ADMIRING ART: A woman gazes at a painting at Art Beijing 2012, an annual art fair held in the Agricultural Exhibition Center in Beijing, from April 29-May 2 (MATTHIAS MERSCH)

Reports of record sales at auctions should not overly tempt the sober investor. Contrary to popular perception, art is not generally a good investment, performing consistently worse than stocks and shares in the long run. Speculating in low-priced contemporary art can be a risky bet that rarely pays off. What Peter Watson discovered 20 years ago in his study From Manet to Manhattan: The Rise of the Modern Art Market is valid even today: Over a long term, investment in art performs about half as well as other types of investment.

Art meets finance

This state of the art scene explains why it is so difficult to collect money for art funds and administer them profitably. The idea, however, is captivating. Why not combine business with the love for the sublime? Because, said Anders Petterson of ArtTactic, it hardly works!

"These two worlds do not speak the same language. Finance has the money but not the art expertise and the art experts do not have the money," Petterson said at the seminar "Innovations in Art Investment 2011: Trends Risks and Opportunities," held at the London Business School in February 2011.

The only player doing reasonably well on the market, the London-based Fine Art Fund (FAF) headed by Philip Hoffman, is asking for a minimum investment of $500,000 but offers to lend prestigious works of art to the investor for a period from six months to 10 years. For five years FAF ran a fund reserved for Chinese art and antiques which started distributing capital to investors in December 2011. The FAF in Western art boasts an average annual return on assets sold worth 34 percent and cash-on-cash return as high as 55.88 percent.

But it's not just the super-rich who are flirting with art as investment. Following the example set by the Paris Art Exchange, the world's first company to transform works of art into shares traded on a stock exchange, the Tianjin Cultural Artwork Exchange opened its gates one year ago. In a way, it fulfills the old dream of bringing art to the people: Sliced into digestible chunks, paintings worth 6 million yuan ($947,000) are transformed into 6 million shares. An investor who buys up to 67 percent of an artwork can require the purchase of the remaining shares from the other investors.

Finally art arrived to the everyday economy, trading like a commodity on the stock exchange. Art collectors, meanwhile, face questions over the performance of their high-priced masterpieces.

Britain's Barclays Bank was keen to know the secret to art's success. Back in 2005, analysts checked all kinds of assets from the World War II (1939-45) through 2004. They found the performance of tangible assets, including those in the art market, depends primarily on the actual growth of the economy, while performance of stock depends largely on inflation. Market performance for art is best during high development and high inflation, but it is also strong during high development and low inflation. The performance for art is worst during low development and high inflation.

The economy in the United States and Europe remained weak in 2011, and so did their art markets. The prosperous art market of China instead fit perfectly into the Barclays prediction, as its economy continued to maintain a high growth with a high inflation rate. China is set to keep its leading position in the art market. Keep the boom times going, but please don't cut the art into shares.

The author is a German editor of Beijing Review

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