Fine wine profile: Peter Lunzer

There’s been a general and unwritten rule in amateur wine investment that the best way to make a return is to buy leading labels young, preferably en primeur, and then store them professionally until the wine is mature. If, at this point, you can’t sell the wines for a profit, well, one piece of advice is repeatedly offered – drink them yourself. 

While buying the world’s most prized wines at the earliest possible opportunity is certainly a sensible method to ensure an allocation, and keeping them long enough will, if nothing else, guarantee their scarcity, there are faster and more reliable methods to making money from fine wine, especially for those who aren’t actually interested in ever handling it, let alone consuming it. 

One that is increasingly touted is to enter into a collective investment – a fine wine fund. These may be relatively new phenomena in the wine trade, but they are without doubt a growing force and Peter Lunzer, currently chief executive 

of Lunzer Wine Investment, is one remarkably savvy operator in this field. For example, he set up the Wine Investment Fund in 2003 and last August sold the first year’s collection, paying out, in his own words, “an increase of 108% on what people had given us, net of all fees. That’s just over double within five years”.

While he managed to sell the 2003-sourced portfolio before the fine wine trade took its sudden and dramatic downturn in October last year, he predicts that the wine he bought in 2004, which will be sold in August this year, “will produce the same returns to the investor”.

So, what is his secret? How can he maintain a doubling in value within five years whatever the market conditions? And what can the amateur investor learn from Lunzer’s experience? Firstly, fast-debunking one myth, “en primeur does not work”, states Lunzer, referring to short- to medium-term returns. Secondly, and crucially, “wines don’t change value in a linear fashion”, but in quick, short bursts.

Age matters

Lunzer’s so far successful tactics involve buying blue-chip wines “at the lowest price on any given day” and “with a single goal in mind: by the time we sell it five years later it will have become more scarce, more highly sought after and probably taste better”. 

To ensure the wines become both rarer and more drinkable over a three- to five-year window, Lunzer doesn’t buy very young wines. “Generally the minimum age at which we buy is three to four years old,” he says. The reason for this is twofold. Firstly, it is because fine wine seldom enjoys price hikes in the first four years of its life cycle. “When a wine has gone through its en primeur phase, been bottled, then shipped, it is forgotten about because it is immature, and hence rarely rises in value.” Secondly, it is because between four and nine years old these wines are starting to be consumed. “They are becoming drinkable – starting to go onto restaurant wine lists or being drunk at home – so demand forces the price up.”

But, adds Lunzer, there’s isn’t one perfect window. “Wines change often and go through this process [price increases and plateaus] two or three times in the first 22 years of their life.”

For this reason, he also buys wine up to 18 years old. Beyond this, although Lunzer admits that the life span of the likes of first-growth Bordeaux can be “colossal”, he won’t invest in very old wine because “there is this notion that a cork begins to lose its elasticity at 25 years and we can lose ullage – which is a vital part of wine’s value”.

Aside from bottle age, Lunzer emphasises further complicating factors in fine wine investment which can be used to the fund manager or collector’s advantage. One is vintage variation, 

and Lunzer is quick to pick up unfashionable, but not necessarily poor-quality, years. “For example, a lot of the 2003s from the northern Médoc were pretty much off everybody’s radar because people were talking about 2005 and 2000. This meant we did extremely well buying parcels of 2003s during 2007 that are still performing pretty well. So it’s also about finding vintages and the stars of those vintages that have perhaps been left out of the limelight as a result of other things that are happening.”

Press coverage can, of course, distort the market. For example, Lunzer partly ascribes the inflated prices of 2005 Bordeaux to sustained publicity. “The 2005s did so well because everybody perceived 2006 wasn’t as good, 2007 was worse, and 2008, similarly, is not likely to be any great shakes, so the media attention remained on one harvest and with natural consequences – prices increased too much and too early and it is therefore not surprising they have fallen back.” 

For historic vintages, key commentators can still have a valuable if unpredictable influence. “Every once in a while – but you can’t bank on it – there are reassessments of quality. In other words Robert Parker will come across, for instance, a batch of 96s and review his scores and that can have an impact.”

Then there is source region and brand to consider. Lunzer doesn’t invest in the likes of Super Tuscans or top-end Californian labels, or even Champagne’s most prestige cuvées. On the other hand, Bordeaux is the mainstay of any Lunzer portfolio. Why? “Because the secondary market for Bordeaux is truly global and therefore it is low risk.” As for Burgundy, Lunzer concedes that Domaine de la Romanée-Conti “does shoot up in price but there is simply not enough of it around to benefit and almost all of it is sold for consumption”.

Interestingly, within Bordeaux, while “the market is concentrated on first growths and super seconds, the greatest percentage increases aren’t always on these wines. A good example is fifth-growth Châteaux Lynch-Bages”. Lunzer also recalls picking up a case of Pétrus 1990 for £10,000 in 2003, “thinking it was a little risky”, but selling it five years later for £30,000. 

As for actually rating a label’s performance at any stage in its life cycle, Lunzer has devised a model called the “wine price ratio”. This he describes as “a method of determining where a wine has got on its natural path from en primeur prices to where it will end up”.

He continues: “The perfect analogy in my mind is that nobody has ever paid more than £3,000 a case for Château Lynch-Bages. If you are the sort of person who pays more than £3,000 for a case of wine you start trading up to second and first growths. In other words we can buy Lynch-Bages at £1,500 believing it will go to £3,000 but buying it at £2,500 hoping it will go to £5,000 is probably unlikely.

“So the wine price ratio is a great analysis of where a wine has got to and how fast it has reached its particular position, as well as whether it is ahead of itself or behind. In the case of 2003 Bordeaux they had fallen behind where they should be and eventually the market agreed with me and off they went.”

Prices in perspective

Looking ahead, Lunzer is confident fine wine prices will pick up – and faster than other assets. “Many I know to have lost between 20% to 60% of their net worth, but if you were worth £100 million and are down to your last £20m you can still afford a bottle of Lynch-Bages or Latour. Also, there are a lot of people with very strong cash positions and there are still a high number of individuals who openly enjoy magnificent wines.” Further, there are signs of change. “From the beginning of January 2009 I have noticed that the bid offer spread is narrowing – which means we are within months of seeing the lowest prices and then I expect to see steep increases.”

As for 2008 Bordeaux, Lunzer believes the investor will avoid it, both because of qualitative reasons and because the euro is so strong against the sterling. However, this “is good for 2006 because the man who spends £20,000 a year on wine will go for the older vintage and 2006 is wonderful”.

So, lucrative wine investment is as much about picking the right wines as it is about buying at the right times. Either that, or putting money into a well-managed fund. But beware of who you choose. Lunzer cites a fund – based in Singapore – that has suspended redemptions until April. Why? “I have a feeling it is because it has overvalued some stock.” In this instance, investors can neither sell their asset, nor drink it. 

 

 

 

Fine wine funds: size of market

Fine wine funds are a relatively new phenomenon and Peter Lunzer’s Wine Investment Fund, founded in 2003, was one of the first. But how much money is locked up in these funds? Lunzer believes that they total £200-220 million, which has been accumulated over the last five years. To put that in context, he says that around £2 billion worth of fine wine changes hands globally each year. 

Comparing the £200m worth of wine in funds to £10bn worth of transactions for the total fine wine trade over the last five years, Lunzer says, “Wine funds are infinitesimally small.” For this reason he doesn’t think they “are strongly influencing the market”. 

However, he says, “In the next five years wine funds will increase in popularity because people will understand why they can work if they are professionally managed. But I still feel that we have a long way to go until the wine fund is the reason the price has changed.”

CV: Peter Lunzer 

Peter Lunzer is the chief executive and chief investment officer of Lunzer Wine Investment, which he launched in November 2008.

He has nearly 30 years of experience in the wine trade, originally supplying 

fine wines to the UK hotel and restaurant trade. 

In the last 20 years, Lunzer has specialised in buying fine wines on behalf of investors, with his first formal five-year track record achieved while acting as CIO for The Wine Investment Fund, which he co-founded. From 2003 to 2008, the return reflected an increase of 108% net of all fees and has raised £40 million.

 

From the drinks business, March issue