While the first investment club on record dates back to the 1800s in Western America, the world’s first investment club was allegedly established in Texas in 1898 back in the days of the Wild West when just a few investments could be considered safe. Investment clubs were seen as an ideal way of spreading the risk- away from just cattle.
In 1914 when the First World War was about to break out, the collection was sold. A fifth of the sale was donated to the original artists, and the remainder was divided between the investors, generating a 4 fold return on their investment. You can only try to imagine what that investment fund would be worth today if they had adopted a buy and hold strategy!
One of the earliest examples of a modern investment club being the ‘Mutual Investment Club of Detroit,’ which was founded in 1941. The Detroit investment club was established when a group of individuals wanted to invest in stocks, however, they did not have the money to do so individually, as the trading cost were prohibitively expensive.
As a result, the group decided to form an investment club so they could pool together their money to improve their buying power and benefit from the economies of scale through lower trading costs per person. The Detroit investment club still lives on and it said that its investment portfolio is worth millions of dollars. Various online communities devoted to this type of investing have recently emerged and have contributed to the personal investing boom in the united states. One of the reasons that people come together in investment clubs is to learn how to invest. In Britain, investment clubs were too off in the 1950s, but the rate of formation fell at the timing of the 2008 financial crisis.
One of the earliest examples of a group of people who clubbed together to make the investment was an art fund called, La Peau de l’Ours (The Skin of the Bear), which was set up in 1904 by a Parisian art lover called Andre Level. Level persuaded a dozen other art lovers to contribute 250 Francs each year to buy modern paintings. In return, the investors go to hang the purchased artwork in their homes, for a ten-year period, before the fund was cashed by selling off their collection.
Over ten years, Level collected work from artists such as Picasso, Matisse, and Braque. In order to understand the legal structure that an investment club should choose, the club should first understand its club type. Each of the different club types will have different legal requirements as well as different reporting requirements. Typically, the SEC only requires reporting for investment groups with over 100 members, which is reclassified as an investment group, not an investment club. Publicly held offerings like a Real Estate Investment Trust known as REIT also have additional reporting requirements.
