Masterworks Reverses Changes to Secondary Market

I recently reported that Masterworks had redesigned their secondary market. How exactly the new market would work was unclear, but you needed to make a new phone call with them before doing any trading and it seemed that they would send you opportunities to buy shares rather than their being a market with openly posted prices. Now, they have announced via email that they are reversing these changes:

"Hi everyone,

We recently announced changes to how secondary market trading works on Masterworks. We didn't get this one right, and we're sorry for the confusion. Based on your feedback, we've reversed or cancelled those planned changes and the secondary market is back to working the way it did before.

Our goal remains to make the secondary market more effective and user-friendly for all investors. We're continuing to work on improvements and will keep you updated as things develop.

In the meantime, if you'd like help navigating the trading platform, our secondary market advisory services are available to you. You can schedule a call to receive personalized guidance from our team here.

Thank you for your patience and your feedback."

I will take a look and see how things are going before deciding on whether to do some more trades. One of the paintings that I did buy last month has now had an exit above the price I paid, which provides some support for my approach to selecting secondary investments.
 

USVC

AngelList have announced a new mutual fund investing in venture capital called USVC. You can invest as little as USD 500. I have been thinking about investing in this via our SMSF. Previously, I wanted to invest in Unpopular Ventures on the AngelList platform using the SMSF but SuperGuardian, our administrator, said it wasn't allowed because of the partnership structure. Instead, we invested in Moominmama's name. This isn't a partnership, so it should be OK. It seems to be open to non-US investors despite the mutual fund structure. On the other hand, I feel I am too contrarian to be happy investing in all these US AI companies at this stage. At least 80% of the fund will be in US venture. That is why I like Unpopular Ventures because it is truly global. In retrospect I would have done much better with my investments if I had been less contrarian. But it is just this fundamental character trait. So, I try to work with it rather than against it. I feel uncomfortable going with the majority.

Masterworks "Redesigns" Secondary Market

I recently invested USD 5,000 in paintings I bought at large discounts on the Masterworks secondary market. I was thinking to do more such purchases now and then and gradually build up a more diversified portfolio. I targeted offerings that had appreciated since their initial offering and so were more likely to have a near term exit, which were selling at large discounts - up to 50% of appraised value.

Bracco di Ferro by Basquiat

Masterworks was only allowing buy orders to be placed for one day at a time. I think the idea was to force buyers to buy at the offer price and so maybe push prices up. But the result was that someone casually looking at the site saw piles of sell orders and no buy orders and would conclude that this was not a good investment. 

Then today we got an email from Masterworks saying that in future sellers will need to discuss their planned sales with Masterworks and buyers will be offered curated offers. You need to sign a new agreement to participate. From my reading of the agreement, they will charge an extra 2% p.a. AUM fee for participating. I've emailed the firm for clarification on that. If so, I won't participate. I am guessing they plan to buy shares at a discount from sellers and then sell them at a marked up price to buyers.

Recently, I talked to their sales guy who offered me investments in funds. These funds consist of shares in paintings which Masterworks has received as annual management fees. They are offered at a 10% discount to appraised value. The minimum investment for one fund was USD 100k and for the other 25k. I told him I preferred to buy in the secondary market. I guess a bunch of people have told them that. Now maybe the 25k fund looks a little attractive but it also includes paintings that are trading way below their initial offering price that I think might never be exited.

P.S. 16 March 2026

I got an email back from Masterworks saying that they didn't intend to add an additional 2% fee and they will change the wording of the agreement.

Switching to Gold in Little My's Portfolio

 

Little My (our younger child) has an investment bond managed by Generation Life. Now and then I decide to tweak the portfolio allocation. I just noticed that iShares Physical Gold is now an option. So, I am switching from Magellan Global (soon to be managed by L1 instead) to gold. Gold is in the target portfolio and my own portfolio and we already have more than 1/3 of the portfolio managed by L1. So this is the new allocation:

iShares Physical Gold: 9%

Atlas Infrastructure: 8%

L1 Long Short Fund: 35%

Generation Life Tax Effective Australian Shares: 20%

Dimensional 70/30 World Allocation: 28% 

So, in terms of asset classes:

Australian Shares: 30%

International Shares: 10% 

Hedge Funds: 35% 

Credit 8% 

Real Assets: 8%

Gold: 9%

The gold position is not quite one ounce (shown in the picture above). 

The portfolio is more aggressive than the target portfolio, which makes sense as Little My is very young. 

Alerian Master Limited Partnership ETF

I made a small investment of 500 shares of this ETF in the SMSF. It is an ETF of master limited partnerships, which are entities owning pipelines in the US. So, this counts towards my real assets allocation. It pays a high dividend of 7.8%, so it contributes towards our income investments that are intended to fund the SMSF pension. In recent years, since the pandemic it has performed well with a relatively low beta and high alpha to the stock market. So, it counts towards my "passive alpha" category as well. In the long-term though it has tracked the price of oil to quite a large degree and so isn't a set and forget investment. But I expect that in the near future energy demand to generate electricity for AI will be growing.

Bad Timing Switching Funds

In May last year, I switched from the Aspect Diversified Futures Fund to the Acadian Global Long Short Fund in our SMSF.* Since then Aspect has done very well:

I sold almost right at the bottom. It has gained more than 25% since then! What has Acadian done? It has risen a bit and then fallen:

Maybe a 3% gain :( The longer term performance has been really good though. If I had stuck to our target allocation, I would have kept Aspect and done better. I'm not going to switch back now. It's just as likely that Aspect falls again and Acadian continues its long term trajectory.

* The linked post talks about switching from Generation Global to Acadian. That was in another account. We switched to Acadian in two accounts. Generation rose about 12% after the switch but has now nose-dived to be down about 4%. So, that switch made sense.

ZIM

 

I bought 2000 shares of ZIM. A takeover was announced by Hapag-Lloyd, but the shares are trading about 25% the acquisition price based on the fear that the Israeli government wouldn't approve the deal and that the workers have announced a strike over job losses. But part of the company will be carved out and sold to an Israeli private equity firm to assuage this concern. Presumably, some sweetener will be found for the workers. In the meantime, the company will hopefully continue to pay its very high dividends. The price has been in the doldrums because shipping rates are currently low and presumably there is geopolitical risk. Potentially, the EU could be concerned about the merger. Well, this is just a 1% speculative position.

Update 19 Feb 26

Well that didn't last long. I saw this article and immediately dumped my position for a USD 333 profit. It's hard to believe that Hapag-Lloyd didn't discuss this with the Israeli government before structuring this deal. But I don't want to risk losing money on this.

How Closed-End Funds Should Trade in Theory

An interesting post from Financial Samurai or how closed-end funds trade. A closed-end fund is one that trades on a stock exchange but has a fixed number of shares on a day to day basis.* They may occasionally do additional share issues, or reinvest dividends, or even buy back shares, but they don't buy and sell shares continuously to keep the market price at the net asset value or NAV. ETFs, by contrast, do continually create or redeem new shares to keep the market price close to NAV. I posted a comment about where the equilibrium price of a closed-end fund should be that I thought was worth its own post here.

In theory, if the fund manager grows the NAV of the fund with distributions reinvested faster than the average stock market rate of return (for assets with similar beta), then a closed end fund should trade higher than NAV and vice versa. 

This should be the equilibrium price, so that investors don’t get a free lunch of a higher than average return or conversely a worse than average return. If the average fund manager performs the same as the market before fees then on average after fees managers will under-perform the market and so the typical closed end fund will trade at a discount to NAV.

Of course, actual prices often deviate from this equilibrium for a long time! Pershing Square Holdings, which trades on the LSE, is a classic case. It has either outperformed or matched S&P 500 performance over the last few years while investing mainly in large cap US stocks, but trades at a massive discount to NAV. As an investor, one of my reasons for investing was this large discount. We’ve experienced good returns but not much closing of the discount. In fact the discount today is the same as it was in 2021 when we finished buying our current position. The market price is 25% below NAV! Our internal rate of return has been 20%, which is clearly better than the stock market average. The S&P 500 has returned 15% p.a. over the last ten years or 14% over the last five. So, it is crazy that the discount hasn't at least narrowed.

* Sometimes people refer to unlisted private equity funds that raise a given amount of money and then invest it as closed end funds too.

Concentration in the Mag 7 (Updated 27 February)

What is our exposure to the Mag 7? This came up in recent discussions. People are worried about being overly concentrated in a few maybe over-valued companies. I can't put an exact number on our exposure, as Unisuper and PSS(AP) do not publish their asset allocation at the individual stock level and other funds also have partial or no information. But we can estimate it. I'll go through the calculation, fund by fund, in the following.

Unisuper: This is Moominpapa's employer superannuation fund. I estimate that 22% of the fund is in US stocks. The share of the Mag 7 in the S&P 500 is 34%. Without further information, I assume this share applies here. 11.6% of net worth is in Unisuper. Multiplying these three numbers together gives 0.87% of net worth.

PSS(AP): This is Moominmama's employer superannuation fund. I estimate that 13% of this fund is in US stocks and 8.5% of net worth is in the fund. Therefore, 0.38% of net worth is in the Mag 7 here.

CREF Social Choice: This is the main fund in Moominpapa's US retirement account. I estimate that 42% is in US stocks and 3% of net worth is in this fund. This fund, therefore, contributes 0.43% of net worth exposure to the Mag 7.

WCM Global Quality (WCMQ.AX): In their latest portfolio disclosure, they report holdings of Microsoft, Amazon, and Nvidia. Total exposure is 9.6%. WCMQ is 1.5% of our net worth. 1.5%*15.55% = 0.14%.

Hearts and Minds (HM1.AX): Again, Microsoft and Amazon are in the top 10 holdings, as is Nvidia. But we don't know how much of the portfolio either of these is. The top 10 as a whole represents 44% of total portfolio holdings. Let's guess that MSFT and AMZN are 3/10 of this. The remaining non-conference holdings are 21% of the portfolio. Let's assume that 65% of this is US stocks and Mag 7 is 34% of this. 18% of the total portfolio is then estimated to be in the Mag 7. HM1 is 1.7% of net worth. So our exposure is estimated at 0.30%.

Pershing Square Holdings (PSH.L): They hold three Mag 7 stocks–Google, Amazon, and Meta. The annual report shows total expsoure of 36.71%. We have 6.3% in PSH and so our net worth exposure is 2.3%.

Acadian Global Long Short: They provide a top 10 list of holdings, which includes all the Mag 7 apart from Tesla! The total exposure is 25.6%. I assume that they do not hold Tesla and given our portfolio exposure of 3.3%, our Mag 7 exposure is 0.84%.

L1 Global Long Short (GLS.AX): They have not published any information on portfolio allocation. Assuming that 65% is in US stocks and 34% of that is in the Mag 7, given our 4.6% allocation to GLS, our exposure would be 1.02%.

In total, we have a 6.28% net worth exposure to the Mag 7. This is very small compared to someone who followed Warren Buffett's advice to just invest in an S&P 500 index fund. Someone who invested in a 60/40 portfolio including a global index fund would have about a 14% exposure. So, it's small compared to that too. Are we under-exposed to tech stocks? Well, we have around a 10% exposure to venture capital and WCMQ's largest holding is AppLovin. So, I don't think so.

Annual Report 2025: Individual Investments

As promised, here are the individual investment results for 2025 (Australian Dollars):

Other costs and benefits like interest and fees and exchange rate gains and losses are not included here. I also don't go down to the level of the very small individual investments inside the Masterworks, Unpopular Ventures, and Domacom investments boxes.  

I also make no attempt to compute individual rates of return. My goal is to have twice as many winners as losers and to make at least twice as much on winners as I lose on losers. So, position sizing is part of the story. Based on that goal, I had more than enough winners, but only won slightly more on each winner as I lost on each loser. Without the two worst losers, I only lost $9.9k per loser. In the long term, my winning positions have gained more than five times as much as losing positions have lost. Of course, both Bitcoin and Defi Technologies gained more in the previous year than they lost in 2025. In the long run, these were winning investments.

Gold was the top performer this year, after coming in second last year. It was followed by two listed hedge funds and then the Aura Venture Capital Fund 2. Next came our two employer superannuation funds, each of which is 8-12% of our portfolio. The diversified Regal Investment Fund put in a good showing at 7th position. WAM Capital is a new investment I made during the April Tariff Tantrum. Australian Dollar Futures are paying off this year after being the worst performer last year. Finally in the top 10, CREF Social Choice is a balanced fund in my US retirement account (403b).

Aura VF2 Reports

The Aura VF2 venture capital fund has reported for the final quarter of calendar year 2025 and it has jumped sharply into profit.

 

I now have an IRR of 10.6%. It increased the rate of return for December to 2.5% in AUD terms or 4.5% in USD terms, which crushed all benchmarks.

Tribeca Global Resources

After several years of disappointing performance, Tribeca Global Resources (TGF.AX) has performed extremely strongly in recent months:

My investment hit a new profit high exceeding the 2022 peak. After previously giving back all the 2022 gains, this strong performance makes me wonder if I should sell now. One reason not to sell is that if I wait my capital gains tax rate should be lower next financial year (it's in my personal name). Also, there is still a big gap between NAV and the share price, which wasn't the case at the 2022 peak. Pre-tax NAV is $3.81 and post-tax $3.34 while the share price is $2.88. Will the gap close? Finally, the fundamentals supporting resources strength don't seem to be changing yet. So, I think I will hold on for now.

Update to the Target Portfolio

Time to tweak the target portfolio we use for benchmarking and asset class allocation. I am lowering the allocation to futures from 7.5% to 5% and increasing the allocation to hedge funds from 15% to 17.5%. This better reflects current reality.

Hockney Sold

Masterworks sold the Hockney painting I invested in. Profit after fees is 23% and the IRR was 6%. They are giving the option to reinvest in another paper or receive the cash. Overall, my Masterworks investments only have a 2% IRR. 

Art has been in a slump while stockmarkets have rallied in the last 3 years. Who knows if it is going to recover now? I'm not inclined to tie up the money again for an unknown period. This is especially given that I am retiring now. So, for now, I am going to withdraw any money I can from this portfolio. I have investments in nine paintings remaining.

FOMO-ing In

I have been saying no to investing in Aura's new venture capital fund when I have been asked. My reason was that I am retiring and don't want to lock capital up. With lower taxes going forward, the negative tax status of Australian venture capital investments isn't so important any more. Also, I am an investor in both their previous funds and the parent company, so that feels risky. Also, I didn't have a current wholesale investor certificate.

But then I saw an email that now is the "last call" before the "first close" and I sent them an email asking if I could invest AUD 100k instead of the usual AUD 250k minimum. They approved right away and I just completed the application form. This is an investment of about 1.5% of net worth, which will be called over several years, so with this lower number it doesn't seem as risky or impose as large cash flow requirements. The fund plans to invest in 25 companies if the target amount is raised. So, this would only be AUD 4k per start-up. At Aura VF 2 I have around AUD 25k exposure to each start-up. And I now have a wholesale certificate again. Also, I have been thinking recently that we can cover our current cash flow requirements with just AUD 1.5 million (8% yield) to AUD 3 million (4% yield) income-oriented investments and invest the other half or more of our net worth in long term growth investments to compensate for inflation and maybe actually grow our net worth. 

But in the end, it's really FOMO.

Aura Pre-IPO Capital Raise

I am trying to get in on this capital raise. Some details still need ironing out. I have investments in two of their venture capital funds. Valuation relative to revenue and EBITDA seems similar to Regal Partners, which I am a shareholder of.

Kyte

 

I invested in this startup via Anglelist. Turns out that I invested more in this one (USD 15k) than any other, Now they are shutting down. That is something you should expect often with startups. I already knew they were closing, but now it's public I can let you know too.

Ether

Opened a very small position (0.24%) in Ether (technically that is the correct name for the cryptocurrency via the QETH.AX ETF traded on the ASX. Oscar Carboni put out a $6,500 target. It is currently at USD 4,666.

 

Back into Platinum Capital!

Just over a year ago, I sold out of Platinum Capital (PMC.AX). It had been under-performing and the company announced a plan to merge it with an active ETF (PIXX.AX) also managed by Platinum. The price was close enough to net asset value (NAV) as a result and I got out. In the meantime, L1 took over Platinum (the fund manager) and also bought a stake in Platinum Capital. Then yesterday Platinum Capital announced that the merger had been abandoned and L1 plans to take over management of PMC using the strategy that they have applied in their existing listed investment company (LSF.AX) but using a global investment universe instead of an Australian focused one. The market had been expecting the merger to be cancelled, as the share price of PMC was trading around 12% below NAV. So now is a good opportunity to reinvest in PMC because of the discount and hopefully better future performance under L1. They have been running a seed version of the new strategy, which has gained 27% since the beginning of the year. 

I plan to sell down part of my holding in Cadence Opportunities (CDO,AX) to fund this new investment.  This stock is very illiquid so it is likely to be a slow process.

My long history with Platinum Capital and related Platinum funds. Green is investment valuation, red is net invested capital and orange is profit:

 

Sold My Shares Rather Than Receive a Dividend!

WCM Global Quality just announced that they expect to pay a $1.73 per share unfranked dividend. I only bought shares in my name this year. My 4.250 shares would receive a $7,300 dividend taxed at my marginal rate of 47%! Instead, I sold the shares for a capital gain of just under $800, which as it is a short-term gain will be taxed at the same rate. I didn't reckon on this being such a tax inefficient investment. I am keeping Moominmama's shares for now. It would make more sense to sell her more recently acquired shares. But her older shares, even after the long-term capital gains tax discount would be more costly to sell than to keep.

I am putting the proceeds into the First Sentier Imputation Fund. This is a case where I used the target allocation to tell me what to invest in. According to it, I need more large cap Australian stocks...