A new port of call for investors? Fine wines as an alternative investment

Fintech elevates fine wines to an asset class

Covid-19 has had a profound and unprecended effect on the global economy, even as vaccines promise a light at the end of the tunnel, and conventional markets remain highly volatile. This is the second feature in a series that considers alternative assets, both old and new:

Making a mint? Rare United States coins prove a resilient, thriving asset

Fine wines have been a highly tradable commodity since times immemorial however the dearth of product coming from the finest chateaux and the rarity value of collectible millesimes has elevated them into an asset class, with its own trading market platform, Liv-Ex (www.liv-ex.com).

Liv-Ex offers data and market insights to both the serious collector and the dedicated merchant.

IG Wines, founded by Paul Hammond and Jon Hirsch, is a new generation fine wine merchant and investment advisory company in the sense that it takes a very streamlined, high tech approach.

In order to understand the market, one has to firstly understand that investment grade wines are not readily available from source – they are subject to allocation to reputable merchants, by the chateaux themselves. 

Once the allocation of primary stock is acquired, it is shipped to a bonded warehouse, a Europe-specific construct, where wine is stored in proper conditions and not subject to import duty until released for delivery. 

There are, Paul Hammond says, £2bn worth of stored wines in UK bonded warehouses.

Ever since Hong Kong abolished import duties on wine in 2008, the Asian market has gone from strength to strength, making wine a blue-chip alternative investment that has delivered a consistent 6.4% ROI for the past two decades (source: Liv-Ex). 

Collectible, top tier investment wines are typically offered to, and acquired by, family offices and private individuals.

What distinguishes IG Wines is its application of technology and financial mechanisms to the investment process. The company has developed highly specialised software that analyses the market and allows collectors to rationalise their investment. It gives clients leading access to both primary and secondary markets and the ability to trade. The software is also an analytical tool, determining an average score (as well as score versus price), plotting the value of the leading wines, and determining the very best value.

It has an investment section and a consumption section, allowing clients to fund their consumption from trading their wines.  Most people become wine collectors, after all, because they enjoy drinking it.

Importantly, the software is part of the service offered – there are no fees associated with using it.

The company’s interest is in the most covetable regions: Bordeaux, Burgundy, Champagne, The Napa Valley and some of Italy (Piedmont and Tuscany in particular) and The Rhone, as well as some South American and Australian wines. 

The provenance of the wines determines the liquidity of the asset which, at its best, presents low comparative volatility compared to traditional investment markets.

“For every grand cru we sell, we sell hundreds of cases of lesser wines”, says Hammond.

IG Wines has been thoughtfully developed. And the acquisition of Mission Fine Wines in the US has given them a foothold in the American market and a NY office.

They have 6000 clients globally and growing. 

Their partner travel company, Winerist (https://www.winerist.com/), also organises wine tours and adds a nice touch to the offering.

In summary, fine wines, when purchased advisedly and with forethought, represent an eminently sound portfolio diversification, and one that offers a number of epicurean pleasures to boot.