This is the full transcription of podcast 'Wall Street Unplugged with Frank Curzio' - How Main Street investors can start building a fine art portfolio.
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Wall Street unplugged looks beyond the regular headlines heard on mainstream financial media to bring you unscripted interviews and breaking commentary Direct from Wall Street right to you on main It's going out there. It's February 2nd I think or just a Wall Street of a pocket swear back that headlines and Tell you what's really moving these markets Believe it or not. I Have another great interview Set up today and it's with Scotland the founder and CEO of masterworks So you heard him mention masterworks this week. They're sponsoring Wall Street unplugged You know, I don't have a lot of sponsors very rarely have sponsors actually on this podcast Unlike every other podcast in the world. So when I do it's only for companies. I fully support Companies I use their products or their platforms And companies that I trust But Scott and I go back about two years I interviewed him on this podcast in believe it was 2021 and He just launched his platform like a year earlier that tokenizes (1/35)
contemporary art And this is art that's usually only available the ultra wealthy right by these big art pieces put in house But he found a way to bring this to everyday people My own pop investors to invest in this amazing asset class, right? They did it by tokenization, which you all should be familiar with at least right? That's what we did with Curzio research and tokenization is selling a piece of an asset so a vest got fractional ownership and why would you do that because sometimes a private company or sometimes a real estate commercial real estate project it's It's a liquid asset and when it's a liquid asset It's hard to basically, you know, your money could be locked up over a certain time So say if you have a commercial asset and it's worth like a hundred million dollars So now you can sell 20 million of that to individual investors now individual investors for the first time They don't have to own the whole hundred million dollars But just like a stock they'll have fractional (2/35)
ownership participate and how that commercial property does over time It's great for the person who's selling it because now you're bringing the check sell 20% 20 million dollars right to yourself Which means you're liquid now you can use that money to actually build up that real estate portfolio even more commercial real estate It's great for individual investors Like I say you have a chance to earn commercial or to own commercial real estate a fraction of it for the first time ever Right. It's a great asset. So it checked every single box, which is why we did it Right, and it's just a market that I think is no doubt eventually gonna take off We launched ours in 2018 19 Very very early to party then we had COVID a decline that we had the whole SPAC revolution and stuff and people loving SPACs now you're seeing people get more back in this organization So Scott and I have a lot in common where we did this early on Now in the case of artwork of what he's doing masterworks. I thought (3/35)
this idea was fascinating back then So I wasn't surprised when these guys I think it was October November 2021. There is $100 million. Gave it a valuation over a billion and Which put them in a class of almost every company that would public be a SPAC in 2021 2022 right at least in mid by mid 2022 and everybody jumped on the bandwagon I'm glad that they didn't because you see them come out crazy valuations and a lot of them crashed 80 90 percent a lot of them seen slower growth, but In masterworks case the growth that they've seen even since then has been nothing short of spectacular, right? Which Scott's gonna tell you about in a minute? I like Scott. He's a no-nonsense guy. He's great. He's brilliant as a marketing background Again, it's gonna talk about but I think you gotta find the interview fascinating several reasons One is it's giving you access to a new alternative asset class Which is something that outperforms and out for the market over a long period of time, but more (4/35)
importantly it's a Great asset or a great place to invest a portion of your money, right? So diversify into we have crazy markets like the one way right now, which we're all seeing right? It's crazy Even we know the Fed just came out they raised that market was down percent that it goes up 2% Okay, just to see the valuations going with the Fed actually maintaining and saying okay, we're gonna continue to raise rates We've seen demand fall off a cliff and stocks keep going higher even though their earnings are going lower It's a recipe for disaster. Then as I can go up another 15 20 percent for me. I have no idea What's gonna do I just know the shit's gonna hit the fan's probably happen sooner than people think and what it does It's not gonna be pretty right It's just the fundamentals aren't there for the market to be continued to go high We all know that but let's see the algos are doing what they want to do right now, but it's crazy market And this is providing an alternative asset (5/35)
class for you. Just like I talked about crypto. It's like I talk about other different things, right? and the metaverse so Without further ado. Here's my interview. Hope you like it master works founder CEO Scott Lynn Scott Thanks so much for coming back on Wall Street unplugged Thanks for having me back excited excited to be here I guess it's it's been over a year now. It has been over a year and let's do a little refresher, right? so you found a CEO of masterworks and Why don't you? Refresh everyone who didn't listen to that past interview He's not been following you about masterworks the history how you came up with the idea of a tokenizing fine art, which is fantastic We've done that with our company tokenizing tokenization as well but How did you come up with that idea because now you're bringing a sector and an asset class To a market that never really had access to it right with individual investors explain that you just came up with this idea Yeah, it's good. It's a good (6/35)
question. So masterworks now is I guess we're four and a half years old We have seven hundred thousand investors on the platform. We have nearly a billion dollars in a um The idea really started I mean I've been starting technology companies for 20 years now and I've also been collecting art along the way So I've seen the value of my own collection grow and the genesis of the idea of my masterworks It's really taking a look at my own personal art collection and saying hey How can I securitize this and make this asset class available to anyone who wants to invest in it? The the really interesting thing about the art market and contemporary art just broadly Is that the most investable segment of the art market are really paintings above a million dollars and those those tend to be the the Artworks that have the most predictable appreciation rates. So interestingly the asset class inherently Historically has only been available to those who have enough money to buy those paintings which (7/35)
obviously is very very few people So our view is that it should be an asset class that is securitized and made available To anyone who wants to to invest in in these works of art So art has normally been a recession proof market I think is fair to say I was You bring up the fact last 26 years in performed tons of asset classes, right when comes a real estate stock market and things like that How have you performed over the last year and a half right? We had marked conditions You know just challenging mark conditions challenging mark conditions going into the future But it seems like with the numbers that you just gave me a billion dollars in platform 700,000 people that Things are going well. You guys are still growing Yeah, I mean we're definitely still growing so last year a UN doubled I think our user account our user account doubled now There's there's no question that I think performance of art overall has softened I think the question is how much is it softened? So if you look at (8/35)
our performance specifically last year on a gross basis our portfolio was up about seven point eight percent and In context with prior years that that's actually way down So we you know in prior years our portfolios been up more than 20% on a gross basis. So Definitely a down year but but compared to really any other asset class. It's still incredible. I think You know that performance is second only to to energy last year So, you know, we feel we feel really good about it I think I think art has performed if you look at data from like the late 70s and into the early 80s In prior inflationary times art has performed really well during those periods Today obviously is just kind of a new animal and there's there's lots of different Complexities of trying to figure out that the global economy in today's world, but but the portfolio is still still holding up pretty well So remember the last time we spoke this is October 2021 I believe it and you just raised money right put sure that I (9/35)
think it was over a little bit over a hundred million dollars Put your valuation over a billion Congratulations, by the way, which is fantastic Remember you saying that the average investor puts? Around five thousand dollars in initially and then thirty thousand over the lifetime have those numbers change. Have you seen More demand from that asset class or are you seeing? You know Maybe some of the ultra wealthy right who goes with Christie's and Sotheby's and things like that Start using your platform and saying hey, this might be a better idea than going just straight to auction Yeah, we don't really see that So our typical investor is not in our world person our typical investor is definitely Someone who knows knows close to nothing about art is looking to learn about the asset class for the first time Is looking to generate and generate non correlated returns as part of the overall portfolio. They're they're really just a You know typical a typical investor looking at an (10/35)
alternative asset class so that that is still our bread-and-butter investor today I think if our number was $5,000 a year and a half ago, it's it's roughly $6,000 today. So maybe that's that's come up slightly But yeah I mean we we encourage investors to get started at a very small allocation of their portfolio and then to grow over time And almost always we see investors starting out at a very small number and then growing on a monthly quarterly basis after that So talk about how the platform works because I know that and when I'm looking at it here, you know You have a great learning center. I probably lots of questions and things like that, but talk a little bit how this works So I want to buy a painting that's selling say for a million dollars and I you know, it's fractional ownership I'm gonna buy a small piece of it What happens when it's sold? How do you monitor how it's appreciating it is it appreciating where people willing to pay more for that just like a stock, right? You're (11/35)
selling off piece of a stock and it's a fractional ownership Yeah, how does that whole market work behind the scenes for someone that that's looking to do this and invest for the first time? Yeah, so maybe let's start really high level and think about kind of just our process and how we find paintings that we think are Investable in the art market. So we have mess work says about 215 employees now we have a research team of 14 people and that research team is primarily responsible for understanding What segments the art market do we think are most investable? So we look at a whole bunch of data around how different artists markets are performing How how different segments of the art market are trending and we basically come up with Certain artists markets or certain sub segments those markets that we think are most investable So our research team identifies those segments and then and then basically hands that off to our acquisitions team Which is a team of another dozen people roughly (12/35)
who then go into those artists markets and basically source Work today from over 2,000 intermediaries. So we're offered now is the biggest buyer in the art market. We're offered I think six seven hundred million dollars in art a month So really an incredible volume of art and then we're buying a small fraction of that So that's that's kind of the investment process in terms of deciding what paintings do we buy? Once we purchase the painting we file We put it into a Delaware LLC and we file that with the SEC as a registered public up public offering Once the SEC qualifies the offering we saw shares in the painting Investors buy those shares and then after the offering closes the painting starts trading on our secondary market So just like you can buy shares in Google and then trade shares in Google You can buy shares in an individual painting and then trade shares in an individual painting Eventually, the painting will will be sold and when the painting is sold those proceeds are (13/35)
distributed to shareholders So that's that's the very high level concept of the of the business and how it works That's amazing because it's for me that creates a high barrier of entry right I mean It's going to the SEC making sure the security which Leads to my next question because it seems the hardest part is getting the platform second into trading everything done, right? Now you have data analytics behind with art But is it just art because I notice on your site when you go into the learning sector You also have crypto and NFTs. I'm not too sure if you're selling NFTs or cryptos, but the fact that you go into The SEC might just answer my question there but Yeah, yeah, that's so that learning centers just kind of like very broad content on anything related to art and investing But but yeah, we we are strictly focused on our we don't do anything crypto We often get the question of how do we think about classic cars? How do we think about trading cards? You know, the reality is like (14/35)
my background is in art our senior team's background really is an art I think at the end of the day these asset classes are very complicated very hard to understand The art market's incredibly complex on its own. So I don't really see us ever going into other asset classes So, how do you achieve the growth rate? I think it's I think you said so 1.7 Billion dollar market. So, you know, a lot of people will branch out uber now is uber eats uber everything, right? So, how would you branch out because what I do see with NFTs and again, it's very hard Especially when you go into the SEC registered these paintings as security With that said open sees was doing a billion a month. They're still doing on a low end 200 300 million dollars a month It seems like you know, the younger market right there might be the demographic but how do you achieve growth? This is just taking more of that total addressable market and more marketing like you're doing and just get more people to the platform (15/35)
Because you know, obviously to increase that total addressable market sometimes maybe you have to venture out of paintings Yeah, so so so the the market that total asset class size is 1.7 trillion not not 1.7 billion so it's It's slightly slightly slightly different. But yeah, see it's a huge market, right? So it's it's estimated that roughly 60 billion dollars in art sells every year half of that is a public auction. So you have you know, you know, you have a huge Transaction volume in the asset class overall So I think from our perspective to go from 1 billion in aum to 2 billion 2 billion to 4 billion Is not that hard so that that's really just what we're focused on at the moment And the assets of the management for my curiosity because I'm fascinated by this So the assets of management is that actually in some of the artwork or some people may sell it Leave the money there and wait for something else to come along and is it kind of like a money market account or how does That's (16/35)
very interesting to me Yeah, so we do have we do have money we do have like money market account account equivalent So you can open a masterworks wallet and keep cash in the wallet But our aum numbers are just just for the art specifically. Oh cool. Cool. So AI data analytics, I mean chat gbt now is is is massive and now it's mainstream It's everywhere but are you using these things because you said I was surprised to see how big your research team is where it looks Like you really do due diligence on the paintings that that are best to put in front of your audience if that's right to say Where they had the most price appreciation potential is a lot of data analytics behind that AI or is it just hey We're hiring experts that really know their stuff within this industry Yeah, you know, I think the problems in the art world are slightly different than problems in other other industries So the challenge with the art world Frankly is that it's it's operated the same way for centuries So if (17/35)
you look at sotheby's which is one of the top two auction houses sotheby's is 275 years old It was the oldest company on the the new york stock exchange before before going private a couple years ago So, I mean this industry has literally been around for centuries and from a data perspective. There's there's never really been a great Clean data set that you can easily access to understand What prices paintings have sold for historically, etc So part of our problem separate from our research team is that we have a large data collection team Of one to two dozen people that are just manually collecting data On different things in the art market all the time. So our research team can actually analyze it but when it comes to to AI You know, we use basic machine learning models within our research team to try to predict where our prices are going for each of these artist markets In conjunction with with those data sets, but you know, we're still we're still in the early innings of of doing (18/35)
that with with this as asset class When I conduct interviews 15 years I always go back and find out as much information as possible because I like to do my homework, right? And I noticed that the marketing background I think I might have talked about this last time I interviewed you How important was that to establish this company because at the end of the day you could have the greatest idea But if you're not marketed correctly and tokenization again something that we've done with our cut with a few ever Where we sold off a piece of our company and people could buy shares in it and they actually have an actual equity ownership in our business But that's not the easiest story to tell everyone How are you able to tell this story where I see you guys everywhere? I see you guys advertising I see people talking about even social media not from you three advertisers people are talking about your work How much did your marketing background help with that? Because again tokenization is not (19/35)
the easiest story to tell everybody I think I mean look I think that's a really great question. I think it's a it's a very hard problem because I tend to I tend to take marketing problems and break them down into two different categories. One is one is um, sort of of Marketing problems where there's pre-existing intent and that's a typical easy marketing problem, right? Like if i'm selling shoes there's pre-existing intent for people to buy shoes I can go to google and I can buy the keyword um, you know some type of shoe and like that's an easy marketing problem to solve the hard marketing problems to solve are our Marketing problems where there's no intent where you have to build intent and the reality is today for masterworks 99.9 of people do not know that they can invest in art. They don't know how to invest in art They don't know how it works So we're really telling that story for the first time so I think you're right. I mean, I think these businesses early on are are largely (20/35)
marketing problems So so my background in marketing has been been really helpful with that, but it's it's still a challenge every every day No, I appreciate you sharing that right. It's always a challenge with marketing No matter how good you are at it. I think right you could always feel like you can market better It's kind of like golf right if you shoot a 59, you know There's no perfection in marketing Just there's no perfection The only sport I know where the better you get the more angry you get it yourself. So, uh, yeah marketing marketing's the same way Yeah, I hear you. I hear you. So, uh, What's the next step for you? Uh, i'm very very happy because again, I follow you guys. Uh, We've interviewed each other i've interviewed you, uh, you know a while ago over a year ago Uh, and we saw the whole spack revolution, right? So you raise money you have investors in there I mean, what are the intentions because you have the platform that's growing that makes sense That's in the right (21/35)
areas Uh, I would expect it and i'm glad you didn't do this back because the way they set up specs Uh, you could see why they're all getting crushed with the valuations they come in It's all fun and games until you know, you have a weaker market and even the good names right have come down tremendously But what are your plans? I mean your valuation I would think it probably came down like everybody else is a little bit You know in in the whole market in private markets But what are your plans because I could see this being a publicly traded company a publicly traded platform Uh, and you have the revenue you have the users you have the growth there It seems like it checks off all the boxes. But what are the plans? What's the end goal? Yeah, I mean I think I think is a you know as a founder CEO You always have to think about what the exit is I think for us the the the obvious exit is at some point to take the business the business public I still think we're we're far away from that today (22/35)
Um, you know if I think about the opportunity really high level It's just that when you look at art as an asset class historically, it's outperformed public equities It has a low correlation to other asset classes It deserves a role in every investor's portfolio in some way some way shape or form But there's never there's never been a way to invest in it and one of the the good things I guess about All of the macro dynamics I was I was telling this company at the beginning of the year Is that when we look back at the 700 000 investors who have signed up on the platform? Uh over the past whatever three plus years You know, it feels really good to know that many of those people that invested in art Over the past couple years have done much better than if they would have invested in public equities So I think we we really are creating value for investors on a daily basis And I think I think we're just in the very early innings of that, right? Like we we just want to take this asset class (23/35)
which performs better than most and has really good Uh characteristics and make it make it investable for for everyone It's also a tough compare with today's society where people want to get rich tomorrow the equity markets how volatile they are right social media and everything so When it comes to even marketing you might be like is but what is is I don't want to say the most expensive piece of probably the best piece that you sold where I think that would drive so much Traffic where hey, this is on a platform right now. You could own a piece of this, right? What was one of those pieces where you're like, wow, this is great. This is on our platform right now Maybe over the past six months to a year Yeah, I mean we you know, there's there's been so many artist markets that that have done Well over the past two or three years I think it's everything from I mean the bangxi market has just really been on fire the past couple years Um, you know that has slowed recently, but there's an (24/35)
artist named barkley hindrix This market's up 300 plus but I you know, if you take a step back I think the important thing to understand about art is that in general most of these artist markets do not accelerate Incredibly rapidly, right? Like most of them are sort of stable predictable markets The boscie market's a great example of that which is appreciated anywhere between 16 and 18 percent for the past 25 years Um, that's kind of a a stable You know more stable over performing artist market so that's the great thing about the asset class is you can find some of these artist markets which sort of Predictably appreciate without taking too much risk, but it's definitely not like enough teas or crypto where You know, you're gonna make a hundred percent in a year, but you could also Lose 50 of your money. It's it's it's not that sort of asset class no, so next steps where Going public maybe in the future you want to be able to grow a little more, uh, which is great But just to see how (25/35)
far you've come is pretty remarkable. It's got serious. I'm not saying that I'm not you know, just you know, trying to catch your ass or anything But it is remarkable because against an industry I truly believe in is what we do with our company when it comes to tokenization to see how far you've taken it uh There's not like this hype around like crypto or things like that. I mean, it's a real company It's growing people that use your service all love it Uh, it's just pretty fascinating to see how far you've come and i'm looking forward to see the next steps over the next Year or two. So, uh with that said if someone wants to learn more obviously go to masterworks.com Get in touch with you But any other ways of social media platforms or anything else because i'm sure when people listen to this They're going to be uh, definitely interested in learning more about your company Yeah, I mean the the best way to learn more about the company and really learn more about the asset class is to go (26/35)
to masterworks.com Request access to the platform. I see you've got an account there request access to the platform Um schedule calls one of our financial advisors. We have a team of 40 50 financial advisors that Literally just on board investors all day long and they they ask about portfolio size risk tolerance how you're investing today Then they help you think through um, how art can play a role In your your investment objectives and what you're trying to achieve So I think that's really the the best place to start and then uh, always feel free to reach out to me if there's there's any questions So request invitation and then somebody actually gets on the phone with you Yeah, so we're big believers in that because I think most people with this asset class are unfamiliar with it They don't know how to think about it. They don't know how to think about an allocation to art as part of their overall portfolio They're not sure how to think about uh diversification within art um, so we (27/35)
really believe in having financial advisors talk to uh individual investors and act as fiduciaries to help them think through some of those those very very specific things around around risk and allocation and Um how they should think about investing for the first time Nah, it's great stuff. Well scott. Listen, I I So happy for your success seeing you grow over a couple years And and I know it's going to continue to happen over the next few years So hopefully you join us again and thank you so much for uh coming on wall street. I really appreciate it, man Awesome. Thanks for having me Great stuff from scott I feel like I have close ties with him in the tokenization world right early to the party Told you that ces Had a big setup with a stage and separate companies all talking about tokenization. I'm walking by going I didn't like two three years ago guys, you know, it's pretty cool Uh and scott did as well. So I love what he's doing at masterworks. I had no idea that he was resonating (28/35)
rps with the sec Uh makes sense, right? It's considered security that people buy and sell and host make a profit on that sounds familiar It's exact definition for 99 of all the old coins or the shit coins that trade on numerous crypto exchanges Which the sec has yet to provide the regulatory framework for trading cryptos And this includes launching bitcoin ets, why don't we have bitcoin ets what's the problem here? Why don't we have that? We have future markets and products for the beat bitcoin in for futures. Why not? Why why are they dragging their feet on this? It's amazing But definitely check out the platform. Let me know what you think And we ended that conversation where he was talking about nfts and I said look nfts It's a massive market for a massive market for him And I know you know, a lot of stuff has to get registered but yeah, I have close ties to that industry now it took me a long time to To build there's a lot of bullshit in the industry just like crypto and The nft (29/35)
projects that i'm coming across are amazing. So, you know, I shared contacts and said listen, these are the guys that I trust that I built, uh, you know relationships with it took me a while and You know traveling a lot and going crazy and and you know, i'm getting old these days at 50 But that's why you have to be in the room for these things, right? It's very important Uh to build those relationships and he was interested in that he's like, yeah I just don't know anything about nfts. I want to learn more about I said, you know, me too You know, I know about nfts but holy cow, you know for me I want to make sure that once we launch it, we're going to launch a newsletter about it Provide great great services throughout that industry with people who are experts Uh that i've learned from where my biggest thing is, you know I don't want to anyone to get scammed that people get scammed a lot in this industry You need to learn there's a learning curve there. But when you explain it to (30/35)
people you could see how nfts are the future that's the future of the platform and Man masterworks will see incredible incredible growth The hardest part is getting that platform up and running trading platform sec and stuff like that. You have that Now it's just throwing more and more stuff on that platform and I think it's a good idea and we'll see maybe work to get in the future, but uh, Uh for that interview and masters, I love bringing new ideas, right? alternative asset classes too, especially during volatile markets like Yeah, what we see right this week Not even this week, but look at nasdaq right crash 35 a few months ago only surge They have a 10 in january up another three percent in february already after the fed meeting And amazes me. I mean the fed is there we said they said they're going to continue to raise rates I mean mention the word disinflation a couple positives here and there but still, you know going to continue to raise rates They're not going to lower anytime (31/35)
soon inflation still stubbornly high in many areas But this volatility is going to continue through 2023 well into 2024 Uh with the fed doing everything is power to force a recession make sure that unemployment rises helps solve inflation but uh This alternative asset class is pretty cool for anyone and that's my job to try to bring you ideas new ideas Expand the horizon there with crypto nfts everything. What do I feel that? I'm investing in or you can make money on i'm going to bring to you So I say this all the time. This is about you not about me So let me know you thought frankkurzyresearch.com. That's frank at kurzyresearch.com and that's it for me. But before I go Before I go I have a special surprise for you I will have Another interview for you on friday. Okay, do my frankly speaking podcast, which is available to paid subscribers only Yeah, you just gotta subscribe to any one of our services even the cheapest one you get frank This isn't frankly speaking. This is a special (32/35)
interview It's a great guest who has one of the deepest networks in terms of celebrities professional athletes Influencers ceos than anyone I know Saying a lot And this person's gonna actually interview me on saturday during a live stream for the sommelery all-star basketball game with thomas macarena in vegas on saturday There's gonna be tons of superstars that he invited me there I cannot go because i'm actually going to be moving a lot of my stuff out of my house that day Uh, and then you get the soup bowl next week with my daughter's birthday on it So I it's just too difficult for me to get back to vegas and go across the country But floyd meadoway weather's gonna be there Uh gary paton dennis robb and eric dickerson Uh michael vick devo samuel stefan digs a whole bunch of people, uh and and frank curzio. Oh my god so Uh, it's just being in the right circles You know, you're gonna see how I met this person just you know out of nowhere and next thing I know i'm like Wow, this guy's (33/35)
pretty cool. I like him. I think you're gonna like this interview. It's really really cool and special interview Where i'll also be making a super special announcement about wall street unplug Which I know you're going to love it's something that we've been building for the past few months Some of our subscribers got emails already about it I'm, very excited, uh, but we're gonna make the major announcement during that interview right after that interview Which is going to take place on friday. So be sure to have your itunes set to automatic download for wall street unplugged So once we publish the podcast on friday, it's going to automatically alert you or maybe an ik Frank doesn't publish ever on friday other than frankly speaking Just again, that's a different service. It's not on itunes This is going to go on itunes i'm going to send it to you again with the special announcement special interview really really cool Added value to you because I love you guys, but it's a must listen (34/35)
And yeah, just love my value for you guys. Let me know what you thought about everything. Seriously, frank Curzioresearch.com i'm here for you. That's it for me and I'll see everyone not just my paid subscribers for frankly speaking, but i'll see everyone Tomorrow take care Wall street unplugged is produced by curzio research one of the most respected financial media companies in the industry The information presented on wall street unplugged is the opinion of its hosts and guests You should not base your investment decisions solely on this broadcast. Remember, it's your money and your responsibility (35/35)