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ALTERNATIVEAi INVESTMENTR REPORT

FINE WINE 2015 DISCLAIMER PUBLICATION This report is provided for general The information has been compiled from information purposes and for use credible sources believed to be reliable, only by investment professionals however it has not been verified and its and not by retail investors. accuracy and completeness are not guaranteed. Reliance should not be placed on the information, forecasts and opinion set The opinions expressed are those of out herein for any investment purposes Intelligent Partnership at the date of and Intelligent Partnership will not publication and are subject to change accept any liability arising from such use. without notice.

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2 OPENING STATEMENT Welcome to the first industry report focused purely on fine wine.

EDITORIAL Lisa Best Wine collecting has been a hobby for hundreds, if not thousands of years, but more recently fine wine has been recognised as a genuine alternative asset class, providing significant diversification benefits from mainstream financial markets. This was proved by its strong performance during the 2008 financial crisis and following recession.

The supply and demand characteristics are also positive. The very CREATIVE best wines are highly restricted in supply and therefore the supply Mar Alvarez curve for these wines is almost perfectly inelastic. Over time as they are consumed the price of the remaining bottles rises. Additionally, quality improves with age, further increasing consumption and inevitably increasing the rarity and desirability of remaining bottles. Hence, the pure enjoyment of owning and drinking fine wine plays into the potential investment benefits, creating

SUB-EDITING conditions where very high returns are possible. And a growing Guy Tolhurst number of newly rich individuals are seeking to demonstrate their Daniel Kiernan wealth and status, boosting demand.

Moreover as tangible assets, fine wine can act as a wealth store, providing a hedge against inflation, protection against low interest rates and currency fluctuations.

RESEARCH Samantha Goins Nevertheless, these benefits do not come without their difficulties Derek Skrzypek – the sector is complex, with only a small percentage of world wines capable of improving in bottle and trends moving with new markets, tastes and the influence of critics. Consequently, valuation can be difficult as assets are unique and there are no revenue streams allowing for conventional valuation models such MARKETING Alex Evans as discounted cash flows. This has deterred many from involvement, Michelle Powell including a large proportion of mainstream advisers.

However, wine investment specialists such as Cult Wines are on hand to make the asset class available to those who lack the

PRINT knowledge and experience to confidently participate in the market. Four Way Print This report examines the investment case and the risks and mitigations of what we think is an enjoyable, collectible, tangible asset with a fascinating history and a future worthy of serious consideration.

Guy Tolhurst Managing Director Intelligent Partnership

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3 “Advisers need good quality information – about the nature of EIS, about the practical process of CONTENTS EIS investing and about the many ways of using EIS as part of a broader financial strategy. We see providing this sort of information as a central part of our relationships with financial advisers.” Andrew Sherlock

A. Octopus Investments was by far the most widely known EIS manager with 95% of advisers having dealings with them. This is likely due to their track record and existence in the EIS market for a number of years. Other well-known managers include Ingenious Media with 58% and Oxford Capital and Foresight, both with 42%, and managers with a smaller presence including MMC with 11%. It appears advisers stick to managers that they have had previously INTRODUCTION INVESTMENT CASE MARKET UPDATE Source: Intelligent Partnership good experiences with, making it hard for new entrants or competitors to attract these advisers. Many of the advisers questioned had not used a manager that wasn’t listed above. Interestingly just over a quarter of advisers use only one EIS manager, but Source: Intelligent Partnership 11% some use as many as 9 and a large number 11% use between 5 and 7 managers. On average advisers use between 3 and 4 EIS managers. Other EIS managers and platforms that advisers use include Kuber Ventures, RAM <40 Capital, Downing, Motion Picture Capital, 40-65 Triple Point and Par Equity. 95% >65 16% l Ordinary Retais 78% 28% Investor HNW and Source: Intelligent Partnership Sophisticated

Yes Q. What category of client do you Q. What age is your average EIS investor? recommend invest in EIS funds? A. The typical age of an EIS investor is between 40 and 65 years old. Investors No A. Advisers were asked whether they in this age group will usually be at (or recommend EIS to HNW and sophisticated approaching) the peak of their working life investors or ordinary retail investors (they (and income), may have children that have 72% could also tick both). Unsurprisingly the recently flown the nest and will be focused vast majority only recommend EIS to HNW on building a portfolio of investments to and sophisticated investors, with only 16% provide for their retirement. They may also seeing them as suitable for ordinary retail have surplus income which they can afford Source: Intelligent Partnership to allocate to riskier investments such as EIS investors. in the search of higher returns. EIS investments generally involve a large Only 11% of advisers recommend EIS amount of risk and capital can be tied Q. Do you feel that there are enough investments to investors below the age of up for a number of years. The tax reliefs 40 or above the age of 65. Younger investors resources and information available to offset some of this risk, but the majority of may not have the capital to allocate to these enable advisers to achieve whole of the ordinary retail investors will not be higher types of investments as they are likely to market knowledge of the EIS sector? rate tax payers and therefore will not be focused on buying a property and/or receive the maximum benefit from these tax starting a family. However, there is potential A. Being an education and content provider breaks. Therefore HNW and sophisticated for growth from this age group as they pay this is a very interesting question for us. more attention to saving for retirement, and individuals are usually considered a better 72% of advisers feel that there are not they may also have a higher capacity for fit for EIS investments as they will take full enough resources and information available loss, as any losses can be made up through advantage of the tax reliefs available; have a on the EIS sector. Although EIS have been future earnings. greater understand of both the underlying available since 1994 and there are a number investment and the risks involved; and also Investors in the over 65 age group are likely of well-established managers in the market, to be in retirement and therefore would not have a greater capacity for loss should the advisers feel that they still do not have take on investments that could risk their investment fail. enough resources to gain the whole of retirement income. They may consider EIS market knowledge they require to fully for the 100% Inheritance Tax relief available understand the sector and recommend though. these products to their clients. It seems 37 there is definitely scope for more education and training in this space, which should ultimately improve the market for everyone involved.

7 INTRODUCTION 19 GLOBAL PERSPECTIVE 8 THE ASSET CLASS 13 INVESTMENT CASE 22 EMERGING MARKETS

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4 RISKS & DUE DILIGENCE HOW TO INVEST CONCLUSIONS

32 PRODUCT DEVELOPMENT 73 SWOT ANALYSIS 23 RISKS AND DUE DILIGENCE 28 HOW TO INVEST 74 SUMMARY

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5 INTRODUCTION

6 INTRODUCTION

With figures from International Wine fine wine investment sector. It will take & Spirit Research (IWSR), a London- into account the prospective risks, “The funny thing based drinks research group, estimating mitigations and benefits of such a that in 2013, 3.2 billion cases or 38.4 unique asset class, which sits within is, wine is turning billion bottles of wine were produced1, the luxury, passion asset market and you could be forgiven for thinking unites collectors and commerce, out to be a great that the only money to be made from whilst offering the very real possibility wine is in mass production and mass of capital gains tax exemption. investment. I sales – a market not easily accessible We will offer some history and to smaller, generalist investors. couldn’t believe background to the sector, as well as However, global demand for fine wine the latest market activity. We will also what happened has also increased significantly over consider the drivers for supply (or more the past few decades – and fine wine accurately, undersupply), of the most with the value of boasts one of the best performing, if profitable wines, and demand, including extremely specialised, asset classes the legal limitations on production, the my wine futures. of the last 20 years; the increasing forces of nature, the relentless pursuit premiums attributed to some bottles of quality and critical judgement, all I pinched myself are evidenced by the most expensive of which are very largely uncorrelated lot of wine ever sold going under the to traditional financial markets and and asked, ‘Did hammer in October 2014 at a Sotheby’s instruments. In addition, we will review auction in Hong Kong where 114 bottles how the asset’s consumable nature, I just make more of Romanée-Conti Burgundy went for and the growing interest in areas of £1,035,000 – around £9,800 a bottle2. new wealth impact the investment case, as well as the fact that fine wine money on wine As a result, some wines are no matures with age, thus giving it a longer just an object of enjoyment growing worth and making it a very barrel futures – they are now considered a serious attractive store of accumulating wealth. investment commodity, although than I did on the it should be noted that only a tiny That said, the connoisseurs do have an fraction of the world’s wines increase important resource in this distinctive stock market?” in financial value over time3. asset class – expertise: given the abundance of wine available and Suze Orman, In this report, ‘fine wine’ refers to that the fine wine investment market Financial Advisor and CNBC Presenter wines that are actively traded on the deals with only a tiny proportion secondary market, are internationally (less than 0.1%) of the world’s wine5, recognised and have the ability to choosing the optimum route to improve (and gain value) in bottle4. gain exposure to the right stock, Those valuable vintages which have utilising specialist knowledge, is previously been seen as the preserve vital. Consequently, this report also of affluent collectors and connoisseurs looks at how consumers can invest. are now available to a much wider So, our intention is to leave readers section of interested parties, whose with an awareness of the benefits enthusiasm is driven less by taste and of wine as a diversification tool, bouquet and more by potentially strong the different ways to invest and an capital appreciation and returns based understanding of the key considerations on investments from £5000 or less. when investing in these assets, This report intends to provide advisers, including how to mitigate against the professional intermediaries, finance risks by working through reputable professionals and sophisticated dealers, brokers and providers. investors with an insight into the intricacies and opportunities of the

7 THE ASSET CLASS

PASSION ASSETS COUTTS OBJECTS OF DESIRE INDEX (2005-2013) Since the recent financial crisis, the demand for more diversified 400 investments has been fuelled by volatile Fine wine 350 markets and record-low interest rates Classic cars Coins and this has led to intensified interest 300 in many physical assets that have Stamps intrinsic value, particularly where supply 250 Rare musical instruments is limited. In turn this has created an Rugs and carpets 200 upsurge in the value of many so-called alternative investments, including 150 passion assets which encompass 100 tangible items that are not financial assets, which are not securitised, with 50 no income stream to which traditional 2005 2006 2007 2008 2009 2010 2011 2012 2013 valuation techniques can be applied. In essence, they are essentially high-value luxury items – the primary purpose is - each asset has to be valued However, their investment performance of which is enjoyment. Examples of individually). But just because items are is difficult to ignore. The Index, passion assets include: antiques, hard to value doesn’t mean that they which includes 15 passion assets furniture, Chinese ceramics, vintage don’t have value6, a unique quality and across two broad categories; trophy watches, jewellery, fine wine, fine art, the benefit of being a real asset whose property and alternative investments, rare coins, rare stamps and classic cars. value will not disappear overnight in the which are broken down into fine art, same way as equity in a failed company. collectibles and precious items, rose Some investment professionals view by 2.8% during the first six months investments of passion as problematic Coutts private bank certainly recognises of 2013 and rose by 77% from the within a traditional portfolio as they the value of passion assets, and beginning of 2005 to mid 2013”7. are subject to fashion, taste, supply assesses the market worth in its Objects and other esoteric market forces that of Desire Index; “We understand that In the Coutts Index, fine wine falls into make them difficult to value: they are wealthy individuals own and acquire the collectibles category, along with not fungible (individual units are not passion investments primarily because Stamps & Coins, Classic Cars, Rugs & capable of mutual substitution in the they are attractive assets, inspirational Carpets and Rare Musical Instruments. way that say a barrel of oil or a gold bar and have emotional attachment. Fine Wine and Classic Cars both

KNIGHT FRANK LUXURY INVESTMENT INDEX PERFORMANCE (2004-2014)

16 140 487 500%

400%

15 61 252 300% 13 92 232 7 38 234 2 73 167 2 34 195 3 34 195 200%

4 49 68 9 46 69 100%

0%

-9 -25 -28 Watches Chinese Coloured Jewelery Stamps Coins Wine Art Classic Furniture ceramics diamonds cars Source: The Knight Frank Luxury Investment Index9 12 month performance The strong performance demonstrated by the Coutts findings are backed up by the 5 years performance Knight Frank Luxury Investment Index, with fine wine experiencing a 234% growth in 10 years performance the ten years from Q4 2004 to Q4 2014.

8 “We understand that wealthy individuals acquire passion investments primarily because they are attractive assets, and have emotional attachment. However, their investment performance is difficult to ignore”Mohammad Kamal Syed, Coutts posted extremely strong price returns Even prior to 2008, passion assets investors is the enjoyment - physical over the seven years to mid 2013. were rising in value due to increasing or emotional - and social cache that demand from emerging Asian markets they can bring the collector”12. The Economist has also released the – particularly newly wealthy Chinese Economist Valuables Index, with each In fact, fine wine investing, as we and Indian investors. As the global asset on the index weighted according know it today, rather than simply economy continues to recover, those to Barclays wealth management collecting as a hobby, is a relatively with the cash and the drive to collect, holdings of rich individuals: 36% fine new phenomenon. As a hobby, the looking for kudos and cachet, whether art, 25% classic cars, 17% coins, 10% history of collecting goes back many or not they are also looking for a store wine, 6% stamps and the remaining 6% hundreds of years, with the origins of of increasing wealth, are growing in guitars and violins. The index shows wine production going back thousands number; the global population of that an investor that diversified across of years: wine production dates back UHNWIs rose by almost 5,200, or 3%, the whole Economist Valuables Index around 6,500 years.12 One of the most in 2014, with around 15 people a day would have achieved 211% nominal notable collectors of the last few joining the ranks of the ultra-wealthy, growth over a 10 year period since 2003 centuries was Thomas Jefferson, third or those worth over US$30m, and 53 – compared to 147% (including dividend US President and wine connoisseur new billionaires were created. Over income) from the MSCI World index. – when he was ambassador to France the 10 years from 2015, the number of he spent much of his time visiting the The World Wealth Report, covers UHNWIs around the world is forecast vineyards of Bordeaux and Burgundy, Investments of Passion on an annual to rise by 34% to almost 231,000.9 The buying wine for his own collection and basis and the 2009 issue8, reported Knight Frank 2015 Wealth Report states on behalf of his friends back home.13 that the financial crisis and it’s wake that over 60% of the respondents to significantly impacted the spending this year’s Wealth Report Attitudes However, the purchase and sale of the patterns of high net worth individuals Survey said their UHNWI clients were best wines for profit only became an (HNWI) and that in general, this group becoming more interested in collecting established phenomenon in the late of investors reduced their spending investments of passion.10 This has the 1970s and early 1980s. In the United (and investing) on luxury goods and potential to drive up the price of any States in particular, there were barriers collectible items during 2008. However, fine wine asset, with rarity and quality. to entry in the form of legal restrictions this was relatively short lived, with on the sale and purchase of alcohol The category of “other collectibles” – HNWIs “cautiously” returning to passion and the market was difficult to access. including coins, wines and antiques investments in 2009, although demand was the second most popular Modern wine investment has its roots in remained weaker than before the category of luxury investments, the 1982 vintage, which coincided with crisis in many categories of assets. after jewellery, gems and watches, the first Bordeaux reviews from Robert The credit crunch and subsequent in the first quarter of 2013 in the Parker, the world’s most influential economic recession saw extreme Capgemini Wealth Report. They found and controversial wine critic. Many volatility amongst traditional particular favour in North America, believe that it is no accident that the mainstream investments, leading to where the assets comprised 30.6% rise of fine wine investing coincided substantial losses for some and the of passion investment allocations11. with his coming to prominence as a pursuit of diversification, which many wine taster, with his 100 point rating HNWIs and ultra HNWIs (UHNWIs) COLLECTING AND system, first published in The Wine looked to achieve, at least partially, INVESTING Advocate in 1978. His meticulous through passion assets; not only are methods and easy to read descriptions In terms of collecting and investing, they scarce and highly sought-after, but gave consumers an ‘analyst’s view’ Sara Guiducci of Berry Bros. & Rudd the global pool of individuals with the they craved, and a points system that sees that, “There is often an overlap, means and the interest to participate simplified buying decisions at a time especially at the high end of the market in the market for these assets is when other information was scarcely from an investment and a drinking growing and even whilst the financial available to non-industry insiders.14 point of view. There is an enjoyment markets were still in flux, the World factor with collecting, while people Additionally, in the last fifteen years, Wealth Report 2010 found that HNWIs have always bought more than they can the internet and sites like Liv-ex.com, were returning to passion investment, possibly drink because that enables have introduced transparency to a and that they were approaching it them to fund their drinking”7. And it is traditionally opaque market, making as “investor-collectors”, seeking out true to say that“ The clear advantage of pricing and research easier to access. those items that are perceived to investments of passion over traditional Liv-ex provides comprehensive real have tangible long-term value”6.

9 “Fine wine differs from commercial wine in that it commands a strong demand on the secondary market, has the ability to improve in bottle and preferably enjoys a long track record of excellence”

time and historic market data and per acre of land can be produced and APPELLATIONS AND shares their data through their website some world famous vintages such as FINE WINE and Bloomberg. According to Liv-ex, it Petrus only producing an extremely The limited supply of wines which “collects merchant prices from its global low volume of around 2,500 cases can be deemed “fine wine” is under trading membership, which currently a year, although most cru classes the strict control of the Appellations spans more than 30 countries and six produce 10,000 to 15,000 cases per system, by which the production of continents”15. Its importance should annum and it is this level of production the highest quality wine is controlled: not be under estimated as its pricing that makes Bordeaux the most traded Wineries, such as those in France, Italy, is used across the entire industry secondary market for fine wine.17 Germany, Austria, Portugal and Spain and it has created an international must follow stringent rules governing When you take into account natural online market place which has become the types of grapes used in their wines, fluctuations, the popularity and rarity of the hub of fine wine dealing. the area in which these grapes must certain vintages increases even further; Robert Parker’s influence has become be grown (the “Appellation”), as well “in its simplest term, a vintage is the substantial and he has grown to have as vineyard and winemaking practices year a wine was produced. This matters a significant effect on valuations and and restrictions regulating the amount because the vine behaviour (phenology, therefore the entire market. Each of wine which can be produced from yield, grape quality potential) varies spring, Parker visits Bordeaux to taste each acre of land. The regulations from one year to another. This en primeur wines (wines which are vary from country to country, but are variability is the result of changing still in the barrel and have not yet generally enshrined in law, in France climatic conditions and is known in been bottled) before the chateâux fix for example, the Institut d’Appellations viticulture as the vintage effect”18. their prices. His ranking scores out of d’Origine has authority under French 100 are then published in The Wine law, reinforced by EEC directives. BORDEAUX AND Advocate. The true effect on pricing is The system is intended to maintain THE 2011 SLUMP debatable, but some studies suggest and enhance quality and the special The fine wine sector is impacted a good Parker valuation could be characteristics of the wines of a significantly by Bordeaux; Bordeaux worth as much as 15% of the price.7 particular area. Wine produced has been producing wine for two However, this is set to change with under the authority of the Institut millennia and the UK has been his recent announcement that he is d’Appellations d’Origine are entitled to Bordeaux’s largest export market for retiring from en primeur tasting. display the term “Appellation Contrôlée” at least 900 years.15 The region’s wines Interestingly, those who dislike passion on their bottle labels as an indication continue to be the starting point for asset investing because of its’ openness that the contents is wine of the best the serious collector and sit at the core to changes in taste, cite Parker’s quality and from a limited supply. of many portfolios and it is estimated admission that emotions do matter, about up to 80% of the world’s Classifications of some fine wine contrary to the seeming objectivity investment grade wine is produced areas goes back more than 100 years, of the 100-point scale: “I really think in the Bordeaux region of France.19 with changes to the rules very rare probably the only difference between and where no land is available for As a result Bordeaux prices can affect a 96-, 97-, 98-, 99-, and 100-point wine further vineyards, impossible: The the entire market: a price bubble began is really the emotion of the moment”16. Bordeaux Appelations are applied to to inflate in 2005 in the Bordeaux Fine wine differs from commercial classifications put in place in 1855 and market, with the release of what Robert wine in that it commands a strong for many years, Bordeaux in France Parker called, “one of the greatest demand on the secondary market, has stood out for producing the finest, Bordeaux vintages ever produced”. This has the ability to improve in bottle although not necessarily the rarest coincided with the Chinese government and preferably enjoys a long track wines the world has seen; the title introducing a stimulus package of 4 record of excellence. Critical opinion of rarest fine wine goes to Burgundy trillion RMB ($586bn) which made large also plays a part. Traditionally, only with grand crus and premier crus amounts of cheap money available wines that scored more than 90 numbering from as few as 200 cases to the Chinese, who duly invested. points (from Robert Parker or his up to a maximum of 3000 cases per The Fine wine market also became a peers) have been deemed to be year. Nevertheless, the cap on supply more mainstream luxury item in China worth buying and this encompasses a of Bordeaux is still notable, with following the abolition of import duties surprisingly narrow choice of wines. French law stating that only 177 cases in Hong Kong, meaning previously

10 “Most portfolios are very individual and Californian and Australian vintages are now vying with European wines for a place amongst the elite wines in high demand and with appreciating values”

obstructive barriers to investment were year (2014 – 2015), with strong growth removed. A sudden correction occurred for certain US and Italian vintages in 2011, related to the introduction of and the signs are that the top end of restrictions on ‘gift-giving’ by Chinese the Bordeaux market has bottomed state officials and corporate executives, out in 2015, with commentators broadening of palates, and loss of predicting an upturn in performance. confidence when prices declined. All of this can only be good news The subsequent crash most significantly for a market whose overall worth affected en primeur prices, with prices is around $4 billion a year.22 of first growths — the main wines of the five leading Châteaux of Latour, Lafite Rothschild, Margaux, Haut Brion and Mouton Rothschild — falling the most. “A big factor has been what happened with the ’09, a brilliant vintage, in which a huge number of wines were given perfect scores of 100 points,” says Tom Hudson of Farr Vintners. “In the eyes of the consumer, the value is in the cheaper wine with the very high score rather than the expensive one. This has had an effect on the marketability of young first growths at extremely high price levels”. But like any sector, the potential for slumps is real and the sector experienced a similar Bordeaux slump in the early 1970s, when a weak, overpriced 1972 vintage followed by the 1973 oil crisis caused market collapse.20

Nevertheless, most portfolios will consist of more than Bordeaux - a typical diversified wine portfolio at Berry Bros. & Rudd includes some Burgundy, a little Rhône, Super Tuscans, New World and Champagne and these markets have performed strongly during the Bordeaux crisis.21 Most portfolios are very individual and Californian and Australian vintages are now vying with European wines for a place amongst the elite wines in high demand and with appreciating values.

In spite of the Bordeaux issues since 2011, which many commentators see as an opportunity to acquire undervalued vintages, the performance of the sector through the period of the 2008 world economic crisis has been encouraging: Knight Frank’s Fine Wine Icons Index was up 7% on the

11 INVESTMENT CASE

12 INVESTMENT CASE There are several key factors upon which an investment case for fine wine can be built, the most important of which are supply and demand, diversification and returns, which are aided by the potential for beneficial tax treatment. limits what wines can be grown, where study by BMO Private Bank recently SUPPLY AND DEMAND and how they are classified and this found that more than half of high net Any lucrative investment must benefit restricts the volume available; there worth Americans are adding hobby from the right supply and demand are no more grand cru vineyards to investments to portfolios26, pressure characteristics and for fine wine expand into in Bordeaux for example. on pricing of the most popular those characteristics are driven by: The same applies in Burgundy where and rare vintages is inevitable. The maturing process, which grand crus and premier cru vineyards Hence, it is changes in demand which encourages collectors to wait for are fixed and limited in size and some have been the main determinant it to improve and thereby become producers of grand crus in burgundy of price19, as is evidenced by the more desirable and valuable make only one or two barrels in a withdrawal of Chinese interest in vintage. E.g. Leroy musigny 2009 Consumption, which increases Bordeaux in 2011 and the following (592 bottles total production). the rarity of certain vintages and drop in Bordeaux values. consequently pushes up their price as When natural conditions are also taken more investors seek fewer bottles into account, such as the weather, we DIVERSIFICATION can see a fluctuation in quality and Increases in international demand A portfolio of uncorrelated assets is quantity of the fine wine yield from year what any investment manager strives International banking firm, Morgan to year. In fact, in the twenty years to to create, so that what affects one Stanley recently published a report 2011, production in the great estates investment’s returns and growth does regarding the mass international has been flat to down, a phenomenon not affect another in the same way. The wine market which concludes that which has been compounded by the intention is to ensure that returns in a worldwide shortage of wine is fact that the chateaux have become one part of the portfolio offset losses in imminent, with global consumer more quality conscious; with the best the other so that the portfolio can ride demand already exceeding supply – in vintages historically providing the best out unpredictable economic conditions. 2012 the shortfall was about 300 million returns, and the entire premise of fine cases – the “deepest shortfall in over wine built on quality, the increasing CORRELATION WITH 40 years”. The researchers stated that, transparency of the market, with MAINSTREAM MARKETS “Data suggests there may be insufficient information on tastings now ever more The crash in 2008 gave many supply to meet demand in coming easily and quickly disseminated and the investors an unpleasant shock in that years, as current vintages are released”. power of the critics growing, it would investments which had been considered Their statistics show that global wine seem that producers have recognised as good diversifiers were actually highly consumption has been rising steadily how essential it is to maintain and correlated and sharp negative price since 1996, apart from a fall between improve the excellence of their brands. movements were mirrored across 2008 and 2009, and currently stands at Indeed, according to the Wine Institute, developed and emerging equities, around 3 billion cases. By comparison, wine production in France, the biggest bonds and property. This meant that total production is estimated at 2.8 producer of fine wine, dropped by the search was on for assets that are billion cases. This is in spite of world 12.52% in the years from 2009 to 2012.24 not correlated with the mainstream wine production reaching a seven This means that the very best wines public markets in any conditions; wine, year high in 2013, according to the are highly restricted in supply and face with its inverse supply and demand International Organization for Vines increasing demand, with increasing curve and only a 15% correlation with and Wines (OIV) despite the world’s growth of affluent buyers, who are the mainstream financial markets25, is vineyard area shrinking by 3,000 looking for a status symbol, a store of a good candidate and its performance square kilometres since 2006.23 wealth and a pleasurable possession. during 2008/2009 proved it does not In terms of fine wine, the system In both emerging markets such follow the mainstream markets volatility of various Appellations d’Origine as China and established markets or acute downward movements. Contrôlée (AOC) and controls, strictly such as Europe and the US, where a

13 “Not only are they tangible investments and an inflation hedge, but they can diversify exposure away from the movements in traditional fixed income and equities” Rupert Robinson, Schroders Private Bank

(2005-2013) OBJECTS OF DESIRE VS. TRADITIONAL ASSETS RETURNS Coutts Index Global Equities Global Government Bonds Clearly, a bottle of wine will not create 200 an income and its investment benefit is as a vessel to accommodate capital preservation and hopefully make 150 capital gains. As collectibles have no positive cash flows (and in most cases deliver negative cash flows due to 100 insurance and storage costs), valuing 2005: 100, USD these gains can be difficult, particularly

50 given their non-fungible nature. 2005 2006 2007 2008 2009 2010 2011 2012 2013 Nevertheless, research and indices such as Liv-ex do provide useful historical Source: The Coutts Index: Objects of Desire data and an indication of trends, and valuation services are available from The right fine wine investment can Rupert Robinson, Chief Executive of reputable brokers and dealers. be a very defensive holding as it London-based Schroders Private Bank, has the capacity to remain stable sees the benefit of purchases of items Modern portfolio theory suggests under difficult economic conditions. like these with HNWIs not just using that the less an asset moves with the Additionally, it has the advantage of them to indulge an expensive hobby, market, the smaller should be that not necessarily following the general but increasingly using these items to asset’s expected return. In recent trend of lagging behind the rest of the diversify a traditional portfolio; “Not only years, however, hobby investments market during economic expansion are they tangible investments and an have offered the best of both worlds: because demand is consistently strong. inflation hedge, but they can diversify low correlations and high returns. exposure away from the movements in In the case of fine wine, in August TANGIBLE ASSETS traditional fixed income and equities”6. 2014, Forbes reported that, between The concept of spreading risk is clearly a 1993 and 2013, a diverse portfolio of There is no doubt that fine wine has sound investment strategy and in times investment grade wines would have diversification benefits, but investors of unstable stock markets, real assets returned 13.62%, more than double should remember that prices are are attractive as they tend to change that of the S&P 500.25 A word of caution broadly linked to the spending power in value independently of the core in relation to returns though – the last of the collector base, which may fall financial markets. It is very unlikely that four years have shown that significant in times of economic uncertainty. the value of tangible assets will ever fall price corrections can occur, making fine This was demonstrated when to zero, except in the case of serious wine not suited to short term investors. reduced expenditure on investments damage, whereas shares can plummet of passion was noted in the 2009 overnight and in 2008, even the security issue of the World Wealth Report. of cash came into question as Northern Rock, RBS and other high street banks encountered serious issues. PRICE INDICES, $ TERMS (2003-2013) INFLATION HEDGE Art Coins Violins Stamps The Economist Valuables index Classic cars Wine Guitars MSCI World An “inflation hedge” is an investment that will typically rise in value during 500 periods of above-average inflation,

thereby protecting the investment 400 from losing value in real terms. During the recent economic 300 downturn, the value of cash was further undermined by the actions of 200 governments and central banks whose 100 *Including dividend income policy was to print money to stimulate Q1 2003 = 100 **Underlying data not for publication the economy thereby devaluing cash 0 and penalising savers. The erosion of 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 the value of cash makes tangible assets more attractive as their monetary Sources: Art Price: Vintage Guitar magazine; Florien Leonhard Fine Violins; Hagi; Liv-ex; Stanley worth tends to rise with inflation. Gibbons; Thomson Reuters; The Economist29

14 “A buyers market, allied with the potential for a low entry level, makes a small portfolio accessible to a wide range of investors”

MEDIUM TO LONG TERM the greatest investment wine because turn more supportive. Thus, it is superstitious Chinese prize the number highly probable that between the two In the medium to long term, returns eight, peaked at £16,000 a case, but asset classes the relative performance have proven to be strong, with the Farrs were selling it in February at in the coming few years will shift Liv-ex Fine Wine Investables Index £5,200.20 This stubbornly slow rebound back to fine wine investments”. achieving a compound annual return of is leaving room for longer term almost 15% over the 20 years to 2011.26 A buyers market, allied with the potential investors to pick up undervalued stock, In addition, two Switzerland-based for a low entry level, makes a small so, after a decade of being a sellers economists who compared wine prices portfolio accessible to a wide range of market, it is now a buyers market, with the Russell 3000 Index between investors: with minimum investment which is certainly beneficial for new January 1996 and January 2009, a levels as low as £5,000, in order to build entrants. For existing investors, who are period which covers two bull markets a diverse portfolio and access stock able to follow a medium to long term and two bear markets for stocks, found with the strongest growth potential. strategy, opinion is that the increasing that,“the inclusion of wine in a portfolio Of course, the lower the entry level, demand, nature of changing tastes, and, especially, more prestigious the less real prices need to appreciate the cyclical nature of the market and wines, increases the portfolio’s returns to provide growth in the asset value. the consumption of existing vintages, while reducing its risk, particularly creating more rarity, will, eventually, Market participants such as World of during the financial crisis”27. bring Bordeaux which were overpriced Wine and James Miles of Liv-ex point In the even longer term, the Telegraph in 2011 back to positive growth figures. out that positive signs of overall growth reported in 2014 that red wine are now evident: toward the end of Commentators, including Cult Wines outperformed government bonds, last year and continuing into 2015, concede that the last several years of fine art and even stamps over the 20th some indices made gains, following performance have been challenging, but century, according to research by a 17 months of decline; the Liv-ex 100 feel that “While the economic conditions team of academics from the University index saw four months of (admittedly in major economies such as the US and of Cambridge, HEC Paris and Vanderbilt modest) gains to November 2014 and Japan have improved, stock markets University, Nashville, Tennessee. The was flat in December. Half of the eight have already had substantial gains and research found that fine wine investors sub-indices in the Liv-ex 1000 made the bull market is arguably entering could have earned annualised real gains from June to December 2014, advanced stages. In contrast, fine wine returns of 4.1% from 1900 to 2012, most notably the Bordeaux 500. investment is now trending below although British equities would have average and the odds of a potential Nevertheless, those savvy investors given annualised returns of 5.2%. “The gain from “reversion to mean trend” who have diversified into other vintages returns are surprisingly high compared has become favourable should trading where better returns can still be found with the returns on cash or bonds” environment for the fine wine market Elroy Dimson, visiting professor at the Cambridge Judge Business School, said.29 (2007-2015) ITALY SHARE OF TRADE ON LIV-EX VS. BORDEAUX (%) SHORTER TERM Italy (left hand axis) Bordeaux (right hand axis) Certainly, in the last ten to fifteen 14% 100% years, it has been a very active and 12% 95% growing market, with fine wine turnover quadrupling from US$1bn to 10% 90% 4 US$4bn between 2004 and 2010. 8% 85%

However, despite rallying in the last few 6% 80% months of 2014, the Liv-ex 100 closed 4% 75% the year on 238.50, representing a 7.3% drop. Although the index rose 1.9% 2% 70% from July to December 2014, it was the 0 65% fourth consecutive year of declines.30 2007 2008 2009 2010 2011 2012 2013 2014 2014 YTD Sep This has been largely due to the drop Source: Liv-ex in price of Bordeaux, which makes up a Italy’s modern-day status as a source of investment-grade wine began with what are large percentage of the overall market now widely known as SuperTuscans, and these remain the key focus of investors, where values dropped sharply since tripling in price over the last decade (Chart on the next page). The Liv-ex SuperTuscan mid 2011 - ‘Some 2009 first growths index has not seen the peaks and troughs of the Bordeaux first growths, but has are still only nearly back to 50%’. Lafite climbed steadily, and despite flattening out over the last year, has proved a better 2008, for example, once considered investment over two, five and 10 years.

15 6 months BURGUNDY 150 ITALY 100 LIVE-EX BORDEAUX 12 months 2 years -1% -2% 2% 43% 1% 0% 4% 21% 0% -3% -9% 6% 5 years

such as Italian wines, have enjoyed good 2010, culminating in a record 13.4% rise that Burgundy is a “notoriously fussy returns, even in the difficult market of in September 2014, more than six times grape. It’s hard to really nail it. But the last few years. Italian wines, with its average for the last eight years. when it’s perfect, it becomes a kind SuperTuscans and Barolos leading the of unicorn wine. Actually finding In December 2014, the New York way, are a particular example of this. one is such an obsession for some Times reported that more than three As blue-chip Bordeaux has floundered people they’ll spend anything”34. quarters of the fifty most expensive since mid-2011, Italy has gradually filled wines in the world now come from its shoes, in both volume and value INVESTMENT HORIZON Burgundy, Jonathan Reeve, the content terms. Italy’s share of trade on the Liv-ex manager of the global wine price Fine wine is a medium to long-term exchange has climbed steadily since database wine-searcher.com, explained investment. Transaction costs can be high and certain items can sit on price (2004-2014) plateaus for considerable periods SUPERTUSCANS VS BORDEAUX FIRST GROWTHS of time until a new burst of interest Super Tuscan Index Liv-ex 50 pushes prices higher again. Most 400 investors have a 5-10 year investment 350 horizon as a minimum and generally, the longer you hold the wine the more 300 its value will appreciate. Wine matures 250 and improves with age and because it is a consumable, it becomes rarer as 200 more bottles are drunk. In addition 150 it matures and improves with age.

100 With most investors looking over the medium-term, it can be a while 50 before certain assets resurface onto 0 the market. However, unlike other passion assets which are historically based, such as antiques, new vintages Jul 2010 Jul 2005 Nov 103 Jan 2013 Jun 2013 Jan 2008 Jun 2008 Oct 2011 Feb 2010 Sep 2014 Oct 2006 Dec 2010 Aug 2012

Feb 2005 of wines do become available annually, Sep 2009 Mar 2012 Sep 2004 Dec 2005 Aug 2007 May 2011 Mar 2007 Nov 2008 May 2006 April 2014 April 2009 which fuels speculation and gives Source: Decanter.com31 opportunities for market entry at more An even better performer over that last five years has been Burgundy and the affordable levels. (Always assuming strength of the region is underlined by the recent world record prices achieved the right quality asset is chosen with at auctions - in April 2015, Acker Merrall & Condit’s Connoisseurs’ Club sale saw the potential to appreciate in value more than 50 new world records set, of which nearly 40 were from Burgundy.32 In as it matures and becomes rarer and November 2013, DRC, la Romaneé-Conti 1978 (12 bottle case) sold in Hong Kong for a more popular, and whose provenance new world record price of $476,280 in late 2013 // $39,690 per bottle.34 is protected by proper storage).

WINE INDICES COMPARISON (2010-2015)

150

140

130

120

110

100

90

Sep 2010 Mar 2011 Sep 2011 Mar 2012 Sep 2012 Mar 2013 Sep 2013 Mar 2014 Sep 2014 Mar 2015 Source: Liv-ex

This demonstrates the need for diversification within the wine portfolio itself to protect returns Liv-ex Bordeaux 500 Burgundy 150 and the expertise required to identify those vintages with the characteristics to achieve this. Italy 100

16 “HMRC classes some wines as a wasting asset and consequently, not liable to Capital Gains Tax”

TAX BENEFITS Where however, a number of bottles are sold to the same person in one or HMRC classes some wines as a wasting more transactions, then the question asset – defined by HMRC as one “whose might arise as to whether the bottles predictable life, from the point of view themselves constitute a “set”. If they do, of the person acquiring it, does not then the £6,000 limit would apply to the exceed 50 years”36 and consequently, overall sale proceeds rather than the not liable to Capital Gains Tax. This is price fetched for any individual bottle.38 clearly a significant benefit as it provides a 28% saving to a higher rate tax payer In addition, client wine reserves on any profits on the sale of wine stored in bond are VAT-exempt as inventory. That said, the CGT exemption they are considered ‘in-transit’. to fine wine is by no means guaranteed: However, if wines are removed from a the position in regard to cheap table bonded warehouse they will become wine is clear as HMRC states that it, liable for VAT and Excise Duty. “may turn to vinegar within a relatively short period, even in unopened bottles” but that port and fortified wines which are generally recognised to have a very long storage life, are certainly not wasting assets. This leaves a grey area in between, however, the normal contention is that wine is not a wasting asset if it appears to be fine wine which not unusually is kept (or some samples of which are kept) for substantial periods sometimes well in excess of 50 years. However, that is not necessarily the end of the issue as, even if a particular bottle of wine is not a wasting asset, then any gain accruing on its disposal may nevertheless be exempt where the disposal proceeds for that single bottle do not exceed £6,000.37

WORLD RECORD HONG KONG NOV 2013

1978

12 BOTTLES

$ 476,280 PER BOTTLE $ 39,690

17 MARKET UPDATE

18 GLOBAL PERSPECTIVE

(2014) GLOBAL UHNWI POPULATIONS AND TOTAL WEALTH Since 2011, 2014: Global population 172,850 20,8tn 34% the fine wine investing market North 25% America 5.5tn Europe 25% has changed 44,922 60,565 5.4tn considerably. There Russia 25% is no denying that 2,068 0.5tn these have been difficult times, Australia 23%

3,920 0.4tn but the massive changes have not all been bad, with globalisation Asia 48% 59% Africa 42,272 5.9tn 1,932 0.2tn opening new

Latin routes to market 50% America Middle 40% 9,902 1.2tn East and rising interest 0.2tn 7,269 in wine from Predicted 10-yr growth Total wealth emerging markets, Investing in tangible stores of wealth is part of Asia’s saving culture and according to The Hurun Wealth Report 2013, 64% of Chinese millionaires invest in luxury goods41 putting pressure and of the million millionaires in China, 70% are alcohol drinkers, including 50% who are connoisseurs of red wine, with fine wine collecting increasing in popularity on already limited amongst the rich, even in the years since the Bordeaux price bubble burst. supplies of stock.41

CHINA AND ASIA The rise of new markets – such as Hong through luxury Western wines, but is moved past the $30m+ mark Kong and China – has driven growth also fuelled by the increasing size of in Asia in that year, after an increase in the fine wine market in recent the Chinese economy; this has led to of fewer than 1,000 in 2013. Europe years. Of the US$352 million of wine the creation of more wealthy Chinese, held onto the top spot with the most sold at auction in 2014, for example, which has been at the heart of the rise new entrants into the ultra-wealthy some US$104 million, or 30%, was in interest with China not only set to bracket over 2014. The ultra-wealthy accounted for by Hong Kong alone.40 be the largest economy in the world in Asia now also hold more in total by 2024, but expected to boast nearly wealth, with net assets of $5.9tn, than This has been partly driven by the 15,700 UHNWIs and 338 billionaires.9 those in North America, with $5.5tn. slashing of import duty on luxury goods to China in 2008 which made The spending power is considerable; Additionally, Knight Frank’s 2015 fine wine more attractive to growing in 2014, Asia overtook North America Luxury Spending Report finds that the numbers of well off Chinese who as the region with the second largest Chinese are already the single biggest wanted to display their affluence UHNWI growth. Some 1,419 people consumers of luxury goods around

19 2013 34% 32% 29% PREFERRED 2012 44% 31% 23% 42 ART WINES

COLLECTIONS 2011 57% CHINESE 19% 17% WATCHES CLASSICAL

the world, accounting for some 29% of wine now consumed in Asia being EUROPE of the global luxury spend, according drunk outside China, particularly in Europe and the US have to consultants Bain & Altagamma.43 South East Asia. Consequently, Cult long been the traditional Wines feels that, “any further rises Add to this the fact that the markets for fine wine investing and now will be more likely to do with an consumption of wine has been growing with recent figures showing that increase in Asian consumption, rather in China by 20% a year, and that the Europe is producing most UNHWIs by than solely Chinese speculation”. Chinese have been large buyers of percentage and the US by number, the fine wine, pushing up prices44, and Cult Wines also links China strongly capacity for wealthy collectors is strong. the importance of China and Asia as a with movements in the international Indeed, Europe held onto the top market is clear. As a result, this market fine wine market, stating that the spot with the most new entrants into played a significant role in the slump bottom of the market was sometime the ultra-wealthy bracket over 2014. which has been evident since mid 2011 in June/July of 2014, and seeing the Consequently, Europe is an established when the Liv-ex 100 Index dropped reason for this as the close association market, where both new and old wealth 19% in the 12 months to September between the wine market and the have the spending power to drive 2012, mainly as a result of the steep Chinese stock market, albeit with a few prices in competition with the newer drop in the price of Château Lafite. It months lag; “when the Chinese market wealth powerhouses like China. The was the brand of choice for Chinese receives monetary stimulus, the wine tradition of fine wine in Europe also buyers and they and other buyers drove market is a beneficial recipient”. suggests a store of knowledge and prices up to unsustainable levels.41 expertise which adds to the attraction. Whilst the US took over the lead from Consequently, the Chinese and Asian Asia in 2014, in terms of market share The head of Sotheby’s Wine Americas markets led a period of much greater of live auctions, Asia remains well & Asia believes the three fine wine price sensitivity which has been ahead in one statistic: it is still home to auction hubs of London, New York affected by Chinese consumer taste much more expensive lots - at around and Hong Kong are equally important. now starting to mature; less fixation $6,000 per lot, around double that in In 2014, Sotheby’s sale totals were on a few big brands such as Lafite; the US and four times that in Europe.47 US$28.8 million in Hong Kong, up more muted economic growth and 13% on the previous year, followed Although in 2014 Hong Kong was down government officials being instructed by US$21.1m in London (+6%) and off its auction peak of 2011/12 after by new Premier Xi Jinping to cease New York on US$15.4m (+23%)48. steep increases following 2008 when ostentatious gift accepting and giving. duty rates were slashed and Hong In the UK, wine consumption is set This has certainly had an effect on Kong became the region’s tax free to increase by 5.5% in the next four demand for wine in China, with Chinese hub, Jamie Ritchie, head of Sotheby’s years, after being in decline since 2009, growth set to slow to 25% from 2014 Wine Americas & Asia, points out the according to The IWSR and Vinexpo. to 2018, a drop from 69% over the continued importance of this market. This forecast is partly based on period 2009 to 2013, taking its total “Let’s bear in mind it’s still 55% of what the assumption that duty tax will to 181 million cases consumed45 we sell globally by value. Hong Kong not rise so steeply in the next few and although this represents a slow bought more than four times any other years, following the government’s down, it is still an overall increase Asian region and represented 20% of decision to scrap automatic and the signs are that China’s wine what we sold from New York and 40% increases in its annual Budget.50 market has begun to recover from the of what we sold from London” 48. impact of the government’s austerity Currency considerations are also Industry insiders also report that the measures: Chinese importer ASC Fine favourable for UK investors, if not so Chinese market is rebounding, with Wines stated in early 2015 that the much for those in the Euro zone: At Rodney Birrell, director of the Wine imported wine market ‘contracted the end of February 2015, sterling had Investment Fund noting that, “In the last for the first eight months of 2014’. strengthened to give a gain of around six months we’ve been selling a lot more However, in the last few months of 10% against the euro from the last into China; that’s all coming back now,” the year, the importer reported an en primeur in May 2014. This should “It’s going to consumers rather than just increase in imports’ and after drops stimulate interest in the UK – still one presents for your boss,” he remarked. in 2012 and 2013, imports of fine wine of the principle buyers of en primeur, “That gives a lot more longevity – if it’s to Hong Kong rose by 8% in 2014.46 and undoubtedly the biggest when it consumers then they’re drinking it”51. comes to private collectors, according The potential for further increases to Liv-ex director Justin Gibbs.53 in consumption remains huge, with the Chinese currently drinking only In fact, 5 of the top 10 wine consuming 1.5% per capita of the volume of nations in the world are currently wine drunk by the French and 40% European – France, Italy, Germany, UK

20

20% 18% 16% 9% 8%

NA 13% 13% 5% 10% ART NA 6% 9% NA CARS 15% HOUSES MODERN MODERN WESTERN JADEWARE PORCELAIN

and Spain and in terms of consumption CONSUMPTION PER COUNTRY 000s of 9L % charge per head, the leading four nations are Italy, France, Switzerland and Portugal. Whilst all forecast to see CHINA ITALY ARGENTINA declining volume by 2018, other 743,175 +5 294,999 -2 116,935 +1 European nations - Austria and Greece 45 - are forecast to show an increase. USA GERMANY JAPAN Interestingly, new interest has been 345,500 +1 282,889 -1 106,146 +3 reported in Eastern Europe, with the Wine Investment Fund director FRANCE UK RUSSIA Rodney Birrell, commenting in February -1 -1 -1 2015 that “Recently we’ve been 310,598 142,489 103,936 getting a lot of interest – although not investment yet – from Eastern SPAIN * Figures include still light wine, sparkling wine, light aperitif, fortified wines and other wines Europe, so Slovakia, Slovenia and -2 49 99,443 Poland, but very little from Russia” . Source: Bloomberg46

THE LIV-EX FINE 100 INDEX BY CURRENCY (2010-2015) GBP EUR USD 160 150

140 130 120

Index level Index 110 100 90 (rebased at 100 in jan 2010) Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan 2010 2011 2012 2013 2014 2015 Source: The Drinks Business51 USA Whilst the growth of the Chinese market recovery is perhaps better understood which saw US buyers take in the last decade did much to eclipse when viewed in Euros and Dollars. 84% of the lots on offer, including 110 the traditional markets of Europe and While prices have risen in Sterling, they world records. The sale came after a the US, for the first time in three years, look cheaper still in Dollars, bringing notable upturn in US interest in the the global wine-auction market rose in American and Asian buyers back into fine wine market in the last few value in 2014, to $350 million - a small the market’. At the end of February months of 2014, with auction house increase of 5.5% on 2013, (although 2015, the dollar had strengthened to Zachys signalling a ‘significant still 26% down on the record results of €1.135, from the time of the last en shift’ back to the US.53 2011), thanks to the US market, which primeur in May 2014 when it was trading The statistics for wine consumption in surged up by 28.6% on 2013, making at €1.35. “So the Euro’s down 17% on the the US are also strong, with January up for declines in Europe and Asia. The world’s biggest currency,” said Liv-ex 2015 figures compiled by market US has consolidated its lead on Asia in director Justin Gibbs. “That’s a great research group IWSR and released by terms of market share, now making up positive for the fine wine market and Vinexpo, predicting that the US would just under half of live-auction revenues, buyers are more likely to get involved”51. strengthen its lead over France as the with Asia just below one third. The US The US, which boasts the world’s biggest wine consuming nation overall. also boasts the highest percentage biggest economy52, certainly has the US consumption is set to rise by 11% up of lots sold, at 95.1% compared to a wealth to get involved, with 44,922 to the end of 2018, to 4.5bn bottles. global average of 90.5%, flat on 2013.47 UHNWIs in 2014, forecast to grow In fact, it is U.S. demand which It seems that the combination of low to 50,767 by 2024 compared to the is set to drive expansion in the prices and a strong dollar against the Chinese projection of 15,681 by 2024.9 world wine market through 2018 euro means that American buyers are The increased interest was evident at as consumption growth slows in returning after several years.22 Currency the Acker, Merrall & Condit fine wine China and traditional markets such wise, Liv-ex reported that, ‘Although auction in New York in February 2015 as France and Italy contract.47 the index is calculated in Sterling, the

21 EMERGING MARKETS

makers sector was very much against Cult Wines sees growth in both the “Without doubt the next big allowing in imports at a much cheaper emerging and traditional markets, with growth story will be India. price.54 As a result, no agreement Marcus Allen, Head of Global Business Not only does fine wine was reached and high import tariffs Development predicting that, “Hong remain, but the potentially huge impact Kong, Singapore and mainland China match their tastes for tangible of political decisions such as this, is will maintain their positions as strong assets, but the increase in highlighted by the huge boom in the growth markets with South East Asia, wealthy Indians is strong” Chinese/Hong Kong market when in particular Thailand, Philippines import duties were slashed in 2008. and Indonesia, growing significantly Marcus Allen, Cult Wines also. Renewed optimism from North When we look at the amalgamated Wine’s globalisation will doubtlessly America with regard to Bordeaux will expectations for growth in UHNWIs, continue, with new wealth looking for bring US buyers back and in addition the MINT (Mexico, Indonesia, Nigeria, luxury, status and pleasure coupled we see South American buyers starting Turkey) countries, with average with potential investment benefits. to make an impression on statistics. expected uplift of 76% over the Knight Frank predicts that HNWI Growth Without doubt however the next big next decade, narrowly defeat the will be strongest in developing regions, growth story will be India. Not only BRIC countries (Brazil, Russia, India with Africa’s ultra-wealthy population does fine wine match their tastes for and China), which have an average rising by 59% in the next ten years and tangible assets, but the increase in forecast growth of 72%. However, Kazakhstan set for a 114% increase in wealthy Indians is strong”. Certainly, they both far outstrip global UHNWIs in the same period, and other Bloomberg’s June 2014 article suggests average forecast growth (34%)9. CIS countries also predicted to do well. that current conditions could support The demand is being driven by The expansion of the middle classes the prediction, stating that “About 86 the very rapidly growing wealthy in these regions, along with the percent of Indians’ household assets are emerging from Russia, Japan45 and opportunities for significant new in real estate and tangible investments an increasing interest in these goods wealth, put these nations on the list such as gold, the highest rate among from other nations such as Brazil and of those which may take an increasing 16 countries tracked, Zurich-based particularly India. In fact India could interest in the fine wine market. Credit Suisse said in an October 2013 report” and that “Ultra-high-net- be a candidate for the next emerging In fact, a recent paper by the IMF worth individuals in India, defined as fine wine market, especially if the demonstrated a close correlation having assets of more than $30 million EEA and India do a deal on tariffs that between fine wine prices and emerging excluding primary residence, are would benefit wine through lowering market industrial production, 14 estimated to grow 98 percent through import duties : 4n mid-2013, in an suggesting that, as developing nations 2023 from last year’s 1,576, compared effort to enter a free trade agreement wealth grows, the demand for fine wine, with 28 percent growth globally”56. (FTA) with the European Union, India presumably from the newly wealthy in offered to drastically cut Customs those regions, follows suit, increasing duties on wines and spirits to 40% from consumption and pushing up values of the current 150%. The EU wanted a remaining vintages as collectors items, reduction to 30% and the Indian wine status symbols and wealth stores.19

EMERGING MARKET INFLUENCE (1998-2011) 250 400 225

200

175 200

150

125 100 100

75

50 50 Aug Aug Aug Aug Feb Aug Feb Aug Feb Aug Feb Aug Feb Aug Feb Aug Feb Aug Feb Aug Feb Aug Feb Aug 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Production of top chateaux (indexed) Live-ex Fine Wine Investables USD (RHS log) Emerging market industrial production (LHS) Source: Liv-ex13

22 RISKS AND DUE DILIGENCE

Any investment carries a degree of risk and robust due diligence to build an understanding of what risks exist and the mitigations that might apply is important in any investment scenario, including those which might include an element of personal enjoyment.

23 “Wine is one of the last great commodities in the world to be dragged out of the dark ages and traded on a global index” Claer Barrett, Columnist, The Financial Times

There is however, obviously, no REGULATION CORRELATION guarantee on the price available, but In terms of financial regulation, as Although fine wine investing shows Cult Wines feels that “for the most personal property and not financial a very low correlation to mainstream traded wines on the secondary market, instruments, bottles of wine are not financial markets, it is heavily exposed more often than not, investors can covered by the UK Financial Services to emerging markets and China, “which liquidate their holdings within a 4 to 6 Compensation Scheme (FSCS) and many will regard as being a risk as well week period”. consequently, if a broker assisting the as an opportunity”22. The key is to ensure creation of an investor’s portfolio, were that a portfolio is correctly balanced in Mitigating against low liquidity is to go out of business while holding terms of the markets invested in. difficult, although a well diversified the investor’s cash or investments, portfolio in terms of both the spread all of that investment could be lost. It LIQUIDITY of wines invested and the non is therefore prudent, to use a broker wine sectors, is a good protection Whilst Coutts sees sufficient value in with a strong reputation and financial mechanism and the continuing rise of passion assets, and their financial sense record and/or to check if there are exchanges such as Liv-ex, Wine Owners, as part of a more diversified portfolio any contingencies or protections in Cavex and BBX gives easier access to to track the market using its Objects of place in the event of their bankruptcy. more potential buyers and therefore Desire Index, it recognises that, “they Additionally, agents are not covered by increased liquidity, according to CEO are illiquid, have especially high unit the UK Financial Ombudsman Scheme and founder of Wine Owners Nick costs and are distinct in terms of their (FOS), so if you are mis-sold an item Martin58 and likely greater liquidity than performance. You cannot pay your there is no recourse to the ombudsman other passion assets. bills using a tenth of a Matisse… Your to try to hold the seller or broker capital markets portfolio, made up of Aside from this, recognising demand to account. Nevertheless, since the traditional assets such as equities and peaks and troughs and future buying investor would still own the real asset, bonds, adds liquidity, accessibility and trends is really the only way to assess s/he would still have an item which diversification”7. the strength of buyers in the market. In would be saleable on the open market. this regard, most investors will need to The Wall Street Journal adds that, “they In terms of wine investments which rely heavily on experts in the field. are more prone to fads and fashions have been securitised, such as shares than (even) financial securities”6 and in a company which acquires wines or recent history, with the difficulties RELIABLE DATA AND units in a wine fund, these are regulated experienced in the market since 2011, INDICES and monitored, to varying degrees, by demonstrates that even funds can Unlike other investment markets, there the relevant financial regulatory bodies experience liquidity problems; Nobles are not long-held figures recording the such as the Financial Conduct Authority. Crus, a Luxembourg-based company returns, values and market movements In these products, the FSCS and FOS that was at one time, one of the largest for fine wine – Liv-ex operates the may be accessible, but this will depend registered wine investment fund, was global marketplace for fine wine with on the circumstances of any issues, ordered to suspend all redemptions online indices that were founded only which parties are found to be at fault and subscriptions in 2013, the concern in 1999. As a result, older figures can be and where the product is domiciled - it seeming to be that a small number difficult to acquire and less transparent is worth clarifying these items at the of institutional investors might pull than provides much utility in making outset, as well as any other protections out suddenly, draining the fund of its comparisons with other markets. which are in place as even regulated liquidity and leaving small holders products can fail, with no recourse to Liv-ex produces various indices, including: hanging.57 compensation. The Liv-ex Fine Wine 50 Index tracks Some wine investment specialists, such With regard to the fine wine industry the daily price movement of the most as Cult Wines, offer guaranteed sale of itself, the production of fine wine is heavily traded commodities in the clients’ wine through various channels: strictly controlled and monitored by the fine wine market - the Bordeaux First Appellations systems some of which Trade sales (domestic and international) Growths. It includes only the ten most have been established for hundreds recent vintages (excluding En Primeur, Liv-ex Fine Wine Exchange (Cult is a of years. The control of supply varies currently 2002-2011), with no other member) across different appellations and this is qualifying criteria applied Internally to its own client database something to take into account since a The Liv-ex Bordeaux 500 is Liv-ex’s substantial driver in the market is the The company will even offer a cash most comprehensive index and reflects lack of supply versus the increasing offer price for clients’ wine if necessary. trends in the wider fine wine market. demand. It represents the price movement of 500

24 “Regular valuation is important because it helps to identify the right opportunities to sell and what represents good value in buying and the potential for growth when buying”

leading wines and is calculated monthly Nevertheless, in the last fifteen years, VALUATION using the Liv-ex Mid Price the internet and sites like Liv-ex.com Critics argue that, as a result of the have hugely increased the clarity of The Liv-ex Fine Wine 1000 tracks limited historical risk and return data, information and access to pricing and 1,000 wines from across the world using passion assets are subjectively valued, research and simply buying and selling, the Liv-ex Mid Price. It is calculated making their valuation very difficult and whilst other collectibles markets data monthly and was rebased at 100 in sometimes impossible until the point remain difficult to access and verify. December 2003 of sale59: Without dividends or interest to assist with price appraisal, wine is The Liv-ex Fine Wine Investables ASSOCIATED COSTS a speculative investment and this is Index tracks the most “investable” wines RPC, the UK’s law firm of the year not aided by the fact that tastes vary in the market; around 200 wines from in 2014, refers to two unavoidable, across nationalities, cultures and over 24 top Bordeaux châteaux. In essence, but widely overlooked, costs in the time, which means that demand, and it aims to mirror the performance of a collectables market: firstly, extensive thus prices, will vary across different typical wine investment portfolio. The and reliable due diligence. “With fraud segments of the collectibles market. index data starts in 1988, further back and counterfeiting so commonplace The investment returns for collectibles than any other Liv-ex benchmark. in the collectibles market, even the thus depend largely on continued flows However, it is the Liv-ex Fine Wine 100 relatively experienced run the risk of of funds and interest driven by growing Index which has been declared the “fine being duped by sham deals, high quality wealth, the ability to identify trends in wine industry’s leading benchmark” fakes, or forged provenance. Secondly, taste, and access to the rarest, most by Reuters, and represents the price by their very nature, most collectibles sought after items. The consumable movement of 100 of the most sought- are vulnerable to accidental damage. nature of wine also plays a part in value after fine wines for which there is It is prudent, therefore, to ensure that variations and, to some extent, sets it a strong secondary market and is passion assets are adequately insured apart from other collectibles. calculated monthly. According to Liv- to guarantee full coverage in the event All of these factors make completely ex.com, the index is calculated using of an unfortunate accident. Particularly accurate valuation by a lay person very Liv-ex Mid Prices, and then weighted to for the most unique or illiquid assets, unlikely, although wine investors are account for original production levels it is of paramount importance that greatly assisted by online tools such and increasing scarcity as the wine ages. passion assets are independently as Liv-ex and other websites which are As such, the index is designed to give valued by a suitable panel of assessors significantly more informative than each wine a weighting that corresponds on a regular basis”59. those at the disposal of collectors of with its impact on the overall market. In addition, the very act of acquiring and other passion assets such as cars. In order to qualify for the index, wines looking after real assets is expensive: must have attracted critical acclaim Regular valuation is important whereas the cost of purchasing and from a leading critic (a 95-point score or because it helps to identify the owning equities is negligible, valuables above) and attract a regular market on right opportunities to sell and what have high transaction costs and need Liv-ex. represents good value in buying and to be securely stored and maintained.60 the potential for growth when buying. Although this index is the default In fact, transaction costs are often not Hence, the right expertise is essential. measure used by the industry and taken into account in data indices - investors to gauge the health or academic research61, looking at the price otherwise of the overall market, some of five long established Bordeaux wines PROVENANCE, STORAGE commentators would like the Liv-ex from 1900 to 2012 revealed that these AND SECURITY 100 to better reflect what is really being wines delivered a return of around 5.3% Even London’s Metropolitan Police bought and sold out in the real world per annum above inflation and around Force has some views on wine as the criteria are strongly influenced 4.1% after storage and insurance costs, investments, which it says, can make, by high Parker scores and recency but suggest that these would be lower “a good, relatively low risk long-term of vintage. This has meant that less if transaction costs were taken into investment”. favourable vintages have not found account.44 Their guidance is as follows: their way into the index and their pricing Since fine wine is a commodity that is therefore not tracked, the problem Provenance and quality. This is generates no income, it is therefore being that many of those vintages have crucial to the value of your investment. essential to be aware of all the potential persistently out-performed the more Make sure you know the provenance of costs at the outset and these can vary well received, for example the vast the wine you are buying - that it comes significantly across brokers, funds and majority of ‘09s have barely moved as from a reliable origin. companies. they were so very expensive to begin Condition. Gather details about with. anything which may affect the value of

25 “With too many cowboys offering wine investment services, it’s best to do your own research and choose an established merchant or broker” Christopher Silvester, The Spectator

your purchase. For example, fine wine kitchen before passing them off as saddled with a product that’s much should be in unmixed, sealed cases in more expensive wines. In 2006 alone, less desirable than they’d expected”66. the original wooden box. It should not it is believed he manufactured up to Greg Davies, Head of Behavioural have been repackaged in any way. 12,000 bottles of fake vintages. He is, Finance at Barclays Wealth and however, the first person ever to be How you store and manage your wine Investment Management, says jailed for selling fake wines in the USA.63 investment is crucial to its future value. potential investors need to look Whilst you can keep fine wine in your One piece of advice from the police is beyond the headlines before diving own cellar, wine bought for investment that, if you buy wine before it is bottled into investments of passion. is usually stored professionally, either and released to the market en primeur, “People often think these types of in your own warehouse account or in - it is especially important to deal with a investments are more transparent a merchant’s customer reserves. Wine reputable company. Given en primeur and less complicated than traditional for investment is usually held ‘in bond’, wine is usually delivered 2-3 years investments. In reality, they are meaning that it is free from UK excise after the vintage, it can be particularly generally less regulated, and can duty and VAT while it remains there. open to exploitation by fraudsters.62 be illiquid, expensive to trade and Access. Wine held in your own In an effort to defeat the counterfeit sometimes actually more difficult to account gives you complete control over trade, a number of the most desirable understand unless you have a high it. If you are storing wine in a merchant’s wine brands have taken measures such level of expertise or inside knowledge,” customer reserves, ensure these are as introducing the Prooftag system, he says.41 Nevertheless, he feels that clearly identified, stored separately which has been adopted by some fine wine can be one of the more from the company’s own stock and will producers, including all the wines of liquid and transparent investments not be moved without your agreement. Château Lafite-Rothschild (beginning of passion. That statement is backed with the 2009 vintage), a technology up by Andrew della Casa, Director Insurance. Your wine should be on all bottles that means they can be of The Wine Investment Fund. insured to at least to the value of traced and validated upon request.64 the original purchase price. Be clear Liv-ex feels that investors should as to whether you will get a refund Other aids to assist are websites approach fine wine investment from your merchant if a producer such as Wineauthentication.com, a with their eyes wide open and do fails to supply the wine as arranged. website created by collector Russell their own research19 and this should Frye that provides the latest news and include using robust advice: a broker Correct storage facilities. Your information that includes a section on or a fund manager should have a wine must be stored in a secure the most recent counterfeits reported.65 strong trading history and expertise. warehouse with appropriate Investors are entitled to find out if the temperature and humidity levels.62 Nevertheless, with too many cowboys business is profitable, well-established, offering wine investment services, the Consequently, using the right bonded who the directors are and what Spectator recommends that it’s best warehouse and insurance providers experience they have in fine wine.62 to do your own research and choose is of paramount importance. an established merchant or broker. It Such expertise is essential for buyers to lists Berry Brothers & Rudd, Corney & avoid over paying for or under selling RISK OF FRAUD AND Barrow, Farr Vintners, Bordeaux Index their wine, not diversifying their wine COUNTERFEIT WINES and Cult Wines as all being names that portfolio sufficiently, under insuring, not The reason for the guidance have earned the trust of investors.22 having sufficient proof of provenance published by the Metropolitan Police or choosing wines whose popularity is that, unfortunately, as with many SPECIALIST KNOWLEDGE, is waning, reducing liquidity. Working investment sectors, there are rogue EXPERTISE AND with a trusted/experienced broker wine traders who are intent on MARKET ACCESS can also provide access to markets conning people out of their money. that small buyers would otherwise be This report and particularly this section, unaware of, and buying power (and One such example is the case of Rudy reflects the statement of Peter Meltzer, the associated discounts) that may not Kurniawan, who cheated collectors auction correspondent for Wine otherwise be within the reach of small out of millions of dollars selling fake Spectator magazine, that wine isn’t an investors making small purchases. vintages and who was subsequently investment for the unprepared. “The jailed for 10 years in 2014 in the USA. market is thinly traded compared with Finally, since there are significant He was also ordered to pay $28.4 stocks. Bottles need to be handled potential tax advantages to fine wine million in restitution to his victims, carefully and stored properly to avoid investing, good tax advice is also a must. and another $20 million as part of breakage or spoiling. Collectors who a forfeiture agreement after mixing aren’t familiar with vintages, varietals old wine with newer vintages in his and appellations could find themselves

26 HOW TO INVEST

27 HOW TO INVEST

specialist events and restricted access, DIRECT INVESTMENT The pooling of investor funds and the use of an experienced broker is a returns There is an increasing variety of ways to very sensible option. invest in fine wine, although the oldest The investor does not have day to day and possibly still the most widespread Whilst some buyers possess the time, control of the management of the asset method is to acquire the underlying money and enthusiasm to research, There is overall management by one asset in your own name. This means buy, organise delivery and storage in entity on behalf of the investors. that no entity can dispose of the asset a government bonded warehouse, without the agreement and cooperation and know what and when to buy and Many other countries have similar of the investor, although it also means sell, only those with expert knowledge legislation, however, the level of that no other entity is charged with are likely to enjoy continued financial regulation is not always as high as some disposing of the asset if and when it success in this arena. investors might expect: is required – the full responsibility lies Different agents and brokers offer There are two types of Collective with the investor and this might be different services including advice Investment Schemes (CIS), those that problematic if enthusiasm for the wine on the best wines to buy and when, are authorised by the FCA and those is not driving demand. portfolio building, sales of wine, wine that are not; an Unregulated CIS (UCIS) That said, if an investor is the sole events and tastings, wine storage to is simply an investment which is not owner of a bottle of wine, s/he can maintain the perfect provenance and subject to the strict set of rules and choose when to put it on the market insurance and valuation. reporting requirements laid down by and what to accept as a sale price – even the FCA for CIS products which have Less easy to quantify is the buying if that price represents a significant been reviewed and authorised by it. UCIS power of a trusted, well informed loss, it may still give some recovery tend to invest in more esoteric assets, broker, with the influence to negotiate of funds, which might not be possible higher levels of gearing are allowed, prices and contacts to identify the best when money is locked into a fund or there are usually lower levels of liquidity opportunities. redemptions have been suspended. and promotional literature is not subject to the same restrictions as literature The entry level may well be lower than INVESTMENT FUNDS AND associated with an authorised CIS. that which is available in a wine fund VEHICLES THAT POOL which pools the funds of multiple INVESTOR CONTRIBUTIONS Unregulated Collective Investment Schemes, tend to focus control of the investors to acquire assets, whose These pooled vehicles have the benefit investment with the operator (an FCA minimum investment level is likely to be of using the contributions of multiple regulated and authorised entity) and from around £10,000, whereas desirable investors to give greater reach to the investment manager. This may wines may be bought in the hundreds acquire more numerous and costly be viewed as a positive for investors of pounds. That said, many brokers assets. As a result, investors can enter who are confident in the expertise recommend a minimum investment from as little as a few thousand pounds, of the investment manager, or as a of at least £5,000, to attain a level of knowing that the spread of assets negative for those who wish to retain diversification. attainable should provide protection to more control. Risks include the lack of Nevertheless, the diversification that the overall portfolio. These vehicles may regulatory scrutiny and the secondary can be achieved by the bigger asset pool take the form of Collective Investment market which may or may not exist in a wine fund should be considered, Schemes such as Limited Partnerships, for units in unregulated collective although such collective ownership also or body corporates in which investors investment schemes. diffuses control of the assets and gives take an interest in shares or bonds. The Economist finds that “most funds less flexibility for those who are looking In the UK, the Financial Conduct lock in investors’ money for at least five to learn and engage with the process of Authority polices certain investment years. Those wine funds that do allow building a successful portfolio. activities. These activities do not include quick redemptions invest in the most the sale of land or property. However, traded grapes, like Bordeaux” 67. USING AN AGENT OR if the project has any of the following BROKER characteristics, no matter what the The last several years have proved Direct Investment can, of course, be underlying asset of the investment, difficult for funds, with the Cayman- achieved through entirely private it is likely to fall into the category of a based Vintage Wine fund, one of the purchase, or with the assistance of a Collective Investment Scheme or close oldest and largest wine investment broker or agent who know where to substitute: funds, winding down at the end of 2013 look for the best deals at auctions and – a victim of poor market conditions and fairs. And for those who are anything heavy withdrawals as investors shifted less than experts, in a global market of to other investment categories.57

28 “There is an increasing variety of ways to invest in fine wine”

In fact, it has been reported that over Instruments Directive. Nevertheless, fee, which can range from 0 to 18% of 50 fine wine funds in the UK have the underlying companies are generally the final bid. This varies according to the been liquidated either due to fraud or unlisted, making liquidity uncertain and rarity, quantity, quality and condition of ‘colossal mismanagement’ in the four their constitutions are often drafted to the consignment. If the consignment is years to 201268 and investor losses have give full control to the product provider significant, a seller’s fee of about 6% is been estimated at £100 million.44 in terms of management. fairly standard. Since the final amount is negotiable, there is some scope for However, the Wine Investment Fund - a Some body corporates have also shopping around for the best rate. An Collective Investment Scheme with recently entered the market place with additional 1% insurance fee may also offices in London, Bermuda, Hong Kong a bond issuing structure, whereby, be added to the estimated value of the and Zurich – predicts a 9% rise for the instead of equity, they sell debt in the lot and covers the wine while it is in the fine wine market in 2015, following four company in the form of bonds. One temperature-controlled storage facility consecutive years of decline for trading such company which issued bonds in of the auction house prior to the sale.69 platform Liv-ex.49 2013 was Naked Wines whose plan was to use the money (up to £3 million) to Other sale and purchase methods An alternative to a traditional fund invest in independent winemakers over such as BBX (Berry Bros & Rudd online structure is government backed a minimum of three years, enabling broking exchange) charge a smaller schemes such as Enterprise Investment them to finance the production of “fine commission of 10% on purchases, whilst Schemes (EIS) and Venture Capital wines”. The entry level can be low in Aston Lovell’s wine platform, which Trusts (VCTs), which are attractive these projects – just £500 in this case, allows wine collectors, restaurants, as they provide generous tax reliefs with a maturity of three years. consumers and investors to buy and sell to investors, although, in order to wines direct from Liv-ex, charges a 6% access these benefits, investors must However, again, such companies are fee on all wine purchases to include the hold their shares for at least 3 to 5 generally unlisted and, although bonds Liv-ex trading fees and 2.5% fee on all years and so are effectively locked in. and shares are classed as securities and sales of wine. VAT also applies. These schemes fall outside of current their promotion is therefore restricted, unregulated collective investment the rest of the offering is not currently Storage and insurance is currently in scheme regulations. FCA regulated, although indications are the region of £12.50 to £20 per case per that this may change in the near future. annum (12 bottles). In the EIS landscape, investors can put their money into an individual company Brokers/Agents fees vary from company by buying shares which gives them INITIAL AND ONGOING to company, for example: some security over the assets of the COSTS Aside from storage charges, Berry Bros. company: a UK company can qualify for These can be related to the purchase & Rudd will take a 10% commission EIS status as long as it does not carry and sale, as well as ongoing fees in from all online broking exchange out certain restricted activities and relation to simply owning the asset transactions, which suggests a fee may meets other criteria regarding its size. and mitigating physical risks to these be payable both on purchase and sale. tangible assets via insurance and It is also possible to increase There are no other costs other than the storage in suitable conditions to diversification by investing in an EIS wine itself. preserve their quality. fund, which is an arrangement by which Cult Wines applies a 15% management investors can spread their investment Depending on how wines are acquired, charge with each new stock purchase, through a number of EIS companies. various commissions may need to be so they take their commission upfront This is likely to simply be via a series of added to the purchase price - anything and the fee includes storage and separate portfolios which together are bought or sold at auction will incur high insurance and comes with a guarantee referred to as the ‘fund’. The investment transaction costs. Both buyers and to sell investors’ wine with no added manager will then commit a portion sellers have to pay a percentage of the commission. of each investor’s cash into each hammer price to the auction house. investment in a qualifying company (in This varies across auction houses but According to the Economist, “Funds line with the investment management Sotheby’s charges a buyers premium of charge hedge-fund-like fees”67 and agreement). 15% on top of the hammer price, while certainly, layers of investment Acker Merral and Condit charges 23.5%. management can increase costs: a EIS funds are exempt from the Collective On top of this, VAT or local taxes must UCIS might charge an initial fee of 2% Investment Scheme regulations, but be added. to 5% of the subscription amount, plus some activities of running an EIS around 1.5% per year management fee, fund are monitored and controlled by In terms of sale of wine, any capital plus 15% to 20% performance fee when regulatory bodies as they are caught growth that investors might enjoy could certain profit/growth based targets are under the EU Markets in Financial be subject to an auction house’s seller’s

29 “Fine wine has been described as useful for retirement planning as it can provide an effective store of long term wealth”

met. Depending on the type of fund, for a specific valuation which takes into HOW MUCH TO ALLOCATE returns may be based on the Net Asset account condition and provenance, Fines wines’ largely uncorrelated Value of the Fund, but are not likely to the most accurate method of valuing a characteristics certainly give them a role kick in until a fixed period has elapsed, collection is to ask an expert to provide in building a diversified portfolio, but e.g, 5 years, to allow the value of assets a valuation service and some, such as they should not form the fundamental in the fund to grow and make trading of Aston Lovell and Cult Wines offer this at basis of that portfolio. those assets profitable. This is the way no cost. the Wine Investment Fund worked. In terms of passion assets, in August 2014, Enrique Liberman, president of An EIS company or an EIS Fund may EXIT the Art Fund Association stated that, also levy fairly similar fees, typically The timing of the exit will depend upon a “the benefits of diversification are so charging a subscription fee of up to 5% number of factors and for those invested compelling, in fact, that collectible of subscription proceeds, an annual in a fund structure, there may be little or assets should comprise between management fee of 1.5% to 2% of the no choice for the investor, although this 3% and 8% of the typical investor’s NAV and a performance fee of 15% to is likely to not be before the expiry of a portfolio”24. 20% of net profits over a prescribed lock in period of several years. high watermark. The Fine Wine Indeed, the use of the various classes For those with their own portfolio, Investment Fund, an EIS Fund and The of alternative assets is on the increase, obviously the ideal is to await market Wine Enterprise Investment Scheme with a study conducted by Harris conditions and sell when prices have Ltd, an EIS company, both fall within Interactive of US HNWIs in 2014, appreciated and collectors’ interest these criteria. reporting that, “HNW investors using in the vintages in your cellar is alternatives, on average, have more A bond purchase may also involve a peaking. This can be difficult for the than one-fifth of their portfolios (22%) small percentage of the subscription inexperienced to judge and taking invested in alternatives. One quarter amount. Usually any management fees professional advice to assess the of these investors (26%) see their are included in the coupon or return on market as well as the optimal sales exposure to alternatives increasing over offer, which may be available annually channels – UK or overseas, auction, the next five years by an average of 2.9 or after an initial period. online exchange or private sale – would percentage points. Another 66% believe certainly be prudent. Therefore, in terms of costs, the high their level of exposure will remain the price of buying and selling fine wine is same”70. one of the reasons why they should be PENSIONS Fine wine as an alternative investment considered a long-term investment – the Fine wine has been described as useful merit a small allocation depending upon value needs to have appreciated quite for retirement planning as it can provide the investors’ appetite for risk, comfort significantly before the transaction an effective store of long term wealth. level with the information available, and costs are covered. Nevertheless, an That said, for the purposes of Self capacity for loss. equity portfolio may have a fairly high Invested Pension Plans (SIPP) and Small turnover of stock in a similar long term Self- Administered Schemes (SSAS), holding period, perhaps incurring a fine wine directly held, is considered “The potentially high returns similar amount of transaction costs as taxable property and as such, can over the medium to long overall. give rise to significant tax charges, although, if the asset is held within a term, are the types of figures Additionally, it is perhaps rational Genuinely Diverse Commercial Vehicle that a certain level of fees is applied which have made alternative or by way of shares in a company by brokers or fund managers as logic investments, especially those which has these assets, it is allowable suggests that each piece needs to be without a tax charge. In terms of focused on assets which are identified, valued and purchased either directly held fine wine investments, constrained by a demand/ privately or at auction, using specialist current market participants argue these knowledge. supply imbalance and should certainly be considered by those hold an inherent value so looking to find better returns than MONITORING INVESTMENT those offered by their pensions after attractive to investors, savers PERFORMANCE new legislation which came into force in and retirement planners Liv-ex and Cellar Watch (using Liv-ex April 2015 allowing potentially unlimited worldwide” data) are online tools which allow drawdowns. investors to track the value of the wines Phil Gearing, Cult Wines they own fairly accurately. However,

30 CONCLUSIONS

31 PRODUCT DEVELOPMENTS

opportunities, particularly in emerging dozens of high-tech anti-counterfeiting THE INTERNET markets which are continuing to take an solutions, which include holograms and The internet has played a major role in interest. electronic chips embedded in labels and the growth of the wine market: websites the bottle, as well as tamper-proof seals such as Liv-ex and Wine-Searcher Brokers and agents are increasingly on capsules and the Prooftag Bubble have brought a transparency in pricing making these online resources available Tag system.72 hitherto unknown, and Berry Bros. & to their clients by providing the tools Rudd’s BBX (Berrys’ Broking Exchange for investors to take part in making – an online wine trading platform their own investment choices, for IMPROVEMENTS TO WINE for private individuals) has replaced example Cult Wines website provides a MAKING cumbersome, archaic manual broking platform giving “…wine prices, general The wine makers are not just focused lists, whilst social media has increased information and most importantly on protecting their wine, but also on the power of wine critics.39 an online portfolio management tool making better wine to protect – in which… has allowed our clients to have February 2015, Robert Parker stated Liv-ex was founded in 1999 and has web access to their holdings, online “In short, 2009 is the greatest vintage I been one of the cornerstones of the valuations using current market price have tasted in Bordeaux since 1982, of development of transparency in the feeds, [including access to Liv-ex] and which it is a modern day version, but fine wine trade which has traditionally the latest news”. greatly improved. It is more consistent been incredibly opaque, with only (many châteaux that were making insiders really having access to the key The view of Liv-ex is that, “we are still mediocre wine in 1982 are now making information. These days, professional only scratching the surface as far as the brilliant wine) and of course, the traders or serious collectors who want internet’s potential is concerned. The yields are lower, the selection process to know the price at which merchants next ten years are likely to be even more is stricter, and there are any other are actually trading, go to Liv-ex when, disruptive. But our sense is that the number of factors, from investments just ten years ago, the only way to main changes will take place behind the in the wineries to impeccable, radical accurately gauge market pricing was scenes. It will be all about restructuring viticulture, that have resulted in to read through catalogues, make calls – what we call “post trade” –the supply extraordinary raw materials”. Such and send out faxes. And that was for chain and other back-office functions. improvements can only be good for the insiders who knew who to ask and what Granted this is not quite as glamorous sector as a whole, although it is worth to ask for. as selling more wine, but it is where considering if they have the potential to much of the residual inefficiency resides More and more information is now offset the rarity value of older vintages in the fine wine market and could unlock being published online, further opening which may not be so refined: current considerable future growth”4. up the market. This information pricing suggests not for the right includes: wines – and that with increasing age, SECURITY FEATURES improvement in the bottle and growing Tasting note databases, peer-to-peer One of the most recent website rarity, increased desire to acquire older platforms (like Cellar Tracker) and other launches is of the site WineFraud.com, vintages continues to drive up values - online forums, making it much easier to whose April 2015 launch was reported a bottle of a DRC, Romaneé Conti 2009 find an independent verdict on the pros by Bloomberg. “The site is intended to would, in theory, be a better wine than and cons of any wine and helping to be a resource for everyone wanting to the DRC, Romaneé Conti 1945. However, demystify wine knowledge. do due diligence on rare wines”, says in April 2015, the 1945 was trading at Details of wines available for sale wine consultant Maureen Downey who £292,476 per case, nearly 200% higher as most merchants now publish their has helped the FBI bring counterfeiters, than the 2009 at over £100,800 a case.78 catalogues online. including the multi million dollar fraud of Rudy Kurniawan, to justice; the site Price information as price RESEARCH AND EDUCATION will provide tutorials on how to spot comparison sites, such as Wine The importance of research and fraud and a gallery of photographs of Searcher, allow consumers to quickly education is clear - just last year the the real things to compare against a find the wine they want at the best Spanish Fine Wine Institute launched, suspect bottle or label.71 price. stating its intentions to, bring, “the The high profile Kurniawan case has leading Spanish wineries together, The confidence in the integrity of raised the stakes in terms of how The Spanish Fine Wine Institute is a the market that this transparency seriously the industry is taking the private academic association. The has engendered has brought a huge counterfeiting problem and a half- Wine Institute brings together the amount of new money into the industry, dozen security companies now offer resources of 20 wineries and affiliate helping to open up new frontiers and

32 “The wine makers are not just focused on protecting their wine, but also on making better wine to protect”

businesses to support academic study will either release their prices before the aspect of the 2009 vintage is that a lot and wine culture, international market scores are published or they will follow of wines are drinking very well now development, media relations, scientific the scores of Neal Martin which have in and should continue to do so for the research and education programs the past been more conservative than next 30+ years. This is highly relevant that benefit the entire wine industry Mr. Parker’s.76 from an investment perspective, as the and consumers. The Wine Institute supply demand imbalance that drives also pursues numerous programs and THE DEATH OF HIGH the price up for a wine should have a community alliances that promote PROFILE PRODUCERS more significant impact in the short sustainable and healthy practices from term than previous prime vintages“77. Another consideration for the future of the ground to the bottle”74. fine wine products is the not only the effect of changes of critics, but of losing WINE IDENTIFICATION high profile producers as they age. This “It is not only the big TOOLS obviously renders the wines they have Examples of other new innovations produced finite, having a potentially names and 100pt wines include LWIN – a universal product huge impact on collectability, demand that are now offering identifier – which will facilitate a system and thereby, valuation. This was investors and collectors of messaging over the internet allowing demonstrated by the recent passing value, there is arguably the trade to share information with of Henri Jayer and the record prices each other electronically. Liv-ex has also achieved by some of his vintages at a as much opportunity in introduced a unique identity number February 2015 auction. This may not be a host of wines that have (UID) that allows merchants (and their the biggest consideration for long term been awarded scores within customers) to track wine through the investors, but it has been demonstrated the 95-100 point range, supply chain at the individual case level, that it can certainly have a notable something that has always been difficult influence. particularly those of the 1982 in the wine trade. Liv-ex believes that, vintage which were the these and similar initiatives have the THE RETURN OF BORDEAUX reigning best vintage before potential to drive down costs and speed AS AN ATTRACTIVE 75 2009 came along” up cycle times. INVESTMENT PROPOSITION Positive influences are certainly being Tom Gearing, Cult Wines ROBERT PARKER felt within the investment market, Another major influence on the market with many commentators stating that is likely to be the Robert Parker’s Bordeaux prices have now bottomed gradual withdrawal from the Bordeaux out, meaning that great vintages, scene, starting with his stepping down including the spectacular 2009, are from En Primeur coverage and handing currently sitting at their most affordable over responsibility for barrel tastings price in a market that is set to grow and to Neal Martin, which was announced making the argument to allocate capital in February 2015. This will mean that towards 2009 over a medium to long the number of wines scored at 100 term hold an appealing one. points by the most influential figure Furthermore, Cult Wines feels that, “It in fine wine assessment in the last is not only the big names and 100pt thirty years cannot increase and those wines that are now offering investors which currently hold the accolade and collectors value, there is arguably may find themselves under increasing as much opportunity in a host of wines demand and focus. It also removes the that have been awarded scores within possibility of their scores being adjusted the 95-100 point range, particularly downwards at any future tasting. those of the 1982 vintage, which were Other predictions are that Mr. Parker’s the reigning best vintage before 2009 announcement was good news for En came along; over the past 10 years Primeur as châteaux will be forced to the 1982 wines, have entered their start pricing conservatively again. Gary appropriate drinking windows and Boom, managing director of fine wine as a result, the inherently rare wines company Bordeaux Index believes they have become even scarcer. The unique

33 SWOT ANALYSIS

WEAKNESSES STRENGTHS

High transaction costs Popularity of tangible property – real assets

No ongoing income Potential for strong price growth

Difficult for poorly advised amateur to Inverse Supply and Demand Curve recognise best value and best time and method Diversification benefits – returns are to buy and sell uncorrelated to mainstream public markets and Several years of weak market performance other property assets after price bubble burst Inflation hedge Specific market performance figures only available for a relatively short period

OPPORTUNITIES THREATS

Demand links to emerging markets, No guarantee of liquidity particularly in Asia Possibility of damage from bad Demand links to growth in numbers of HNWIs transportation/storage, significantly reducing/ and UHNWIs destroying value

Price points more affordable, (aided by Assets which could be subject to counterfeit the current favourable Euro exchange rates, or fraud particularly against Sterling, USD, HKD and SGD) Direct investments are non regulated and and good value deals available at the bottom of not subject to scrutiny of financial regulator the market and majority of fund projects are unregulated, Supply can only diminish as fine wine leading to increased risk of mismanagement improves with maturity and is drunk

34 SUMMARY

There is undoubtedly an investment The restriction in supply, created by the CONTINUING PROFESSIONAL case for many alternative investments strict limitations on the amount of wine DEVELOPMENT (CPD) and fine wine is no exception. considered of investment grade which Intelligent Partnership has achieved can be produced, as well as refining of The low correlation of that market to accredited status for AiR from the materials and methods to make better mainstream assets such as bonds and Institute of Financial Planning (IFP), wine, along with the consumable nature equities gives fine wine significant Chartered Insurance Institute (CII) of the asset, which matures with time, diversification characteristics for those and Personal Finance Society (PFS). leads to increasing rarity. who concentrate the majority of their Members of these professional investments in securities: at a time With a market still giving very organisations represent the majority of significant drops in the traditional reasonable pricing on wines which are of the insurance and financial services financial markets from 2008 and for highly likely to generate a significant industry. Readers of this report can several years thereafter, the fine wine premium as they mature, such as claim one CPD hour towards their market, particularly in 2009, 2010 the 2009 Bordeaux, at a time when scheme for each hour spent on the and 2011, experienced a boom period, the sector in general is also showing report, the CPD hours claimed should providing returns to offset losses when signs of recovery, traditional western reflect the length of time spent studying traditional financial markets crashed. buyers, particularly in the US, are the material. Conversely, most recently the fine wine enthusiastically turning back to The review process included an indeces have been on the decline and Bordeaux. Emerging economies, such assessment of the technical accuracy other indeces such as FTSE 100 and as those in Asia, with their newly rich, and quality of the material against CPD ACWI have been on the rise. are also fuelling the increasing interest Accreditation standards. Achieving the in fine wine investing in general, In fact, many of the “negatives” of the recognised industry standard afforded which promises to translate into price fine wine market as an investment by these organisations for this report increases. arena - transaction costs are high, units series, and our training and events, are not fungible, expertise is required Accessing the market has certainly demonstrates our commitment to and valuations are difficult - are a become easier in the last decade with delivering only balanced, informative necessary component of the asset’s more information creating much more and high quality content to the financial status as an alternative and diversifier transparency, although, investing services and investment industry. (i.e., if you remove these barriers, it’s safely is still a challenge, given the In order to obtain CPD and meet no longer alternative and probably complexities of the product and the accreditation standards, readers must becomes more correlated to the nuances of the market. The last four complete a short questionnaire and mainstream). years have clearly demonstrated that provide feedback on the report. This playing the fine wine market is not The tendency of such non-correlated includes eight multiple choice questions without its risks, but that those who assets to follow inflation, rather to demonstrate learning and a feedback use expert advice to identify good than lose value when inflation rises, form to assist in the compilation and value, acquire and divest at the right is another general benefit of fine improvement of future reports. To times, diversify their collections and wine as is the real probability, for claim CPD please create an account and understand that this is not a short term, the right wines, of such increases complete the questionnaire by visiting: highly liquid investment, are likely to in value outstripping inflation and learn more about the sector and more intelligent-partnership.com/CPD providing, over the medium to long fully profit from the potential benefits term, impressive growth – Forbes has on offer. reported that, between 1993 and 2013, a diverse portfolio of investment grade wines would have returned 13.62%, more than double that of the S&P 500, even taking into account the market downturn in 2011. And for any wines classed as wasting assets, those returns can also be aided by favourable Capital Gains treatment in the UK.

35 APPENDIX

1 Wall Street Journal: http://www.wsj.com/articles/whos-driving-world-wine-consumption-1422461583

2 The Telegraph, January 2015: http://www.telegraph.co.uk/foodanddrink/wine/11299838/Investing-in-wine-seven-things-you- need-to-know.html

3 Wine Searcher: http://www.wine-searcher.com/investment.lml

4 The Liv-Ex Blog, Fine Wine’s online revolution: http://www.blog.liv-ex.com/2011/11/fine-wines-online-revolution.html

5 Wine Searcher: http://www.wine-searcher.com/fine-wines.lml

6 The Wall Street Journal: http://www.wsj.com/articles/SB10001424052748703467004575463112027277830

7 The Coutts Index: Objects of Desire, First Edition: http://international.coutts.com/files/pdfs/coutts_objects_of_desire.pdff

8 Capgemini, RBC Wealth Management, and Scorpio Partnership Global HNW Insights Survey 2013

9 Knight Frank Wealth Report 2015: http://www.knightfrank.com/resources/wealthreport2015/wealthpdf/03-wealth-report-global- wealth-chapter.pdf

10 EveryInvestor, March 2015: http://everyinvestor.co.uk/2015/03/05/luxury-investments-continue-perform/

11 Financial News: http://www.efinancialnews.com/gallery/rbc-capgemini-wealth-passion-investing-2013/1?mod=gallery-previous

12 Andrew Shirley, Knight Frank

13 Forbes; http://www.forbes.com/2003/11/19/cx_np_1119feat.html

14 Mindful Money, July 2013: http://www.mindfulmoney.co.uk/investment-insight/investing-strategy/why-invest-in-wine/

15 Liv-Ex: https://www.liv-ex.com/staticPageContent.do?pageKey=About_Liv-ex

16 “The lone wolf: A conversation with wine critic Robert Parker”. Naples Daily News (E. W. Scripps). January 25, 2007

17 Connoisseur Magazine: http://www.connoisseur-magazine.com/wine/fine-wines

!8 Bordeaux.com: http://www.bordeaux.com/uk/vineyard/bordeaux-wine-vintages

19 Liv-Ex Blog, Talking trade: 12-18th December, December 2014: http://www.blog.liv-ex.com/2014/12/talking-trade-12-18th- december.html

20 The Spectator, March 2015: http://www.spectator.co.uk/spectator-money/spectator-money-features/9457162/bordeaux-is-back- but-be-careful/

21 Harpers: http://www.harpers.co.uk/news/knight-frank-teams-up-with-wine-owners-to-create-fine-wine-index/373658. article?sm=373658

22 Liv-Ex Blog, October 2014: http://www.blog.liv-ex.com/2014/10/lwin-a-common-language-for-fine-wine.html

23 Wine searcher.com, October 2013: http://www.wine-searcher.com/m/2013/10/global-wine-shortage-predicted

24 The Wine Institute: http://www.wineinstitute.org/files/2012_Wine_Production_by_Country_cCalifornia_Wine_Institute.pdf

25 Forbes, August 2014; http://www.forbes.com/sites/carlodonnell/2014/08/01/could-the-wine-in-your-cellar-be-your-familys-best- investment/

26 Liv-Ex Fine Wine Market Blog, November 2011: http://www.blog.liv-ex.com/fine-wine-market/page/27/

36 27 Bloomberg, April 2010: http://www.bloomberg.com/news/articles/2010-04-13/wine-beating-russell-stocks-in-13-year-study- proves-most-liquid-investment

28 Economist Valuables Index

29 The Telegraph, May 2014: http://www.telegraph.co.uk/finance/personalfinance/investing/10844896/The-best-investment-of-the- 20th-century-Red-wine.html 30 Liv-Ex Blog, Fine Wine Prices in 2014: http://www.blog.liv-ex.com/2015/01/fine-wine-prices-in-2014-were-merchants-right.html

31 Decanter.com, February 2015: http://www.decanter.com/collecting/investment/587991/investment-analysis-supertuscans-and- barolos

32 The Drinks Business.com, April 2015: http://www.thedrinksbusiness.com/2015/04/over-50-new-world-records-set-at-ackers- new-style-auction/

33 Winesearcer.com, November 2013: http://www.wine-searcher.com/m/2013/11/world-record-breaking-price-pushes-drc-ceiling- higher

34 The New York Times, The Rise of Burgundy Wine, December 2014: http://www.nytimes.com/2014/12/11/arts/international/the- rise-of-burgundy-wine.html?_r=0

35 Liv-Ex

36 HMRC guidance issued in its Tax Bulletin 42; http://www.hmrc.gov.uk/bulletins/tb42.htm

37 Section 262(1) TCGA; http://www.hmrc.gov.uk/bulletins/tb42.htm

38 Section 262(4); http://www.hmrc.gov.uk/bulletins/tb42.htm

39 European CEO, February 2014: http://www.europeanceo.com/culture/the-art-of-collecting-fine-wine/

40 WineSpectator.com, January 2015: http://www.winespectator.com/webfeature/show/id/51118

41 Knight Frank: http://www.knightfrankblog.com/wealthreport/news-headlines/wealth-and-well-being/

42 Hurun Wealth Report, 2013

43 Knight Frank Wealth Report 2015, Luxury Spending Trends: http://www.knightfrank.com/resources/wealthreport2015/ wealthpdf/07-wealth-report-luxury-spending-chapter.pdf

44 Addidi Wealth, August 2014, Collectibles as Investments: http://www.addidi.com/assets/Uploads/Addidi-Newsletter-Investing- In-Collectabiles-August-2014.pdf

45 Bloomberg, January 2015: http://www.bloomberg.com/news/articles/2015-01-26/u-s-demand-seen-driving-world-wine-market- growth-deglise-says

46 James Miles, interviewed by Bloomberg, December 2014: http://www.blog.liv-ex.com/2014/12/james-miles-interview-with- bloomberg-on-fine-wine-market.html

47 World of Wine, March 2015: http://www.worldoffinewine.com/news/last-chance-saloon-4524332

48 The Drinks Business, February 2015: http://www.thedrinksbusiness.com/2015/02/asia-comes-down-off-its-auction-high/

49 The Drinks Business, February 2015: http://www.thedrinksbusiness.com/2015/02/china-leads-fine-wine-bounceback/

50 Decanter.com, January 2015: http://www.decanter.com/news/wine-news/587901/germany-to-consume-more-wine-than-italy-by- 2018-says-vinexpo

51 The Drinks Business, February 2015: http://www.thedrinksbusiness.com/2015/02/weak-euro-boosts-bordeauxs-prospects/

52 http://www.cebr.com/reports/world-economic-league-table-2015/

37 53 Decanter.com, February 2015: http://www.decanter.com/news/wine-news/588010/acker-merrall-condit-hails-return-of-us-wine- buyers

54 Business Standard, June 2013: http://www.business-standard.com/article/economy-policy/india-offers-to-slash-import-duty-on- wines-spirits-to-40-113061700046_1.html

55 Knight Frank Wealth Report 2015: http://www.knightfrank.com/resources/wealthreport2015/wealthpdf/03-wealth-report-global- wealth-chapter.pdf

56 Bloomberg Business, June 2014: http://www.bloomberg.com/news/articles/2014-06-22/wealth-managers-exit-india-as- millionaires-hard-to entice

57 Wine-Searcher.com, Sept 2013: http://www.wine-searcher.com/m/2013/09/wine-investment-the-wine-economists-diagnosis

58 Decanter.com, October 2014: http://www.decanter.com/collecting/investment/587631/investment-analysis-fine-wine-trading- platforms

59 RPC: http://www.rpc.co.uk/index.php?option=com_easyblog&view=entry&id=1405&Itemid=145

60 The Economist, August 2013: http://www.economist.com/news/finance-and-economics/21583662-investing-luxury-items-can- yield-high-returns-risks-are-commensurate-fruits

61 Dimson, E., Rousseseau, P., Spaenjers, C., (2014) The price of wine

62 Metropolitan Police, Investing in Fine Wines; http://content.met.police.uk/Article/Investing-in-fine- wine/1400013278591/1400013278591

63 The Drinks Business, August 2014: http://www.thedrinksbusiness.com/2014/08/wine-fraudster-kurniawan-jailed-for-10-years/

64 http://www.wineinvestment.com/wine-investment/storage-and-provenance/

65 The Independent: http://www.independent.co.uk/life-style/food-and-drink/protect-yourself-against-counterfeit-wine-2259390. html

66 Bloomberg; http://www.bloomberg.com/apps/news?pid=email_en&sid=abA4_8axmWBc

67 The Economist, August 2013: http://www.economist.com/news/finance-and-economics/21583662-investing-luxury-items-can- yield-high-returns-risks-are-commensurate-fruits

69 Barrett, D., (2012), ‘Investors lose millions in fine wine schemes’, Daily Telegraph, 14th April 2012

69 WineSpectator.com, 2012: http://www.winespectator.com/webfeature/show/id/howtosellwineatauction

70 Business Wir, March 2014: http://www.businesswire.com/news/home/20140304006191/en/MainStay-Investments-Study- Reveals-High-Net-Worth#.VTto5_nF-z5

71 Bloomberg, February 2015: http://www.bloomberg.com/news/articles/2015-02-11/new-wine-fraud-website-will-help-you-avoid- fake-bottles

72 Worldofwine.com, March 2014: http://www.worldoffinewine.com/news/after-rudy-what-can-the-fine-wine-world-learn-from- the-kurniawan-case-4208257

73 Liv-Ex, 25 April 2015; https://www.liv-ex.com/search-wine. do?wineId=&hiddenText=&keyword=DRC%2C+Romanee+Conti+1945&btnGo=Go

74 Four-Magazine, July 2014; http://www.four-magazine.com/articles/1714/spanish-fine-wine-institute

75 Liv-Ex Blog, June 2014, the role of a fine wine exchange: http://www.blog.liv-ex.com/2014/06/a-changing-market-the-role-of-a- fine-wine-exchange.html

76 Wall Street Journal, February 2015: http://www.wsj.com/articles/robert-parker-steps-down-from-bordeaux-futures-1424966697

77 Cult Wines, Bordeaux 2009 Report

78 Liv-Ex, 25 April 2015; https://www.liv-ex.com/search-winedo?wineId=1395&hiddenText=&keyword=DRC%2C+Romanee+Conti%2C +2009&btnGo=Go

38 DISCLAIMER PUBLICATION This report is provided for general The information has been compiled from information purposes and for use credible sources believed to be reliable, only by investment professionals however it has not been verified and its and not by retail investors. accuracy and completeness are not guaranteed. Reliance should not be placed on the information, forecasts and opinion set The opinions expressed are those of out herein for any investment purposes Intelligent Partnership at the date of and Intelligent Partnership will not publication and are subject to change accept any liability arising from such use. without notice.

Intelligent Partnership is not authorised No part of this publication may and regulated by the Financial be reproduced in whole or in part Conduct Authority and does not without the written permission give advice, information or promote of Intelligent Partnership. itself to individual retail investors.

39 “Global demand for fine wine has increased significantly over the past few decades, boasting one of the best performing, if extremely specialised, asset classes”

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