Art fund backgrounder: Three key examples of art funds


The British Rail Pension Fund started investing in art in 1974. It finished selling its portfolio in 2000.

Journalists are pretty predictable and in any article on art funds you can be pretty sure they will mention one of three funds – either Andre Level’s The Peau de l’Ours or Bearskin Art Club, The British Rail Pension Fund’s experiment in art and Phillip Hoffman’s Fine Art Fund.

To save you time, here is a quick guide to all three.

The Peau de l’Ours: the greatest informal fund

The most famous informal fund is the Peau de l’Ours (Bearskin) club, which was established in Paris in 1904 by Andre Level. It was either named after a tale by Fontaine which said: “Never sell the skin of the bear before you’ve actually killed it” or because there was a bearskin on the wall during the first meeting.

Including Level, Peau de l’Ours had 11 partners and acquired around 100 pieces of art. Although it was completely unregulated (partly because there would be little fund regulation for another 50 years) it had a formal structure.

Each investor contributed 250 francs a year with the fund. After 10 years, the fund would be sold with investors receiving 3.5 per cent interest a year. Any profits beyond this would go to the artists (20 per cent) and Level (20 per cent), with the remaining 60 per cent going to investors.

Level, whose main role was working as a manager at a shipping company, had a fantastic eye for art and acquired works by Paul Sérusier, Paul Gauguin, Constantin Guys, Henri Matisse, Pablo Picasso and others.

When the fund’s 145 pieces were sold at a special auction, it returned about four times the original investment. The highlight was a painting by Picasso called Les Bateleur. The club had bought it from the artist for 1,000 francs. It sold for 11,500 francs.

Jori Finkel wrote an in-depth piece on the Bearskin Club for The Art Newspaper in August 2014.

British Rail Pension Fund: a successful experiment for formal art funds

The most transparent and arguably the first formal art fund was one launched by the British Rail Pension Fund in 1974. Because of the oil crisis and high inflation, managers at the then £1 billion pension fund were looking for diversity and decided to invest in art. The fund invested £40 million in art between 1974 and 1980 buying from both dealers and auctions.

Auction house Sotheby’s advised the fund and it deliberately bought a wide range of art. This included Old Master prints, Japanese prints, Impressionist and modern art, early Chinese ceramics, Victorian pictures, English silver, African tribal art, gold boxes and French furniture. Many of the works were of a good quality which allowed the pension fund to avoid storage by lending some of its collection to museums (this also helps raise the value of works) but is still had substantial storage and insurance costs. In total it bought 2,400 pieces.

The pension fund started selling in 1987 with a sale of Old Master Prints in June 1987. It managed to sell works in 15 more auctions (and made a positive return in 13 of these) before it was forced to stop selling when demand for art fell in the early 1990 recession.

It stopped selling for the next four years (demonstrating how art can be illiquid), finally closing the fund in December 2000. It made most of its profits from the sale of Impressionists selling before the market for these fell in 2001.

The British Rail Pension Fund made an annual return of 13 per cent each year. It is often said that was less than it would have made by investing in a London Stock Exchange tracker, but it worth remembering that it wanted to reduce its reliance on equities.

The British Rail Pension Fund’s investment in Art is covered by Jeremy Eckstein, who advised the fund, in Fine Art and High Finance, edited by Claire McAndrew.

The Fine Art Fund: The new face of art funds

Ironically, the British Rail Pension Fund exited the market just as a wave of art funds prepared to enter. The most high profile (and arguably one of the most credible) was The Fine Art Fund which launched in January 2003. One of The Fine Art Fund’s selling points was Philip Hoffman, who had both experience of finance and art.

Hoffman started his career as an accountant at KPMG before joining Christies as finance director. He was just 27. In this role Hoffman helped restructure the auction house – including cutting many of its specialists – and make it profitable again. He rose to become deputy managing director before leaving to launch the Fine Art Fund. The fund also has strong links with other auction houses including Lord Gowry, its chairman, who was also chairman of Sotheby’s.

The Fine Art Fund has launched five funds so far: The Fine Art Fund, The Fine Art Fund II, The Fine Art Fund III, The Chinese Fine Art Fund and The Middle Eastern Fine Art Fund. It had more than $250 million of asset under management in June 2014 and is working on another fund at the moment.

Hoffman’s Fine Art Fund did a good job selling the benefits of an art fund both to investors and also to others that wanted to launch their own funds.