Trustees of the Tate galleries lost £1 million after investing in hedge funds, it emerged today.

Finance bosses at Tate Britain and Tate Modern have pulled out of the funds following the loss.

Among the current and former trustees who were responsible for the hedge fund investments were leading financiers including Treasury minister Lord Myners, hedge fund guru Noam Gottesman, former fund manager Carol Galley and former Goldman Sachs star Scott Mead.

At its peak Tate held almost a quarter of all its investment in hedge funds —almost five times the amount a typical pension fund or insurance company would normally put into them.

City experts said this was highly unusual for a charitable foundation.

Lord Browne, chairman of the Tate wrote and former boss of BP, said in the latest annual report: “The trustees investment policy has been under review since the autumn of 2008, after the turmoil in financial markets.”

Tate received £54 million of taxpayers' money last year. It got another £8 million from the Lottery and other public funding bodies.

Its latest accounts show that the trust held £6 million of its total £27 million of investments in hedge funds at the start of its last financial year.

But by the end of the year — March 2009 — Tate had sold all its hedge fund holdings, resulting in a 17 per cent fall in value or £1 million loss.

Ironically, since then the average hedge fund has risen 19 per cent — far better than the return on cash.

Hedge funds are specialist investment vehicles which try to outperform traditional areas of investment such as stock markets and government bonds.

They are regarded as more risky than conventional forms of investment but produced exceptionally high returns in the good years. Many hedge funds suffered badly during the financial crisis.

Lord Browne said a new investment committee had now been formed with a revised investment policy.