SPONSORED BY: 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. 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. 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 COPYRIGHT © INTELLIGENT PARTNERSHIP 2015 3 CONTENTS INTRODUCTION “Advisers need good quality information – about the nature of EIS, about the practical process of 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% INVESTMENT CASE 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 managersMARKET that they have had previously UPDATE 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 some use as many as 9 and a large number use between 5 and 7 managers. On average advisers use between 3 and 4 EIS managers. Source: Intelligent Partnership Other EIS managers and platforms that advisers use include Kuber Ventures, RAM Capital, Downing, Motion Picture Capital, Source: Intelligent Partnership Triple Point and Par Equity. 11% 11% 95% <40 28% 40-65 16% >65 HNW and Ordinary Retail Yes Sophisticated Investors No Q. What category of client do you 78% recommend invest in EIS funds? 72% A. Advisers were asked whether they Source: Intelligent Partnership recommend EIS to HNW and sophisticated Q. What age is your average EIS investor? investors or ordinary retail investors (they A. The typical age of an EIS investor is could also tick both). Unsurprisingly the between 40 and 65 years old. Investors vast majority only recommend EIS to HNW in this age group will usually be at (or Source: Intelligent Partnership and sophisticated investors, with only 16% approaching) the peak of their working life (and income), may have children that have seeing them as suitable for ordinary retail Q. Do you feel that there are enough recently flown the nest and will be focused investors. resources and information available to on building a portfolio of investments to EIS investments generally involve a large provide for their retirement. They may also enable advisers to achieve whole of the amount of risk and capital can be tied have surplus income which they can afford to allocate to riskier investments such as EIS market knowledge of the EIS sector? up for a number of years. The tax reliefs in the search of higher returns. A. Being an education and content provider offset some of this risk, but the majority of this is a very interesting question for us. ordinary retail investors will not be higher Only 11% of advisers recommend EIS 72% of advisers feel that there are not rate tax payers and therefore will not investments to investors below the age of enough resources and information available receive the maximum benefit from these tax 40 or above the age of 65. Younger investors may not have the capital to allocate to these on the EIS sector. Although EIS have been breaks. Therefore HNW and sophisticated available since 1994 and there are a number types of investments as they are likely to individuals are usually considered a better be focused on buying a property and/or of well-established managers in the market, fit for EIS investments as they will take full starting a family. However, there is potential advisers feel that they still do not have advantage of the tax reliefs available; have a for growth from this age group as they pay enough resources to gain the whole of greater understand of both the underlying more attention to saving for retirement, and market knowledge they require to fully investment and the risks involved; and also they may also have a higher capacity for understand the sector and recommend have a greater capacity for loss should the loss, as any losses can be made up through these products to their clients. It seems investment fail. future earnings. there is definitely scope for more education Investors in the over 65 age group are likely and training in this space, which should to be in retirement and therefore would not ultimately improve the market for everyone take on investments that could risk their involved. retirement income. They may consider EIS for the 100% Inheritance Tax relief available though. 37 7 INTRODUCTION 8 THE ASSET CLASS 13 INVESTMENT CASE 19 GLOBAL PERSPECTIVE 22 EMERGING MARKETS * Please note: unless otherwise stated, all charts and graphs have been provided by Intelligent Partnership Intelligent Partnership is committed to the very highest professional standards as embodied by its accreditation and membership to these industry associations. 4 RISKS & DUE DILIGENCE HOW TO INVEST CONCLUSIONS 32 PRODUCT DEVELOPMENT 73 SWOT ANALYSIS RISKS AND DUE DILIGENCE HOW TO INVEST SUMMARY 23 28 74 FSC is a non-profit international organisation established to promote the responsible management of the world’s forests. Products carrying the FSC label are independently certified to ensure consumers that they come from forests that are managed to meet the social, economic and ecological needs of present and future generations, and other controlled sources. 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.