Nobles Crus hits back at critics

Wine fund Nobles Crus has issued a statement refuting claims that its valuation system is flawed.

The seven page statement to its investors was released following a claim in the Financial Times, who sourced pricing from Liv-ex, which appeared to show that it values its holdings at higher prices than its rivals.

The statement begins: “As we are all aware, questions have recently been raised in the press and the industry about the performance and valuation of the Nobles Crus sub-fund fine wine portfolio and that has been a cause of concern to some of you.

“In response, we, Elite Advisers, who sponsor the fund, have engaged Ernst & Young, a globally renowned firm of auditors, and a leading specialist wine auction house to provide an independent third party review of the fund’s portfolio, valuation and valuation methodology, taking into account all relevant benchmarks and publicly accessible pricing data, with a view to setting these concerns to rest.”

The findings apparently confirm the “integrity” of Nobles Crus’ valuation process and that the net asset value (NAV) of the fund as being €114.4 million as of 30 September 2012.

In answer to why the fund has performed so well recently, Nobles Crus explained that while it was true that values have “fallen sharply” in the last 12 months, these losses have been offset by rising values in Burgundy and Italy among other places.

Nobles Crus also questioned the newpaper’s use of Liv-ex as a comparative fund arguing that it “is not, in our view, and in the view of industry experts whom we have surveyed, an appropriate benchmark for our fund.

“For instance, the Liv-ex 100 as a whole only covers 18% of the wines in which Nobles Crus is invested, with a strong bias to more recent vintage Bordeaux wines versus our portfolio which is around 50% exposed to Burgundy.”

It goes on to add that a lot of its stock is quite rare and has good provenance and a comparison with its fund to the Liv-ex Fine Wine Investables Index show greater similarities with annual rises of 13% and 14% respectively over the past five years.

On the question of valuation methodology it added: “Recognizing from inception that our goal was to create a fund with a unique and specialist portfolio, we, together with our auditors, deposit bank and lawyers devised what we thought would be a robust and sustainable valuation process for our wines. There was no appropriate benchmark already in place.

“That valuation process, which is being re-validated independently by Ernst & Young, is set out clearly in the Prospectus. It involves taking an average of four prices obtained from a list of 60 accredited wine merchants and 10 independent auction houses and ensures an accurate price for each bottle, taking into account not just the château and vintage, but also other highly relevant characteristics such as quality, condition, provenance, format and history as well as where and how the wine was bottled, all of which can account for wide variations in price.”

The statement also laid out why Nobles Crus does not use Liv-ex’s database to value its portfolio, chief among them: “Despite Liv-ex’s claims to be comprehensive, it only provides regularly updated pricing for a limited proportion of its coverage, mostly Bordeaux wines, and mainly vintages 1999-2011. Its coverage of other regions relevant to Nobles Crus is patchy and inconsistent. In addition, according to its website, it is able to access data from 400 merchants only.”

By contrast, it said, its data aggregator, Winesearcher, covers 3,614 regions and sources prices from 36,602 merchants and retailers around the world, “which makes it far more accurate,” said Nobles Crus.

Finally, almost forgetting that the FT and not Liv-ex was responsible for flagging up the alleged irregularities, Nobles Crus noted: “Liv-ex which is both a data source and a trading platform used primarily by UK merchants, claims to record market prices.

“However, from our own analysis, many prices quoted are not supported by a transaction, or were last traded so long ago that the price is no longer reliable. Sometimes Liv-ex quote-spreads are so wide as to be of limited use for valuation purposes.”

Liv-ex this week explained its valuation system again merely saying: “Liv-ex is the official valuer for a number of leading wine funds.

“We perform this duty for up to 10 different companies every month. But why is Liv-ex data trusted by wine funds and their administrators to perform this task? We thought we would use today’s blog to answer some commonly asked questions and explain exactly what makes Liv-ex data unique and particularly well suited for the accurate valuation of fine wine.”

It concluded by stating: “Liv-ex only values those wines that can be properly marked-to-market. In general that means the wines need to enjoy an active secondary market with robust data available. (80% of Liv-ex trade is in the last 10 vintages and this is an accurate reflection of where liquidity lives in the fine wine market.)”

It also explains why Liv-ex does not include auction data in its calculations, namely because of the “very volatile” and “large swings” that wines at auction can see on a weekly basis.