essential: (2) Representative of artist’s mature, acclaimed style and robust provenance & exhibition history (3) Executed in the artist’s primary medium and remains in good physical condition Our investments meet the following criteria: Our Approach to Acquiring Artwork. Blue-chip artwork has a global collector base, an established track record at auction, and scarcity value to provide an attractive investment opportunity for investors.
  12. 12. Why Focus on Blue-Chip Artwork? BLUE-CHIP ARTISTS 12 The inherent demand for works by artists who are household names are generally considered investment-grade, or “blue-chip,” works of art. At this time, we are not targeting artworks by emerging artists— Overall record prices are concentrated among a selected group artists—based on public auction records from Christie’s, Sotheby’s and Phillips, the top ten artists account for 60 of the most expensive 100 lots. During the financial crisis of 2008-09, the art markets overall declined 26% while the S&P declined 57%. Blue-chip art, including post- war, contemporary, and impressionism, declined even less than 26%. therefore, our acquisitions are not subject to rapid changes in collector interest—which carry with them significant price volatility. Instead, we target blue-chip work by artist whose careers have been well established. In general, as an artist’s career matures and collectors and museums acquire their best works, the supply of their work in private hands declines. This tends to create a scarcity value that supports future appreciation, particularly among artists who are universally recognized in the canon of art history. www.masterworks.io 45 90 135 180 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 POST-WAR & CONTEMPORARY ALL ART-W S&P 500 FTSE ALL-SHARE Figure 5: Mei Moses® World Collecting Category Indexes versus the S&P 500 total return index and the FTSE All- Share index without dividend reinvestment. 2 ART MARKET DECLINE DURING 2008-09 FINANCIAL CRISIS
  13. 13. How Do We Purchase At or Below Fair Market Value? PURCHASING PROCESS 13 At Masterworks, we use our own balance sheet to acquire paintings opportunistically when the timing is right and when a collector needs to sell. Often times, these transactions can occur in less than 72 hours from start to finish. A core component of our purchasing strategy is working with auction houses to help them quickly secure consignments from collectors. A collector will often only consign a work for sale at auction when they can be guaranteed that it will sell, given that an unsuccessful sale can damage the value of an artwork. Through Masterworks’ relationships with the executive teams at major auction houses, we are able to provide guaranteed bids on selected artwork before the art comes to auction. Importantly, our guaranteed bids can help quickly convince a collector to consign their work with an auction house by ensuring that a successful sale will take place under any circumstance. In exchange for our guarantee bid, we often can price our bid below what we believe is a works long-term fair market value and thus provide an attractive risk-adjusted return for our investors if we acquire the painting. Claude Monet’s Coup de Vent is an example of how we acquired a painting by entering into a guaranteed bid agreement with Christie’s London prior to the painting being sold at auction. www.masterworks.io Purchased From Auction House Estimate Winston Art Fair Market Value Appraisal $8,500,000 Purchased For $6,239,556 $6,691,201 – $9,367,681 Purchase Discount from Appraisal 25% Purchase Discount from Mid-Estimate 22%
  14. 14. We Plan to Build Ways for Investors to Seek Liquidity. LIQUIDITY 14 We may be approached by a buyer for an artwork in our portfolio. If a collector makes a bona fide offer for painting, the vote to accept the offer among our shareholders will be managed through our platform. Collector Offers to Acquire We plan to launch trading markets in 2019 through a partnership a broker-dealer to support full trading on the Masterworks platform. Folio has indicated interest in exclusively powering Masterworks’ trading platform. Sell in the Open Market www.masterworks.io Investors can achieve liquidity in one of two ways:
  15. 15. Representative Offerings CURRENT OFFERINGS 15www.masterworks.io
  16. 16. Andy Warhol, 1 Colored Marilyn ANDY WARHOL 16 Auction Results for Similar Paintings $0.6M $1.3M $1.9M $2.5M 1990 1992 1996 1999 2001 2004 2010 2014 2017 Similar Paintings 1 Colored Marilyn Figure 6: Set forth is the historical data for Andy Warhol’s Marilyn Monroe Reversal Series sold at public auction between 1990–2017. Each of the considered works was created using the same technique between 1979 and 1986, with a singular image of Marilyn Monroe as the subject matter. Purchased From Auction House Estimate P H I L L I P S Third Party Appraisal N/A7 Purchased For $1,815,000 $1,500,000–
 $2,000,000 Historical Appreciation Rate 11.27% www.masterworks.io Purchase Discount from Mid-Estimate +3.7% (overpaid) 7. An appraisal was not obtained on this painting, so the mid-range estimate was used to determine fair market value. SEC Offering Link sec.gov
  17. 17. SIMILAR SALES FOR ANDY WARHOL 17www.masterworks.io Most Recent Similar Sales at Auction Christie’s London Mar 07, 2017 Sotheby's New York Nov 12, 2014 Phillips London Feb 10, 2014 Christie's New York
 November 11, 2015 Post-War & Contemporary Art Evening Auction
 Jul 01, 2014 Sotheby's New York
 Nov 14, 2013 Post-War & Contemporary Art, Session 1 (Day Sale)
 May 12, 2015 Christie's New York
 May 14, 2014 Phillips New York
 May 16, 2013 P H I L L I P S P H I L L I P S
  18. 18. Performance of Reversal Series against S&P 500 with dividend reinvestment and 10 Year US Government Bonds 0 250 500 750 1000 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 100 70 69 65 116 167 137 325 325 251 177 316 455 349 559 768 945 839 808 777 S&P standardized to 100 in 2008 10 Year Gvt Bond Standardized to 100 in 2008 Warhol Reversal Series Andy Warhol’s Reversal Series vs. the S&P CLAUDE MONET 18 Data sourced from http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html Andy Warhol’s “Marilyn” reversals are regularly traded at auction, allowing us to chart the returns from these paintings against the S&P and gold.
  19. 19. Claude Monet, Coup de Vent CLAUDE MONET 19 Purchased From Auction House Estimate Third Party Appraisal $8,500,000 Purchased For $6,239,556 $6,691,201–
 $9,367,681 Historical Appreciation Rate 9.27% Purchase Discount from Appraisal -25% (underpaid) Auction Results for Similar Paintings $2.1M $4.3M $6.4M $8.5M 1997 1999 2000 2002 2006 2007 2008 2014 2018 Similar Paintings Coup de Vent Figure 8: Set forth is the historical data for Claude Monet’s paintings sold at public auction between 1997– 2018. The included works were painted between 1875, when it is believed that Monet returned to France following the Franco-Prussian war and his subsequent sojourn in Holland, and 1882, when it is believed that Monet retired to Giverny. SEC Offering Link sec.gov
  20. 20. SIMILAR SALES FOR CLAUDE MONET 20www.masterworks.io Most Recent Similar Sales at Auction Impressionist and Modern Art Evening Sale
 May 15, 2018 Impressionist and Modern Art Evening Sale
 May 7, 2014 Impressionist and Modern Art Evening Sale
 June 24, 2008 Impressionist & Modern Art Evening Sale
 June 27, 2017 Impressionist & Modern Art Evening Sale
 Feb 8, 2012 Sotheby's New York
 Nov 14, 2013 Impressionist/Modern Evening Sale
 June 24, 2014 Impressionist/Modern Evening Sale
 Nov 3, 2010 Impressionist Evening
 Feb 5, 2007
  21. 21. Thank you. DISCLAIMER 21www.masterworks.io WE ARE “TESTING THE WATERS” UNDER REGULATION A UNDER THE SECURITIES ACT OF 1933. THIS PROCESS ALLOWS COMPANIES TO DETERMINE WHETHER THERE MAY BE INTEREST IN AN EVENTUAL OFFERING OF ITS SECURITIES. WE ARE NOT UNDER ANY OBLIGATION TO MAKE AN OFFERING UNDER REGULATION A. WE MAY CHOOSE TO MAKE AN OFFERING TO SOME, BUT NOT ALL, OF THE PEOPLE WHO INDICATE AN INTEREST IN INVESTING, AND THAT OFFERING MIGHT NOT BE MADE UNDER REGULATION A. IF WE GO AHEAD WITH AN OFFERING, WE WILL ONLY BE ABLE TO MAKE SALES AFTER WE HAVE FILED AN OFFERING STATEMENT WITH THE SECURITIES AND EXCHANGE COMMISSION (SEC) AND THE SEC HAS “QUALIFIED” THE OFFERING STATEMENT. THE INFORMATION IN THAT OFFERING STATEMENT WILL BE MORE COMPLETE THAN THE INFORMATION WE ARE PROVIDING NOW, AND COULD DIFFER IN IMPORTANT WAYS. YOU MUST READ THE DOCUMENTS FILED WITH THE SEC BEFORE INVESTING. NO MONEY OR OTHER CONSIDERATION IS BEING SOLICITED, AND IF SENT IN RESPONSE, WILL NOT BE ACCEPTED. NO OFFER TO BUY THE SECURITIES CAN BE ACCEPTED AND NO PART OF THE PURCHASE PRICE CAN BE RECEIVED UNTIL THE OFFERING STATEMENT FILED BY THE COMPANY WITH THE SEC HAS BEEN QUALIFIED BY THE SEC.ANY SUCH OFFER MAY BE WITHDRAWN OR REVOKED, WITHOUT OBLIGATION OR COMMITMENT OF ANY KIND, AT ANY TIME BEFORE NOTICE OF ACCEPTANCE GIVEN AFTER THE DATE OF QUALIFICATION. AN INDICATION OF INTEREST INVOLVES NO OBLIGATION OR COMMITMENT OF ANY KIND. . ANY PERSON INTERESTED IN INVESTING IN ANY MASTERWORKS OFFERING SHOULD REVIEW OUR DISCLOSURES AND THE PUBLICLY FILED OFFERING STATEMENT RELATING TO THAT OFFERING, A COPY OF WHICH WILL BE AVAILABLE ON OUR WEBSITE AT WWW.MASTERWORKS.IO. AFTER THE OFFERING STATEMENT HAS BEEN PUBLICLY FILED YOU MAY OBTAIN A COPY OF THE PRELIMINARY OFFERING CIRCULAR THAT IS PART OF THAT OFFERING STATEMENT AT WWW.MASTERWORKS.IO. EACH OFFERING STATEMENT CONTAINS A SECTION ENTITLED “RISK FACTORS” THAT DESCRIBES THE MATERIAL RISKS OF INVESTING IN A MASTERWORKS OFFERING. WE URGE YOU TO CAREFULLY REVIEW THE INFORMATION IN THAT SECTION BEFORE MAKING AN INVESTMENT DECISION. . MASTERWORKS IS NOT REGISTERED, LICENSED OR SUPERVISED AS A BROKER DEALER OR INVESTMENT ADVISER BY THE SECURITIES AND EXCHANGE COMMISSION (SEC), THE FINANCIAL INDUSTRY REGULATORY AUTHORITY (FINRA) OR ANY OTHER FINANCIAL REGULATORY AUTHORITY OR LICENSED TO PROVIDE ANY FINANCIAL ADVICE OR SERVICES. MASTERWORKS ADMINISTRATIVE SERVICES, LLC IHAS A REGISTERED OFFICE AT 251 LITTLE FALLS ROAD, WILMINGTON, DE 19808. THIS PRESENTATION CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES. FORWARD-LOOKING STATEMENTS ARE GENERALLY IDENTIFIABLE BY USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS “MAY,” “WILL,” “SHOULD,” “POTENTIAL,” “INTEND,” “EXPECT,” “OUTLOOK,” “SEEK,” “ANTICIPATE,” “ESTIMATE,” “APPROXIMATELY,” “BELIEVE,” “COULD,” “TARGET,” “PROJECT,” “PREDICT,” OR OTHER SIMILAR WORDS OR EXPRESSIONS. FORWARD-LOOKING STATEMENTS ARE BASED ON CERTAIN ASSUMPTIONS, DISCUSS FUTURE EXPECTATIONS, DESCRIBE FUTURE PLANS AND STRATEGIES, OR STATE OTHER FORWARD-LOOKING INFORMATION. OUR ABILITY TO PREDICT FUTURE EVENTS, ACTIONS, PLANS OR STRATEGIES IS INHERENTLY UNCERTAIN AND ACTUAL OUTCOMES COULD DIFFER MATERIALLY FROM THOSE SET FORTH OR ANTICIPATED IN OUR FORWARD-LOOKING STATEMENTS. YOU ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON ANY OF THESE FORWARD-LOOKING STATEMENTS.

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