Wine investment funds grow into global business

By Marcel Michelson

Collecting wine is no longer a privilege of just the super wealthy now that special investment funds have sprouted amid a search for alternative assets to traditional stocks and bonds, MiNDFOOD reports.

But they may take away some of the fun of drinking.

Wine-based investments received a shot in the arm with the creation of the London International Vintners Exchange (Liv-ex) in 1999 which runs an internet and phone-based information and trading platform for fine wine merchants.

There are now 270 wholesalers from 22 countries connected to Liv-ex and they trade anonymously.

The mid-price between the members’ bid and ask prices is used for calculating the Liv-ex 100 index, which has risen to 237.17 in December 2009 from 93.12 in July 2001. But there was a steep fall in the second half of 2008.

Justin Gibbs of Liv-ex said wine investors were mostly private individuals and investment funds.

“Private collectors in the UK alone hold more than $2 billion worth of fine wine in bonded warehouses,” he said, adding the fine wine market was worth $3 billion a year and growing fast.

The index is almost entirely based on Bordeaux wines, partly because the Burgundy growers have greater control over the distribution of their wines.

Red Bordeaux wines make up 91.33 percent of the index, with Burgundy red at 3.49 percent, Champagne at 3.32 percent, Italian wines at 0.63 percent and Rhone wines 0.19 percent.

The list reads like a wine hall of fame with Lafite Rothschild, Cheval Blanc, Haut Brion, Cos d’Estournel, Ausone and Petrus in vintages from 1986 to 2006.

And there is plenty of wine investment action outside of the Liv-ex index.

The Wine Asset Managers LLP (WAM) launched its own Fine Wine Fund in 2006 for private investors, which data from Lipper shows posted a 7.65 percent gain for 2009. Their Fine Wine Investment fund for professional investors gained 7.11 percent in 2009 and 15.39 percent over a three-year period.

WAM said the market had strong expectations for long-term demand from both old and new markets such as China and the Far East — while supply was fixed and falling because the vineyard areas are defined by law and the supply falls each time a bottle of wine is drunk.

WAM said a downward price correction happened only one year out of every 10.

OWC Asset Managers Ltd runs the Vintage Wine Fund in the Cayman Islands and takes subscriptions for at least 100,000 euros ($145,200).

Lipper data shows it posted a 12.8 percent performance over the past five years, but shed 18.14 percent in the last three years and 0.9 percent in 2009.

In their November report, OWC says it had been hampered by clients withdrawing money.

“It is no secret that during much of this year we have been working through the disposals necessary to meet redemption requests which were made last year.”

In Bordeaux itself, steps are underway to get a bigger share of the collected wines into bonded warehouses in the French town instead of in Britain.

The Bordeaux City Bond opened in June last year, after a change in law that allowed for wines to remain untaxed for longer than the previous limit of two years.

But at the same time some of the wine growers are grumbling that their wines are getting too expensive — after they have left their Chateaux — and that good wines are now left undrunk.

But Live-ex’s Gibbs said wine trading could allow some people to make sufficient gains to finance their hobby, and enjoy a good bottle from time to time.



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