By Sophie Hares

LONDON, Apr 13 (Reuters) Art investing is firmly back in fashion as prices soar for paintings from Old Masters to edgy contemporary works, and a range of new art funds is hoping to attract investors with promises of big returns.

The funds draw on extensive industry experience and buying power, but are hard to value as they have to contend with substantial hidden costs and a notoriously fickle market, experts say.

''You don't wake up one morning, look at the FTSE, phone your broker and say get out of industrials and into impressionists,'' said consultant Jeremy Eckstein, who advises on investing in art. ''If you're buying shares, you can sell them and know what price you're going to get. You can't do that with art.'' About six art funds are hoping to get off the ground, but in spite of a flurry of publicity in the past year, Britain's The Fine Art Fund is the only fully-fledged venture open for business to investors with at least 250,000 dollars available.

''We've been averaging returns on sales to date of around 35 percent in the last 12 months,'' said chief executive Philip Hoffman, former Christie's European deputy managing director.

''Investors realise this is an interesting asset class.'' The fund has spent about 30 per cent of its money on Old Masters painted between 1300 and 1800, and another 30 per cent on post-1960 contemporary art more popular with younger buyers, and 25 percent on impressionist works.

Industry sources say it is now planning to raise up to 0 million for a second fund, although Hoffman declined comment.

UNDER THE HAMMER Returns look attractive but some say art is a risky, unregulated market and funds may find it hard to guarantee good profits in a narrow timeframe, particularly if trading is done through auctions, where commissions can be as high as 20 per cent.

Unlike traditional investments, there are no annual dividends and it can be almost impossible to calculate the true value of the works that a fund has in its portfolio until it is liquidated at the end of the investment period.

''With art you can't make forecasts on the same basis as you would with financial investments,'' says Karl Schweizer, head of UBS's art banking division. ''You have to do your homework before you take your risk as an investor.'' The price of fine art going under the auctioneer's hammer is booming. The total value of auction sales rose 15 per cent to 4.2 billion dollars in 2005, when a view of Venice by Canaletto ranked as the year's top sale at 16.6 million pounds.

Fine art prices have climbed about 58 per cent in the past 10 years, but contemporary works have outperformed, shooting up by about 81 per cent, according to research firm Artprice.com.

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