Gargantua by George Condo Sold

Masterworks sold the third painting that I invested in, Gargantua by George Condo. The original offer price to investors was $1.65 million and they sold it for $2.55 million. After performance fees, sales costs etc. the proceeds are probably within 5% of the most recent estimate they provided.

HSBC Everyday Global Account

Back at the beginning of 2021 I opened an HSBC account for Moominmama because Plus 500 refused to send money to an account in our joint names. Moominmama has just been using it for shopping getting 2% cashback some months. I just realised that it can hold foreign currencies. So, instead of using OFX to convert and transfer money to the US to invest in Unpopular Ventures and Masterworks I could convert the money at Interactive Brokers at the best exchange rate, transfer it to HSBC and then transfer it to the recipient from there for an AUD 30 fee. OFX have about a 1.4% exchange rate cost plus an AUD 15 fee for small orders. And one day when there are distributions from Unpopular Ventures we could transfer the money back to HSBC without converting it.

Some Good Financial News

  

Masterworks sold Lured by Cecily Brown for USD 1 million. The initial offer price was USD 605k. We are supposed to get the money within a month. I think this is the third painting they have sold, two of which were ones I invested in. 

Domacom reported to the ASX that their private placement was over-subscribed! They hope to be reintstated in the ASX soon.

Two New Investments

 I invested in another painting at Masterworks, No Hopeless by Yoshitomo Nara:

This takes my investment back up to 12 paintings again, given that Doppelbild by Albert Oehlen was sold and should pay out soon. I was a bit nervous this was overvalued but after a bit of research took the plunge anyway and invested USD 10k.

I also started buying units in a property on Domacom: 60 Devonshire Road, Rossmore, which is a market garden near the planned Badgery's Creek Airport. After the initial investors paid up big fees for the establishment of the investment, it trades below par but at the last valuation saw an uptick in value. I am thinking now it makes more sense to buy in the secondary market on Domacom instead of joining "campaigns" that seem to go nowhere. 

So far, I only invested AUD 920, but have a bid open waiting for sellers.

Good and Bad News: Masterworks Sells Doppelbild by Oehlen and Domacom Goes to Court with AustAgri

 

It's one of the paintings I invested in. The price uplift is 43%. They are claiming a 33% IRR after fees. My original investment was in early January 2021. US investors will receive payment in their "Masterworks Wallet". Don't know how foreign investors will be paid yet. I still have shares in 11 paintings I have invested in.

To counter this good news, Domacom (DCL.AX) announced today that AustAgri haven't onboarded Cedar Meats to the Domacom platform. Domacom is, therefore, demanding the AUD 8.5 million break fee, but AustAgri is disputing that they owe anything and it is going to court. This deal always sounded strange. If they have the funding to acquire Cedar Meats from other sources why would they need to pay fees to Domacom? I expect that Domacom will remain suspended from the ASX. I am pretty sceptical of recovering any of this investment at this point.

Investments Review: Part 6, Real Assets

In my usual reporting, gold is a separate category from real assets. I plan to put 10% of gross assets into gold and 15% into real assets. 10% would be in real estate and 5% in other assets, such as art.

Gold (PMGOLD.AX). Share of net worth: 12.10%. IRR: 15.2%. This is one of the more cost and tax effective ways to hold gold. The fund reflects rights to gold held by the Perth Mint. This is much more tax effective than using futures and less hassle than owning real gold, though Perth Mint provide some fairly easy options there. The IRR reflects our total gains on gold ETFs. The management fee is taken by the manager cancelling some shares each year. That means the price exactly tracks the Australian Dollar price of 1/100 of an ounce of gold.

WAM Alternatives (WMA.AX). Share of net worth: 4.32%. IRR: 16.9%. About 10% of this fund is in real estate and half in real assets, mainly water rights. The rest is in venture capital and cash. This fund was started by the failed Bluesky group and has now been taken over by Wilson Asset Management. The fund has traded deep below NAV. It has closed some of the gap but is still below NAV. I'm holding the fund mainly in the hope that eventually it trades at a premium to NAV. The underlying performance is not that good. In 2020 it lost 3 cents per share in NAV to $1.08 per share while paying out 4 cents in dividends. This year, so far it's gained 6 cents per share, which I guess is OK.

TIAA Real Estate. Share of net worth: 2.78%. IRR: 4.8%. This fund invests in US real estate - offices, retail, apartments, and industrial. It is in my US retirement account (403b). The IRR for this fund is low, but its returns are very smoothed and so it has a nominally high Sharpe ratio and a low correlation to my other assets. Based on my analysis, I'm hoping that the coming period is one of higher returns than average for this fund. It is easy to market time this fund due to the lag in revaluations.

Masterworks. Share of net worth: 2.63%. IRR: -0.28%. This fund provides fractional access to paintings, mostly works from the last few decades. I have now invested in nine paintings through the platform, investing USD 10k in each. Not much to report so far regarding performance. The downside of the platform I think, is that it isn't worthwhile for the manager to buy a painting for $100k or even $1 million. Buying a $10 million painting has a huge economy of scale for them. They are incentivised to make profits, but they could make it either by getting a lot of appreciation or less appreciation but more assets under management faster. Less expensive paintings that have a larger potential for gain cost them too much to offer.

US Masters Residential Property Fund (URF.AX). Share of net worth: 1.25%. IRR: -1.85%.This is an Australian fund that invests in residential real estate in metropolitan New York. The fund has had a quite disastrous history and now trades at less than 50% of NAV. The fund's underlying exposure to real estate is much larger than the value of the shares on the ASX. The fund has stabilized after refinancing its debt. Previously, it had assets in US Dollars and a lot of debt in Australian Dollars. My bet is that house prices rise in the New York area, that fund costs are now lower after the restructuring, and that the fund eventually trades nearer NAV.

Australian Unity Diversified Fund. Share of net worth: 1.17%. IRR: 28.2%. A recent investment in our SMSF. Invests in Australian office, retail, and healthcare real estate. This is unlisted property and so the price reflects the actual net asset value. Listed real estate provides much less diversification from stock market risk.

Domacom Investments. Share of net worth: 1.12%. IRR: 0.16%. Another recent investment in our SMSF. Fractional investing in Australian real estate. So far, I bought a small share in a farm, but the platform is very slow moving regarding new investments and most existing investments that are trading don't look like good bets.

Masterworks Sells First Painting, Investors Make 32% in One Year

Masterworks sold a Banksy Mona Lisa for $1.5 million after holding it for one year. Investors gain 32% after all fees and costs. I don't think this would be typical but nice to see that this first deal worked out.

I've now invested in four paintings through Masterworks.

Masterworks

Masterworks are a fairly new firm offering securitized investments in artworks. They buy paintings by recent and living artists and then sell shares to investors. They charge a 1.5% per annum management fee and plan to charge 20% of profits when an artwork is sold. They also get a markup on the price that they pay, presumably to cover acquisition and offering costs. I am interested in investing a small amount and have scheduled an interview to talk to them. They interview all new clients. One thing that interests me is our family connection to art. My father's family were antique and art dealers before the Second World War in Germany. My brother is an amateur artist who has sold a couple of paintings, I think, and my mother painted as well. But this doesn't give me any particular insight on the financial side of the art market. I'd aim to diversify across the paintings they are offering.

This investment is more equivalent to private equity buyout rather than venture capital. It doesn't make sense for the firm to buy a painting for $10k or $100k by an unknown artist hoping that it will appreciate because they make a separate special purpose vehicle filed with the SEC for each of their offerings. So they are buying paintings at around $2 million or so a piece.

P.S. 25 August

I had my interview today with a representative from Masterworks and was approved to start investing. I learnt that there is a USD10k minimum investment for the primary offerings. I now made my first purchase and have transferred the money using OFX. Based on the spot exchange rate, it cost 1.45%. I tried using my US bank but couldn't work out an online method that works.

Art and Net Worth

On one of the many documents we've been sorting through my mother estimated her and my father's net worth in 1995. The number she came up with is equivalent to about USD 1 million today (£350k at the time). But she estimated that an inherited artwork* they owned was worth £20k (USD 56k today). The next year the artwork sold at auction for... £750k (USD 2.1 million). Another letter from my father to his brother in 1954 stated that the art had been valued at USD 880 or around USD 8500 today.

*The art consisted of panels like on this cabinet, but not the cabinet itself: