Investors toasting a vintage year

How do you make a small fortune in wine? Start with a big one. Has that adage been proven over the past few years? Hardly.

In December the price of fine wines rose by just 1%, while equities enjoyed a massive pre-Christmas jump of 6.7%, gold put on 2% and oil rose by 8.7%. But over 2010 as a whole those who invested in fine wines enjoyed returns that outperformed the other asset classes for the second year running.

As reported by the drinks business earlier this week, upmarket merchants such as Farr Vintners and Berry Brothers & Rudd enjoyed a bumper years for sales on the back of the 2009 Bordeaux en primeur campaign. But at more humble levels, importers of premium label wines from Champagne and Burgundy also enjoyed sparkling sales with top end bodegas from Rioja also doing well.

Wine investors are seeing average returns of more than 30% a year and over the past 15 years the average gain has been 15%. Much of the burgeoning demand has been triggered by Far Eastern buyers pushing up prices for a finite commodity, and with Chinese New Year coming up next month, the trend is set to continue for this quarter at least.

On the back of this upsurge, Arbuthnot Securities is about to bring Britain’s first quoted wine investment group to the Alternative Investment Market (AIM) next month. Wine Investors is aiming to raise about £30 million, with which it will buy cases from top châteaux in fine vintages and then hold these to maturity before selling. The average case will be bought for about £3,500 and portfolio turnover will be about 10% a year.

The leading light at Wine Investment is Andrew della Casa, a former banker who has been running the Wine Investment Fund for the past seven years. Since 2003 it has produced an annual return after fees and expenses of almost 16% for those who invested at the outset.  

The new company will be advised by della Casa’s Anpero Capital, which will take an annual management fee of 1.5% and then performance fees to match those earned by the most exclusive (and expensive) hedge funds: 25% of returns in excess of 16% in any year.

While the AIM market is less tightly regulated than the main London Stock Exchange, wary investors are promised that Wine Investors will have its assets valued by Liv-ex and will publish figures for its net assets monthly.

They also have to remember that the company plans to be highly leveraged in exceptional years, especially in Bordeaux. It could take on debt of up to 75% of the money raised from its backers. That could elevate returns, but it could also magnify the downside risks.  

Finance on Friday, 14.01.2011