Framed close-ups of two elderly men hang in Castlestone Management’s London meeting room. One of the men smiles and looks away; the other sullenly faces front.

These large photographs by Chuck Close -- bought for $25,000 each -- are of artists Robert Rauschenberg, who died last year, and Jasper Johns, 79. They’re part of a new Castlestone art fund.

The fund is designed as an anti-inflation shelter at a time when recession-busting stimulus packages are flooding the global economy with cash. To Castlestone, which has some $660 million under management, scarce art -- by dead artists, or by big names in late career -- is as good as gold.

“As long as the value of money falls, the value of real assets will rise,” says founder and joint chief executive officer Angus Murray, 39. “Art to me is exactly the same asset as gold bullion.”

“The two assets are running in parallel,” says the Australian-born Murray, who wears an open-necked white shirt with his suit trousers. “The devaluation of money is affecting both.”

The global economy is in its worst slump since World War II, and will shrink 1.3 percent this year, according to the International Monetary Fund. The U.S. has introduced a $787 billion stimulus package to combat recession.

Murray pulls out a sheaf of graphs showing how gold has tripled in price this decade. Art, too, is an “irreplaceable, unleveraged, real asset.” As the value of money erodes, art will appreciate over the fund’s eight-year life, says Murray.

Basquiat, Fontana

Castlestone has bought $16 million worth of art and plans to spend another $9 million by the end of September to create a diversified portfolio of about 26 artists. They include Jean- Michel Basquiat, Lucio Fontana, Willem de Kooning and Alexander Calder. The priciest work so far is a Basquiat that cost $1.2 million. Another $885,000 was spent on a De Kooning.

The portfolio also has a Damien Hirst butterfly painting, bought after Hirst said he would stop making them, and a Richard Prince “Nurse” painting. Otherwise, says Murray, active contemporary artists are avoided, as their work is “replaceable.”

At the Sotheby’s Impressionist and Modern Art sales in New York this month, Murray bid $250,000 on a Matisse bronze sculpture, “Venus Assise,” which sold for $326,500 including fees. He also bid $1.25 million on a Rembrandt Bugatti sculpture, “Grand Tigre Royal,” which sold for $1.87 million with fees.

Losing Value

Art already bought by Castlestone for the fund has shed a third of its value, says Murray. “I had a house, it went down in value too, but I’m not going to change my view on that,” he shrugs, saying this makes it a good time to enter the market.

Prices of contemporary art at auction have fallen 30 percent to 50 percent in the last six months.

The London-based Fine Art Fund Group gives equal weighting to Old Masters; Impressionist and modern art; and contemporary art. It has lost 20 percent to 30 percent of its value in the last year, and now manages around $100 million, according to Chief Executive Philip Hoffman. Until the end of 2007, the fund had an average annualized return of 23 percent, says Hoffman.

This year is a “bad time” for selling, “but acquiring art is unbelievably attractive,” says Hoffman. At the same time, he says new funds lack a track record: “Art is a dangerous thing if you don’t know what you’re doing.”

Inflation Hedge

New York-based art dealer Richard L. Feigen, who deals in European paintings from 1300 to the present, views art as a “valid refuge” at a time when collectors are “worried about inflation.” Yet he adds a note of caution.

“A bar of gold is a bar of gold,” he says. “No two works of art are the same, unless they’re editions of a print.”

For art to be a good investment, Feigen says, it must be of “permanent importance” to art history, of “museum quality” to lure institutional as well as individual buyers, and of interest to more than one part of the world.

In Feigen’s view, art funds lack specialists with the depth of knowledge to pick out the right works, and are prone to invest in overvalued art. He cites Basquiat as an example; he says the painter, who died at age 27, “made no permanent contribution to art history” and is “vastly overpriced.”

Murray says the dearth of affordable art specialists “would have definitely been a very accurate description six years ago. However, there’s a whole lot of people who don’t have a job at the moment.”

“The redundancies we’ve recently got from Christie’s and Sotheby’s have helped,” he said.

Castlestone says it has just hired two people who previously worked with Sotheby’s, and will not disclose their names until they begin work.

Murray’s Money

Most of the art in the portfolio has been bought with Murray’s money: He has invested four-fifths of the initial $25 million, and his partners, the rest. Those investments won’t be touched for eight years, says Murray.

Castlestone’s 1 percent annual management charge, and the 20 percent performance charge on the fund’s gains, will be reinvested over the period. After eight years, the art will be sold at an auction that Murray hopes Sotheby’s or Christie’s International will hold.

Interested retail investors must put in a minimum of $10,000 or 10,000 pounds (depending on which currency they want) and go through financial advisers in Castlestone’s network. Murray expects an average investment of $25,000 to $75,000. The fund has agreed obligations amounting to another $21 million already.

In eight years, Murray hopes “I can actually stand up and say: ‘Here’s a catalog from Sotheby’s that shows you I bought at this price, I sold at this price, this was the independent annualized return of 11 percent. It worked. We were right.’”