Alternative investments are becoming increasingly popular. Read my new column on Global Corporate Venturing and discover a new world of investing opportunities….
Let's start with Wine…
‘’When I was a little girl, I used to wonder through the vineyards with my grand father. He was an artisan de la magie in the South of France’s Languedoc Roussillon Corbieres AOC making full-bodied and intense red wines. He patiently explained to me the wine life cycle and I discovered the pleasure of drinking good wines with him and now investing in them. ‘’
Wine is a product that requires passion, patience and resilience.
The managing director of a boutique wealth management company said: “I remember my grandfather in tears time and again when an unexpected hail storm in April was destroying his hopes for the year. It has always made me humble when it comes to wine, and wine as an investment.”
But, partly as a result of such fickle weather patterns, fine wines have proved to be a healthy alternative investment. In the past 10 years, the fine wines market has consistently outperformed most major financial indexes and commodities, such as gold, silver and oil, driven by growth in worldwide demand especially emerging markets such as Brazil, Russia, India and China, according to the World of Fine Wines.
While there is some concern about a speculative bubble, insiders say demand is outstripping supply of quality wines. Mathieu Jullien, managing director of Wine Source, a UK-based fine wines merchant, said: “Demand for top grands crus [the best bottles of wine] has doubled in the past three years.”
David Roberts, buying director of UK-based wine merchants Goedhuis and Company, said: “The product is by nature supply constrained. We have seen progress on vineyard techniques of course, but the overall production of fine wines can hardly go up. Some chateaux are more and more conscious of quality and not quantity.”
And Roberts’ Hong Kong-based colleague, Tom StopFord Sackville, added that demand in Asia was growing as drinking wine was regarded as a sign of good taste and sophistication. He said: “What is happening to Asia right now is to some extend what happened in the US in the 1960s. One needs to remember, it takes about 20 years to create a wine culture [but] with the internet and the free access to great wine knowledge, with the Parker Guide, Alan Meadows or Wine Spectators publications, this cycle can only go down.”
A number of wine tasting clubs and wine funds have sprung up across Singapore, Hong Kong and Shanghai, China, as well as Europe to meet the needs of individual drinkers and collectors.
Philippe Kalmbach, founder of the Malta-regulated Wine Source Fund, which is to be launched this year, said: “It took us about three years to work on creating the ecosystem that will benefit a fund. We started with a merchant arm [in order to] understand and get exclusive access to the supply side. We then added with a distribution arm to get first-hand data on consumer behaviour in the most reliable channel: restaurants and luxury hotels around the globe. Finally, we spent some time forming the right investment committee and building a balanced portfolio of products, with a real focus on rare wines and spirits.”
The fund takes valuations from different data sources and has a foreign exchange hedging strategy. But for those wanting to indulge in wine investment, remember there are added perks. As one Singaporian wine expert said: “When you start to drink wine, you see the women eyes start to sparkle like diamonds… without the tears.”
Before buying, ask
Buy to drink or Buy to hold?
Roberts said: “Buying to hold requires a much longer term strategy, and demands for flawless provenance and supreme storage facilities.”
Sackville added: “Investors would need to think about unit value per bottle and storage costs, so getting a critical mass is important, anything below £500 [$750] per case will not be economically viable.”
If you buy to drink might require merchant-managed wine clubs, as giving you more immediate access to your bottles, then funds or similar products.
What types of access to supply does the product offer (Entry point)?
In terms of investment, allocation rules so ask “what type of relationship to which chateaux and what could be the level of yearly allocation might we have?”.
Keep in mind that premium Bordeaux are easier to get, but differentiation could come from allocation of rare burgundy or high-end Italians or even new world wines.
Any answer of less than £10m per year for allocation should raise a red flag in relation to scalability and look for products offered by wine merchants rather than from an ex-private banker who happens to have a passion for wine.
On provenance, always enquire about their documentation protocol and safe keeping, especially if you are an Asian investor following a number of scams in the region.
What types of access to distribution does the product offer (Exit point)?
As equally important to have the right access to supply, benefiting from access to diverse distribution channels is important to make your investment liquid (pun intended). Select products offered by wine distributors that have multiple channels, including their own customers, such as restaurants or hotels, or wine club and access to other wine clubs and auction houses.
For liquidity, think about balancing maximum returns and easy access to cash. Best products would offer a quarterly or semi annually redemption, but incur a penalty fee for less than one to two years tenure in the product.
How would the bottles be stored and insured?
Roberts said: ‘’Storage is an extremely important issue in Asia and its impact on the physical presentation of the label. While the quality of the wine itself is imperative, buyers also want the bottles and labels to be in impeccable condition.”
In Europe, the safest and best option remains Octavian, which is used by Bordeaux chateaux and most of the UK merchants.
Make sure your stock is adequately segregated from other owners.
If your storage facilities are in France beware of the corporate tax on any cork sold and ensure the inventory is hold on a tax-free zone.
Finally, inquire about insurance. Any product offering a replacement value of less than 80% should raise another red flag and best is net replacement value.
What is the investment strategy?
Different varieties can see large fluctuations. Last year and 2008 saw a massive drop in Bordeaux prices, while rare Burgundy appreciated by about 30%, and Tuscan wines by 25%.
Ask who will be the most likely buyers?
High-powered bankers are very keen on Bordeaux, for example. But make sure your portfolio is well balanced and ask for Burgundy or new world wines.
In loving memory of my Grand-Father- Jose Clement Pech.