Fine wine investment: The double-edged sword of illiquidity

The ‘Piedmont season’ is certainly giving rise to a barrage of questions. This week we had a very lucky owner of a case of Giacomo Conterno Monfortino Barolo Riserva 2004 whose point was basically this: if I bought this for under £4,000 and it is now on offer for £12,000 or thereabouts, does it matter that I have to take a big discount when I sell it?

Just let’s be clear before we go any further with this: this is not a fine wine investment question. A fine wine investment question in these circumstances is: “how close can you get me to £12,000, notwithstanding the illiquidity of this particular wine”? You may find a surprising degree of insouciance in the original enquiry, but it all relates to why you bought the wine in the first place, or perhaps, how you ended up with it.

A lot of people own wines for very different reasons to the prospect of financial reward, and if that is the case with you then feel free to offload for whatever cash bid you can get, safe in the knowledge that what you are doing is giving someone the chance to make a fair bit at your expense.

A merchant offers you £8,000 for your wine in the above example, you think you’ve scored because you’ve doubled your money, while he/she makes 50% in considerably less time by knocking it out for £12,000.

That is not only fair, but it is simply the way of the world. You no more know how to get a forecourt price for the second hand car you are selling than how to get a Wine-Searcher price for your wine, and in exchange for a cash consideration you are happy to transfer the risk of ownership to someone who is willing to accept it and who knows better than you do where to find a possible buyer.

When you enter the market for the sole purpose of making money you have to manage these risks a lot better, or engage someone like Amphora who can help you through the minefield, because that is rather how it is with the less liquid wines. Giacomo Conterno Monfortino makes fewer than 600 cases a year, and will happily skip a vintage if the crop is deemed unsatisfactory. That’s down in Le Pin territory, and not much more than DRC.

So as advisers we have to work out whether there is enough relative value on offer to make it worthwhile for an investor to a) engage our services; b) settle the charges of ownership; c) take whatever discount might be applicable at the other end. We try as much as possible to soften that final blow by ever-improving our channels of distribution, but occasionally events conspire against the seller, if the need for immediate settlement outweighs all other considerations, for example.

Not only does Conterno make so little Monfortino but he ages it for up to seven years in barrel so the 2013 vintage has only just appeared on the open market. It is priced in bottle and as a result the 2010 and 2013 vintages have been poor investments because they were priced at a time when the market had become more or less crazy about them, as can be seen from this illustration:

From an investment perspective, therefore, this wine is quite a challenge. There are certain wines which give you some semblance of an excuse for expecting them to perform over a five year period but Monfortino, while a perfectly outstanding wine, for the moment looks like a pass.

What of its little sister, Cascina Francia, also a Barolo? There is more availability here, as production levels are just under 2,000 cases a year, and because it doesn’t score 100-points nearly every vintage the pricing is much lower. Most of the better vintages over the last couple of decades have done well, as you can see from the chart below. The gap in the five-year performance for the 2010 will only appear at the end of November but it is up 67% since the end of November 2014.

What strikes us as interesting here is the 2009, which is by far the cheapest. 2009 was not an outstanding year in Piedmont, achieving 90-points in terms of regional vintage score from The Wine Advocate. It was also one of those years mentioned above when the Monfortino chose not to offer a wine to the market. As a result the Cascina Francia had the pick of the crop, literally, so all of the grapes which might otherwise have gone into a Monfortino benefitted the Cascina Francia.

This is not that unusual actually, because there was no Monfortino in 2008 or 2007 either, which is very helpful because it allows us to compare like with like, to a degree. The 2007 was a good vintage in Piedmont (although not good enough for Monfortino, clearly), rated at 95, against 91 for 2008. Given that the individual wine scores are very similar at 96+, 95+ and 96, chronologically, you might have expected some premium for the 2007.

Looking at these prices that is not the only anomaly. 2006 was a great year for Barolo in Piedmont, at 97 only marginally behind the amazing 2010. The Wine Advocate score for the Cascina Francia provided by Antonio Galloni was 96+, so again given the vintage quality you might have expected more of a premium. Way out ahead price-wise is the 2010. The WA score that year is missing, because Galloni was on his way to set up Vinous in 2014 when he tasted it, so the Vinous score of 98+ we believe to be a fair comparison. Even allowing for a wonderful vintage and a top-scoring wine the valuation is rich, in our view.

If you fancy dipping a toe in the water with Barolo we believe you can make a case for the 2009 and possibly the 2006 G. Conterno, Cascina Francia. At the moment you could throw a handkerchief over the prices (and scores, to be fair) of a lot of these wines. This is because there has hitherto been no great critical optic cast in their direction, and if this develops over time then price differentials will appear. We are in speculative territory here, but we would support keen buyers looking for Cascina Francia 2009 and 2006.

Philip Staveley is head of research at Amphora Portfolio Management. After a career in the City running emerging markets businesses for such investment banks as Merrill Lynch and Deutsche Bank he now heads up the fine wine investment research proposition with Amphora.