2 March, 2022

Boosted by an increase in online sales and investor appetite for luxury goods during the pandemic,  fractional ownership of fine art has become a popular asset class. In simple terms, it involves purchasing shares of artwork, representing a percentage of total ownership. The real advantage of fractional ownership is that it seeks to make luxury assets, such as fine art, which has previously always been reserved to an elite group of collectors, accessible to everyone, mirroring the democratisation movement within the stock market. Now, thanks to the rise of the digital age, fractional owners have the potential to yield significant returns from the initial value of their shares with the creation of secondary markets, where it is possible to trade shares quicker and track the performance of those trades (more information on the LTArt secondary market coming soon!) We’ve already explored the various advantages of fractional art ownership and why it’s a sustainable investment option in a previous article, but how do you know whether fractional art ownership venture to choose? In this article, we outline what you should be aware of when purchasing shares of an artwork.

When discussing the inability of some ventures offering fractional ownership to truly pierce the market, Frédéric de Senarclens, the founder of ArtMarketGuru, highlights that most of these ‘have been created by people with no background in art’, adding that their founders’ lack of expertise in the art world must be a problem (as cited in The Art Newspaper). This is a key aspect to take into account when you look to buy shares of an artwork. It is important to have a complete overview of an artwork’s history and market valuation, in order to make an informed investment decision. Either make certain that you always conduct the proper due diligence or that the company you are purchasing the shares from has adequately trained professionals to do this. At LTArt, for instance, our team all have strong backgrounds in art history and art business, which enables us to not only source high-value artworks but also ensure that they can produce an investment.

Aside from art market expertise, it is also important to have a strong understanding of the financial markets. Without an understanding of the stock market, which lies at the origin of the model of fractional ownership, and how market fluctuations can occur, then it is very difficult to estimate the true value of an artwork and how it may increase over time. Combining expertise in both industries places a company in the ideal position of being able to accurately and knowledgeably bridge art and finance, allowing for informed decisions on what constitutes a good investment and creating an easy-to-use, fluid secondary market for our co-owners. 

Another key point to take into account is extensive research into and investment in blockchain technology, which LTArt has managed largely thanks to our partnership with Polygon, an eco-friendly blockchain scaling Ethereum. The use of blockchain technology provides several key advantages. Based on the blockchain, digital assets can be securely and easily exchanged without the need for a centralised authority. This lack of a traditional authority helps to ensure that the market is more transparent, allowing for the easy authentication of artwork, artist and buyer credentials and the safe transfer of value directly between parties (Julius Baer). Once you purchase shares on the LTArt platform, for example, you will receive an NFT license, Certificate of Ownership and Certificate of Authenticity, the contractual aspects of which have been established by the law firm Withersworldwide.

To conclude, before you purchase art shares with the aim of becoming the fractional owner of an artwork, it is important to have a look at a company’s team as well as its partnerships, in order to ensure that it possesses an adequate level of art, financial and technological expertise to effectively evaluate the artworks they offer and predict the return on investment. 

Sources:

Bloomberg, ‘Fractional ownership in luxury assets surges amid pandemic’, The National News, Sep 2020, https://www.thenationalnews.com/business/money/fractional-ownership-in-luxury-assets-surges-amid-pandemic-1.1075288

Georgina Adam, ‘Piece by piece: the issues with fractional ownership of art’, The Art Newspaper, Oct 2019, https://www.theartnewspaper.com/2019/10/30/piece-by-piece-the-issues-with-fractional-ownership-of-art

Lewis Kevelson, ‘IS FRACTIONAL OWNERSHIP IN ARTWORK A GOOD INVESTMENT FOR YOU?’ Berkowitz Pollack Brant, Jul 2020, https://www.bpbcpa.com/is-fractional-ownership-in-artwork-a-good-investment-for-you-by-lewis-kevelson-cpa/

Tom Lyons, ‘Three ways blockchain is reshaping the art world’, Julius Baer, Mar 2020, https://www.juliusbaer.com/it/insights/digital-disruption/three-ways-blockchain-is-reshaping-the-art-world/