Uncorking the Fine Wine Market
Published: Tuesday, 27 Oct 2009 | 6:19 AM ET
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By: Lisa Auret
Investors looking for variation from stocks, bonds and currencies could try investing in good wine, which has provided good returns over long periods of time — but should beware of unprofessional advice in the area, analysts and experts told CNBC Tuesday.
Wine glass
AP
"Wine has always been an important part of a rich man's portfolio," James Miles, founding director at Liv-Ex, the wine market's most prominent exchange, said.
It can be an attractive investment particularly because of its period-to-trade which is independent from mainstream financial markets. But not all fine wine is a safe investment, Jancis Robinson, Master of Wine and respected wine writer, warned CNBC.
"There are so many people who are relatively new to wine who are going around setting themselves up as experts on investment in wine and are spreading the complete myth that all fine wine is a safe investment. It's not," Robinson said.
Wine
"If wine's allowed to get much hotter than about 70 degrees Fahrenheit, that complex will cave," she added.
Wine investment does not often correlate with what is happening in the financial markets, Miles Davis, partner at Wine Asset Managers, told CNBC. "Long-term correlation numbers are actually extremely low," he added.
"Over the course of last year, the first four months after Lehman's collapse we lost over 17 percent of our asset value on our fund," Davis said. "In the following six months after that, we leveled out. The market gained equilibrium and since halfway through this year we've started on the turn again. We're probably about up six percent in the last couple of months."
Compelling Long-Term Trend
Wine Asset Managers' fine wine fund was up 4 percent month-on-month in August and the longer-term trends for wine investment are compelling: "It has produced consistently good returns over a twenty-year period," Miles said.
Ways to gain exposure vary, from investing with funds and wine merchants who often go through Liv-Ex, the wine market's most prominent exchange, to bidding at auctions that offer access to physical bottles of wine — but storage of wine is integral to maintain its value, experts say.
"Auctions tend to have things that you can't find in a store," Serena Sutcliffe from Sotheby's said.
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A way to avoid the pitfalls of physically-owned bottles of wine is to invest in a fund, where the physical assets are held in professional bonded warehouses.
Davis suggests investors look to "proper asset managers" for guidance in the wine market. Super-returns are achievable following a correction, he added.
"The advantage of buying through a fund is that you're doing it with a professional. There's a high level of assurance that they're going to be buying it at the right price, and you're buying into economies of scale," Miles said.
According to vintners 2009 is expected to produce outstanding French wines. Favorable weather conditions have helped produce a bumper crop and good grapes.
"Demand is being very much driven from Asia, particularly Hong Kong and China at the moment," Davis said. "(Chateau) Lafite (Rothschild) has been the market leader this year. The Chinese demand for Lafite seems to be insatiable at the moment and prices of Lafite have risen between 30 and 60 percent this year, depending on vintage."
Red Bordeaux is the prominent wine to invest in as "production levels of Bordeaux far exceed other big labels," Davis added.
Friday 16 July 2010
Encarta Fine Wines - Press 12
Wine is now fine for investment too
11 Oct 2009, 0347 hrs IST,Sanjeev Sinha,ET Bureau
Wine
With investors across the world scrambling to find safer opportunities in the wake of the financial meltdown, wine has started to figure more prominently in investment portfolios, particularly of HNIs. More and more people who have grown to love wine as part of their lifestyle have begun to think of their favourite tipple as a safe haven for their savings and investments.
And why not? With the world’s top100 wines showing remarkably consistent returns over the last 25 years and also remaining exempt of capital gains tax in many developed countries, wine is slowly but surely being regarded as one of the leading alternative asset classes and, therefore, ideal for diversification. Also, because for most of the current year, the wine investment market not only remained largely immune from the credit crunch, but in an unexpected development also continued to outperform stock indices in both the UK and the US.
“Although it is often said that the market for wines is the last to feel the impact of any economic upheaval and the first to show recovery, there is no substitute for seeing this principal put to the test as indeed we have over the last 10 months,” says Wilson Douglas, UK’s leading alternative investment company.
It, however, shouldn’t be assumed that all wines are ideal for investment. On the contrary, only the world’s very best wines, ie fine wines (which enjoy a constant global demand) are advised by market experts to be purchased. According to experts, the main reason why some fine wines rise in value can be explained via the economics of supply and demand.
“Wine by its very nature is made to be consumed and so, of course, will become less available as this happens over time. The increase in wealth creation taking place now in places such as India and China, along with the scrapping of import duties in Hong Kong, brings an increase in demand with it as there are more and more people who want (and are able to afford) to drink these wines. Yet, there can only ever be a fixed amount produced each year,” says Adrian Lenagan, managing director of Provenance Fine Wines, London, ( www.provenancefinewines.co.uk ), which specializes in fine wine investment.
A notable trend being witnessed is that fine wine investment is no longer considered a niche market today like it was just a few years ago. “Fine wine used to be considered a fairly exotic way of trying to achieve capital growth. But these days, with the advent of the internet and the growing market transparency, fine wine buying and selling is more structured and has become a more mainstream way of achieving the aims of investors,” says Lenagan.
Fine wine investment, in fact, has long been thought of by various economic experts as a way of more cautious investors diversifying within their overall portfolio, which is especially the case in times of recession. And good returns have seldom been a problem. Although wines can be sold within a year of purchase, ideally investors should look at them as a long-term asset.
“If guidelines are followed and one is prepared to hold on for at least the medium term (over 5 years), then it’s not unreasonable to expect returns of around 12% per annum,” says Lenagan.
Prices of wines can be monitored on wine indices such as the London International Vintners Exchange’s Liv-ex 100 Index, that is the industry’s leading benchmark and is composed of the premier 100 most sought-after fine wines, as well as the Australian Wine Index, among others.
There is, in fact, a huge market for wine funds abroad coupled with the authorised auction houses and wine indices for trading. “As of now there is no such facility available in India, but the demand for various international brands of wine is catching up here and Indian investors keen to diversify their portfolio can do so by investing abroad,” says Ashish Kapur, CEO, Invest Shoppe India.
11 Oct 2009, 0347 hrs IST,Sanjeev Sinha,ET Bureau
Wine
With investors across the world scrambling to find safer opportunities in the wake of the financial meltdown, wine has started to figure more prominently in investment portfolios, particularly of HNIs. More and more people who have grown to love wine as part of their lifestyle have begun to think of their favourite tipple as a safe haven for their savings and investments.
And why not? With the world’s top100 wines showing remarkably consistent returns over the last 25 years and also remaining exempt of capital gains tax in many developed countries, wine is slowly but surely being regarded as one of the leading alternative asset classes and, therefore, ideal for diversification. Also, because for most of the current year, the wine investment market not only remained largely immune from the credit crunch, but in an unexpected development also continued to outperform stock indices in both the UK and the US.
“Although it is often said that the market for wines is the last to feel the impact of any economic upheaval and the first to show recovery, there is no substitute for seeing this principal put to the test as indeed we have over the last 10 months,” says Wilson Douglas, UK’s leading alternative investment company.
It, however, shouldn’t be assumed that all wines are ideal for investment. On the contrary, only the world’s very best wines, ie fine wines (which enjoy a constant global demand) are advised by market experts to be purchased. According to experts, the main reason why some fine wines rise in value can be explained via the economics of supply and demand.
“Wine by its very nature is made to be consumed and so, of course, will become less available as this happens over time. The increase in wealth creation taking place now in places such as India and China, along with the scrapping of import duties in Hong Kong, brings an increase in demand with it as there are more and more people who want (and are able to afford) to drink these wines. Yet, there can only ever be a fixed amount produced each year,” says Adrian Lenagan, managing director of Provenance Fine Wines, London, ( www.provenancefinewines.co.uk ), which specializes in fine wine investment.
A notable trend being witnessed is that fine wine investment is no longer considered a niche market today like it was just a few years ago. “Fine wine used to be considered a fairly exotic way of trying to achieve capital growth. But these days, with the advent of the internet and the growing market transparency, fine wine buying and selling is more structured and has become a more mainstream way of achieving the aims of investors,” says Lenagan.
Fine wine investment, in fact, has long been thought of by various economic experts as a way of more cautious investors diversifying within their overall portfolio, which is especially the case in times of recession. And good returns have seldom been a problem. Although wines can be sold within a year of purchase, ideally investors should look at them as a long-term asset.
“If guidelines are followed and one is prepared to hold on for at least the medium term (over 5 years), then it’s not unreasonable to expect returns of around 12% per annum,” says Lenagan.
Prices of wines can be monitored on wine indices such as the London International Vintners Exchange’s Liv-ex 100 Index, that is the industry’s leading benchmark and is composed of the premier 100 most sought-after fine wines, as well as the Australian Wine Index, among others.
There is, in fact, a huge market for wine funds abroad coupled with the authorised auction houses and wine indices for trading. “As of now there is no such facility available in India, but the demand for various international brands of wine is catching up here and Indian investors keen to diversify their portfolio can do so by investing abroad,” says Ashish Kapur, CEO, Invest Shoppe India.
Encarta Fine Wines - Press 11
HK investors see wine as good bet for capital growth
By Polly Hui (AFP) – Oct 24, 2009
HONG KONG — Hong Kong investors are turning to rare vintages as an alternative bet for good capital growth, a trend driven by an insatiable demand for imported wine in China.
Having witnessed tumultuous times for the stock and property markets in the financial crisis, investors now see fine wine as a relatively low-risk, cheap investment which guarantees long-term returns.
"We can easily buy HSBC shares because they will always be available on the market," George Tong, a wine connoisseur-cum-investor and toy company owner, told AFP.
"Fine wine, on the other hand, is something that cannot be replenished. Its value is bound to rise."
"Every time someone opens a bottle of 1982 Chateau Lafite-Rothschild, the rest of the world is deprived of one more," he said, referring to one of the most sought-after vintages.
The strongest impetus for investors came from a surging demand for imported wine in China, which has seen breakneck growth in personal wealth boosted by the government's four trillion yuan (585 billion dollars) economic stimulus package last year.
In China, top-echelon vintages can be a status symbol for the super-rich as well as a powerful tool for building business relationships.
"You have to appreciate it from a cultural point of view. Chinese people show you how much they value you from the type of wine they serve you," said Carson Chan, managing director of auction house Bonhams Asia.
"In order to return the respect, you must serve them wine of the same calibre."
Chan said the wealthy and the rising middle class in China are becoming increasingly knowledgeable about Western wine, and their hunt for quality brands would eventually widen from the current focus on the well-known Bordeaux region in France.
He said that fine wine would become an increasingly common investment for people in Hong Kong and elsewhere in the region.
Xavier de Eizaguirre, president of Vinexpo, the world's biggest wine and spirits exhibition, has predicted that China, one of the ten biggest wine consumers in 2008, would be ranked number seven by 2012.
Wine prices have been significantly boosted by the Chinese market.
The price for a bottle of 2005 Domain de la Romanee Conti, for example, jumped from about 2,000 US dollars in 2005 to 8,200 dollars early this year, according to market data.
Hong Kong's wine market has become a major beneficiary of that trend, thanks in part to a government move to scrap a 40 percent tax on the tipple last year and its geographic proximity to mainland China.
Auction house giants Sotheby's and Christie's both said this month that the southern Chinese city has overtaken New York and London as the world's largest market for rare vintages.
Sotheby's raised 14.3 million dollars from just two auctions in Hong Kong this year, almost double the figure of London, which has had a total of eight wine sales so far in 2009.
At Sotheby's latest wine sale in October, mainland Chinese buyers accounted for as much as 35 percent of the total number of buyers, compared to 10 percent in its April sale here -- the first one held by the auction house in the region.
A Sotheby's spokeswoman said the October sale fetched 30 percent more than its estimate, with an anonymous Chinese bidder splashing out a record 93,077 dollars for a bottle of 1982 Chateau Petrus Imperial.
Rival Christie's said its Hong Kong wine auctions had the highest average lot values among its global sales, at 150,000 dollars per lot.
For some, there is another dimension to the investment potential of wine.
Investment planner Samuel Young, who bought more than 10 boxes of rare vintages from the Sotheby's October auction, said he would sell the wine to his key clients.
"My business clients, including those from the mainland, would sometimes ask if they can buy a few bottles off me," he said.
"I will sell the wine to those I want to build a good relationship with and I won't try to make any money out of it," he said.
"It's like doing a favour to them. To me, it's another kind of investment."
Copyright © 2010 AFP. All rights reserved. More »
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AFP
By Polly Hui (AFP) – Oct 24, 2009
HONG KONG — Hong Kong investors are turning to rare vintages as an alternative bet for good capital growth, a trend driven by an insatiable demand for imported wine in China.
Having witnessed tumultuous times for the stock and property markets in the financial crisis, investors now see fine wine as a relatively low-risk, cheap investment which guarantees long-term returns.
"We can easily buy HSBC shares because they will always be available on the market," George Tong, a wine connoisseur-cum-investor and toy company owner, told AFP.
"Fine wine, on the other hand, is something that cannot be replenished. Its value is bound to rise."
"Every time someone opens a bottle of 1982 Chateau Lafite-Rothschild, the rest of the world is deprived of one more," he said, referring to one of the most sought-after vintages.
The strongest impetus for investors came from a surging demand for imported wine in China, which has seen breakneck growth in personal wealth boosted by the government's four trillion yuan (585 billion dollars) economic stimulus package last year.
In China, top-echelon vintages can be a status symbol for the super-rich as well as a powerful tool for building business relationships.
"You have to appreciate it from a cultural point of view. Chinese people show you how much they value you from the type of wine they serve you," said Carson Chan, managing director of auction house Bonhams Asia.
"In order to return the respect, you must serve them wine of the same calibre."
Chan said the wealthy and the rising middle class in China are becoming increasingly knowledgeable about Western wine, and their hunt for quality brands would eventually widen from the current focus on the well-known Bordeaux region in France.
He said that fine wine would become an increasingly common investment for people in Hong Kong and elsewhere in the region.
Xavier de Eizaguirre, president of Vinexpo, the world's biggest wine and spirits exhibition, has predicted that China, one of the ten biggest wine consumers in 2008, would be ranked number seven by 2012.
Wine prices have been significantly boosted by the Chinese market.
The price for a bottle of 2005 Domain de la Romanee Conti, for example, jumped from about 2,000 US dollars in 2005 to 8,200 dollars early this year, according to market data.
Hong Kong's wine market has become a major beneficiary of that trend, thanks in part to a government move to scrap a 40 percent tax on the tipple last year and its geographic proximity to mainland China.
Auction house giants Sotheby's and Christie's both said this month that the southern Chinese city has overtaken New York and London as the world's largest market for rare vintages.
Sotheby's raised 14.3 million dollars from just two auctions in Hong Kong this year, almost double the figure of London, which has had a total of eight wine sales so far in 2009.
At Sotheby's latest wine sale in October, mainland Chinese buyers accounted for as much as 35 percent of the total number of buyers, compared to 10 percent in its April sale here -- the first one held by the auction house in the region.
A Sotheby's spokeswoman said the October sale fetched 30 percent more than its estimate, with an anonymous Chinese bidder splashing out a record 93,077 dollars for a bottle of 1982 Chateau Petrus Imperial.
Rival Christie's said its Hong Kong wine auctions had the highest average lot values among its global sales, at 150,000 dollars per lot.
For some, there is another dimension to the investment potential of wine.
Investment planner Samuel Young, who bought more than 10 boxes of rare vintages from the Sotheby's October auction, said he would sell the wine to his key clients.
"My business clients, including those from the mainland, would sometimes ask if they can buy a few bottles off me," he said.
"I will sell the wine to those I want to build a good relationship with and I won't try to make any money out of it," he said.
"It's like doing a favour to them. To me, it's another kind of investment."
Copyright © 2010 AFP. All rights reserved. More »
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AFP
Encarta Fine Wines - Press 10
Fine Wine in an Asset Class of its Own
News - Alternative Investments
Wednesday, 11 November 2009 12:00
Château Mouton Rothschild was the star performer in the fine wine market during October as some Asian buyers moved their allegiance from their former Bordeaux of choice, Chateau Lafite.
Mouton prices were up around 10% in a month for the best 1990s vintages while the main fine wine index, the Liv-ex 100 increased by 1.9% and the Liv-ex Claret Chip rose by 1.8%.
Mouton 1998, for example, is beginning to drink well now: this leads to increased demand and falling supply, and this pushed up its price last month by 11% to £2,300 a case.
Asia is still leading the demand for investment quality wines but the traditional markets of America and Europe are showing signs of recovery. There were some extremely strong results produced by global wine auctions including the sale for £60,000 in Hong Kong of one impériale of Pétrus 1982, which is a single bottle containing six litres of the wine.
Fine wine prices are now up by an average of 14-18% since the beginning of the year. This healthy increase has been achieved with minimal volatility. Nine out of the ten months have been positive, with just one small (-1.2%) negative figure in March. With only two months to go the fine wine market is on track to deliver returns of 16-20% in 2009.
Fine wine is providing continued stability when other asset classes are still suffering volatility. The Sharpe ratio demonstrates that fine wine is outperforming other investments on a risk adjusted basis. The first reliable monthly records for fine wine prices began in 1993 and since then prices have risen more than tenfold - giving an annual return of 15% according to the Fine Wines Investables Index produced by Liv-ex, the fine wine exchange. Over the same period gold has risen less than three times at an annual rate of 7%. Fine wine prices have even kept pace with the gold price this year despite its recent surge to around $1,050 an ounce.
“Fine wine has shown significantly lower volatility than gold during most of the period from 1993 and the relatively small 2008 decline in fine wine prices in unparalleled economic conditions has already been more than been made up in 2009,” said Andrew della Casa, Director of The Wine Investment Fund. “Our own portfolios have generated average returns of 2.3% in October alone.
News - Alternative Investments
Wednesday, 11 November 2009 12:00
Château Mouton Rothschild was the star performer in the fine wine market during October as some Asian buyers moved their allegiance from their former Bordeaux of choice, Chateau Lafite.
Mouton prices were up around 10% in a month for the best 1990s vintages while the main fine wine index, the Liv-ex 100 increased by 1.9% and the Liv-ex Claret Chip rose by 1.8%.
Mouton 1998, for example, is beginning to drink well now: this leads to increased demand and falling supply, and this pushed up its price last month by 11% to £2,300 a case.
Asia is still leading the demand for investment quality wines but the traditional markets of America and Europe are showing signs of recovery. There were some extremely strong results produced by global wine auctions including the sale for £60,000 in Hong Kong of one impériale of Pétrus 1982, which is a single bottle containing six litres of the wine.
Fine wine prices are now up by an average of 14-18% since the beginning of the year. This healthy increase has been achieved with minimal volatility. Nine out of the ten months have been positive, with just one small (-1.2%) negative figure in March. With only two months to go the fine wine market is on track to deliver returns of 16-20% in 2009.
Fine wine is providing continued stability when other asset classes are still suffering volatility. The Sharpe ratio demonstrates that fine wine is outperforming other investments on a risk adjusted basis. The first reliable monthly records for fine wine prices began in 1993 and since then prices have risen more than tenfold - giving an annual return of 15% according to the Fine Wines Investables Index produced by Liv-ex, the fine wine exchange. Over the same period gold has risen less than three times at an annual rate of 7%. Fine wine prices have even kept pace with the gold price this year despite its recent surge to around $1,050 an ounce.
“Fine wine has shown significantly lower volatility than gold during most of the period from 1993 and the relatively small 2008 decline in fine wine prices in unparalleled economic conditions has already been more than been made up in 2009,” said Andrew della Casa, Director of The Wine Investment Fund. “Our own portfolios have generated average returns of 2.3% in October alone.
Encarta Fine Wines - Press 9
Fine wine prices edge higher
By Denise Law
Published: November 12 2009 17:46 | Last updated: November 12 2009 17:46
The market for fine wine continues to show signs of recovery, supported by a rise in demand from buyers in Asia.
Since 1993 fine wine prices have risen more than ten-fold and the asset class is now producing annual returns of around 15 per cent, according to the Fine Wines Investable Index produced by Liv-ex, the fine wine exchange.
EDITOR’S CHOICE
Get creative - Jun-25
David Stevenson: Wine, stamps and maps - Nov-03
Majestic Wine loses out as sober corporations call time on champagne - Nov-11
Peter Gago: Full-body bubbles best at 35,000ft - Nov-07
Hit by the credit crisis in 2008, which affected demand for luxuries across all sectors, the fine wine market has rebounded.. Last year, the market for fine wine was down 15 per cent year on year but the sector bounced back in January.
“The key dynamic driving demand for fine wine is Asia,” said Chris Smith, investment manager at The Wine Investment Fund. “China’s economy is growing at around 8 per cent per year, creating a class of wealthy people who want to consume the most famous brands.”
The Livex 100, a leading benchmark for fine wine, rose by 1.9 per cent in October, while the Livex Claret Chip moved up by 1.8 per cent.
Fine wine prices are up between 14 and 18 per cent since January, dipping just once in March.
The best performing wine selection in October was the Château Mouton Rothschild. The Mouton 1998 rose by 11 per cent to £2,300 per case.
Mr Smith said fine wine is an alternative asset class, with “little, zero and sometimes negative correlation with equity prices” and added that it is less volatile than some other asset classes because “supply naturally falls over time, causing demand to naturally rise.”
Other experts agree. Andrew della Casa, director of The Wine Investment Fund which buys stock that is at least four years old and primarily invests in wines from the Bordeaux region, said: “Fine wine has shown significantly lower volatility than gold during most of the period from 1993 and the relatively small 2008 decline in fine wine prices in unparalleled economic conditions has already been more than been made up in 2009.”
However both admit that the market ultimately depends on the consumer. During the worst of the recession, wine producers who were left with a surplus of supply were forced to sell, pushing prices down.
By Denise Law
Published: November 12 2009 17:46 | Last updated: November 12 2009 17:46
The market for fine wine continues to show signs of recovery, supported by a rise in demand from buyers in Asia.
Since 1993 fine wine prices have risen more than ten-fold and the asset class is now producing annual returns of around 15 per cent, according to the Fine Wines Investable Index produced by Liv-ex, the fine wine exchange.
EDITOR’S CHOICE
Get creative - Jun-25
David Stevenson: Wine, stamps and maps - Nov-03
Majestic Wine loses out as sober corporations call time on champagne - Nov-11
Peter Gago: Full-body bubbles best at 35,000ft - Nov-07
Hit by the credit crisis in 2008, which affected demand for luxuries across all sectors, the fine wine market has rebounded.. Last year, the market for fine wine was down 15 per cent year on year but the sector bounced back in January.
“The key dynamic driving demand for fine wine is Asia,” said Chris Smith, investment manager at The Wine Investment Fund. “China’s economy is growing at around 8 per cent per year, creating a class of wealthy people who want to consume the most famous brands.”
The Livex 100, a leading benchmark for fine wine, rose by 1.9 per cent in October, while the Livex Claret Chip moved up by 1.8 per cent.
Fine wine prices are up between 14 and 18 per cent since January, dipping just once in March.
The best performing wine selection in October was the Château Mouton Rothschild. The Mouton 1998 rose by 11 per cent to £2,300 per case.
Mr Smith said fine wine is an alternative asset class, with “little, zero and sometimes negative correlation with equity prices” and added that it is less volatile than some other asset classes because “supply naturally falls over time, causing demand to naturally rise.”
Other experts agree. Andrew della Casa, director of The Wine Investment Fund which buys stock that is at least four years old and primarily invests in wines from the Bordeaux region, said: “Fine wine has shown significantly lower volatility than gold during most of the period from 1993 and the relatively small 2008 decline in fine wine prices in unparalleled economic conditions has already been more than been made up in 2009.”
However both admit that the market ultimately depends on the consumer. During the worst of the recession, wine producers who were left with a surplus of supply were forced to sell, pushing prices down.
Encarta Fine Wines - Press 8
Institutional investors grow to appreciate wine, art
Fri Nov 13, 2009 12:10pm EST
LONDON (Reuters) - Funds specializing in niche assets such as art and wine, long the preserve of ultra-rich hobbyists, are seeing a spike in interest from more mainstream investors seeking an antidote to the complexity of hedge funds.
As economies recover, interest has revived among traditional wealthy clients, but managers also tell of growing interest from institutions who have tended to avoided such illiquid assets.. Some have become confident enough in the trend to launch new funds.
"Attitudes are starting to change and we're talking to large institutions which have the ability to write some large, meaningful cheques," said Geordie Manolas, managing director at First State Media Group, which runs a fund that invests in music publishing rights and recently bought the catalog of singer Sheryl Crow.
Solid returns throughout the crisis as other asset classes crashed, and a lengthening track record for some funds, are translating into increased acceptance among investors, though figures are difficult to come by.
Investing in art has precedents for institutions: the British Rail Pension Fund achieved 11 percent annualized returns on art assets from the late 1970s until the late 1990s, but most existing funds are less than 10 years old.
The Fine Art Group, established in 2001, recently bought a work by David Hockney for around $850,000 and has notched up an average annualized return on assets sold at its funds of 30 percent.
On the back of this, institutional investors now make up around 20 percent of the assets and the group is targeting $100 million for a new venture by year-end, according to Philip Hoffman, chief executive.
"The institutions wanted to see a five-year track record and properly structured teams," he said, adding that money invested in art funds would be around $350 million by year-end, up from around $200 million at the beginning of the year.
Another relative veteran investing in fine wines, The Wine Investment Fund which dates back to 2003, paid out an annualized return of 13 percent in the five years to August 2009.
Andrew della Casa, director and co-founder of The Wine Investment Fund, said the proportion of institutional investors in the fund is around one-third and rising.
The trend marks a significant shift in attitude. A common perk offered by art funds is to loan paintings, sometimes valued in millions, to investors to hang in their homes - a feature frowned upon by cost-conscious institutions unhappy with additional insurance charges.
HEDGE FUND BACKLASH
The performance of some of the funds contrasts with that of hedge fund industry which suffered its worst year on record in 2008, when the average hedge fund lost 20 percent.
Bernard Duffy, managing director at Emotional Assets Management and Research said the sector is also benefiting from a backlash against hedge funds' sometimes impenetrable complexity.
"These are tangible assets. You can touch them, you can feel them," he said.
Duffy's firm launched a fund this week that will invest in 15 different categories of collectibles including art, antique watches, stamps coins and rare books.
It will start buying assets when it raises 15 million pounds and cites expressions of interest from more than 10 private banks and a number of ultra rich individuals.
The sector still faces hurdles to sustain the growth in institutional interest and a lack of transparency and disclosure associated with purchases through private arrangement, as well as conflicts of interest between funds and their independent advisers -- often art dealers in their own right -- can be a turn off for non-specialists.
"Transparency is not a strong point with these funds," said Pierre Valentin, a partner and specialist in art and cultural assets at law firm Withers. Such assets can also be impossible to benchmark, also dissuading the more cautious investor.
Many conventional investment managers remain unimpressed as the sector seeks to tap into new funding streams.
"We watch with amused interest," said Paul Farrant, a director at London private client investment manager JM Finn.
(Editing by Sitaraman Shankar)
After reading this article, people also read:
* Art investments can add color to a portfolioNov 20, 2009
Fri Nov 13, 2009 12:10pm EST
LONDON (Reuters) - Funds specializing in niche assets such as art and wine, long the preserve of ultra-rich hobbyists, are seeing a spike in interest from more mainstream investors seeking an antidote to the complexity of hedge funds.
As economies recover, interest has revived among traditional wealthy clients, but managers also tell of growing interest from institutions who have tended to avoided such illiquid assets.. Some have become confident enough in the trend to launch new funds.
"Attitudes are starting to change and we're talking to large institutions which have the ability to write some large, meaningful cheques," said Geordie Manolas, managing director at First State Media Group, which runs a fund that invests in music publishing rights and recently bought the catalog of singer Sheryl Crow.
Solid returns throughout the crisis as other asset classes crashed, and a lengthening track record for some funds, are translating into increased acceptance among investors, though figures are difficult to come by.
Investing in art has precedents for institutions: the British Rail Pension Fund achieved 11 percent annualized returns on art assets from the late 1970s until the late 1990s, but most existing funds are less than 10 years old.
The Fine Art Group, established in 2001, recently bought a work by David Hockney for around $850,000 and has notched up an average annualized return on assets sold at its funds of 30 percent.
On the back of this, institutional investors now make up around 20 percent of the assets and the group is targeting $100 million for a new venture by year-end, according to Philip Hoffman, chief executive.
"The institutions wanted to see a five-year track record and properly structured teams," he said, adding that money invested in art funds would be around $350 million by year-end, up from around $200 million at the beginning of the year.
Another relative veteran investing in fine wines, The Wine Investment Fund which dates back to 2003, paid out an annualized return of 13 percent in the five years to August 2009.
Andrew della Casa, director and co-founder of The Wine Investment Fund, said the proportion of institutional investors in the fund is around one-third and rising.
The trend marks a significant shift in attitude. A common perk offered by art funds is to loan paintings, sometimes valued in millions, to investors to hang in their homes - a feature frowned upon by cost-conscious institutions unhappy with additional insurance charges.
HEDGE FUND BACKLASH
The performance of some of the funds contrasts with that of hedge fund industry which suffered its worst year on record in 2008, when the average hedge fund lost 20 percent.
Bernard Duffy, managing director at Emotional Assets Management and Research said the sector is also benefiting from a backlash against hedge funds' sometimes impenetrable complexity.
"These are tangible assets. You can touch them, you can feel them," he said.
Duffy's firm launched a fund this week that will invest in 15 different categories of collectibles including art, antique watches, stamps coins and rare books.
It will start buying assets when it raises 15 million pounds and cites expressions of interest from more than 10 private banks and a number of ultra rich individuals.
The sector still faces hurdles to sustain the growth in institutional interest and a lack of transparency and disclosure associated with purchases through private arrangement, as well as conflicts of interest between funds and their independent advisers -- often art dealers in their own right -- can be a turn off for non-specialists.
"Transparency is not a strong point with these funds," said Pierre Valentin, a partner and specialist in art and cultural assets at law firm Withers. Such assets can also be impossible to benchmark, also dissuading the more cautious investor.
Many conventional investment managers remain unimpressed as the sector seeks to tap into new funding streams.
"We watch with amused interest," said Paul Farrant, a director at London private client investment manager JM Finn.
(Editing by Sitaraman Shankar)
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* Art investments can add color to a portfolioNov 20, 2009
Encarta Fine Wines - Press 7
Fine, fine wine
Created:
23 November 2009
Written by:
Maike Currie
Fine wine was not immune to last year's downturn. The unparalleled economic circumstances coupled with the collapse of Lehman Brothers spearheaded a massive sell-off of wine, which saw the value of some of the world's top selling Bordeaux plummet by as much as 40 per cent. However, since the downturn sparked in October 2008, the market for quality wine has enjoyed a rapid turnaround with the wine industry's leading benchmark, the Liv-Ex 100 Fine Wine index, enjoying some of the biggest rises since mid-2007.
"The performance of fine wine over the past 15 years has earned it a place alongside gold, equities, bonds and other assets in an investment portfolio," says Andrew della Casa, director of The Wine Investment Fund. "Having recovered from last year's setback, the market is on target to produce a return of 17-20 per cent for 2009."
Mr della Casa adds that aside from the downturn in 2008 which saw all major asset classes nosedive, studies show that the correlation between wine and equity returns is generally very low. "This means that including wine as part of a diversified portfolio is likely to lead to greater overall stability of returns," he says.
Go East
While the traditional markets of America and Europe are slowly recovering after being out of the market for the past 18 months, Asia has picked up the slack and is leading the demand for investment quality wines.
Simon Staples, director of sales and marketing at Berry Bros. & Rudd, Britain's oldest wine merchant, says that over the last year there has been an enormous demand for fine wine from the East, in particularly China and Hong Kong. "Not only is wine being traded for investment, but it is also being consumed, and in quite significant quantities. For investors this is good news as a lot of these wines weren't going anywhere for the last four or five years - apart from moving from investor to investor," he says.
Returns on wine investing are influenced first and foremost by demand - good vintages attract more buyers and since there is a strictly finite quantity (reducing as the wine is drunk) prices tend to rise. Given that Asian consumers are predominantly buying to drink, the demand and supply dynamic remains very much in place.
Mr Staples believes that Asia is where the future lies and says that "we have hardly touched the surface of China's potential demand. Prices have risen significantly, with the cost of Chateau Lafite Rothschild, a favourite among Asian consumers, climbing by about 30-50 per cent over the last year."
Another vintage increasingly finding favour among Asian buyers is Chateau Mouton Rothschild, a top performer over October as some buyers moved their allegiance from Chateau Lafite. Mouton prices were up around 10 per cent in a month for the best 1990s vintages.
"Even if we go through economic turmoil as we have done - if you buy the best wines from the best vintages, provided you can afford to hang on to it, fine wine is a resilient investment. It was one of the last commodities affected by the adverse economic conditions and has been one of the first to recover from the downturn," comments Mr Staples.
The problem with physical investing
While there certainly is an enticing argument to be made for physical investing, especially for those in the know who can back their individual knowledge, there are significant downfalls. Firstly, you can't just put a Chateau Lafite in your kitchen wine-rack; fine wine demands careful storage, with even temperatures and humidities, and most homes do not have the right conditions.
In addition, if you buy the wine you have to pay duty and VAT on the wine when it is imported - and of course there is the temptation to drink your investment if it is held in the cellar. Even if you can resist the temptation, merchants and auction houses will charge significant commissions for selling the wine on.
An alternative is to ask a merchant to put together a portfolio and keep the wines 'in bond' which means that duty and VAT do not need to be paid and the wine can be kept in good storage conditions. But merchants can face a conflict of interest in the choice of stock that they buy for you, the prices which they charge you for it – and subsequently the commissions they charge for selling it.
That said, an attractive tax advantage attached to investing in wine is that under UK tax rules, fine wine has generally been treated as a 'wasting asset', which means it is expected to have a life of less than 50 years and any capital gains generated do not attract capital gains tax (CGT).
What about wine funds?
If you want to buy and store wine yourself you need a great deal of expertise and the right infrastructure. But there are alternatives, such as investing in a wine fund.
The Wine Investment Fund (TWIF), set up as a limited partnership in England, requires a minimum investment of £10,000, only buys stock that is at least four years old and predominately chooses wines from the finest 40 Bordeaux chateaux. TWIF aims to generate double-digit annualised returns, and in order to achieve this, each portfolio needs to generate approximately 1.2 per cent compound growth per month to achieve the target after fees and expenses. There is a 5 per cent subscription fee and a 20 per cent performance fee at maturity.
During October, TWIF significantly outperformed the main fine wine indices with an average increase of 2.3 per cent across all its portfolios after all fees and expenses. The fund anticipated the increases in Mouton and has held some large holdings of the wine. "We expect further sharp increases in prices for this Chateau in the coming months. Stocks of the maturing wines are becoming scarcer as they are drunk," comments Mr della Casa.
While to date there have been very few pure wine investment funds, as wine becomes a viable asset class, it is expected that more funds are likely to come available. The advantage of investing in funds, such as TWIF, is that the wine is stored under the correct conditions in a UK government bonded warehouse and is insured at replacement value. "In addition, wine held in a fund can qualify as a Sipp investment - but loose bottles in your cellar will not," adds Mr della Casa.
Finally, it is important to remember that because wine itself is not a regulated asset, wine investing is not regulated. The manner in which a fund that invests in wine is sold, however, is regulated.
Created:
23 November 2009
Written by:
Maike Currie
Fine wine was not immune to last year's downturn. The unparalleled economic circumstances coupled with the collapse of Lehman Brothers spearheaded a massive sell-off of wine, which saw the value of some of the world's top selling Bordeaux plummet by as much as 40 per cent. However, since the downturn sparked in October 2008, the market for quality wine has enjoyed a rapid turnaround with the wine industry's leading benchmark, the Liv-Ex 100 Fine Wine index, enjoying some of the biggest rises since mid-2007.
"The performance of fine wine over the past 15 years has earned it a place alongside gold, equities, bonds and other assets in an investment portfolio," says Andrew della Casa, director of The Wine Investment Fund. "Having recovered from last year's setback, the market is on target to produce a return of 17-20 per cent for 2009."
Mr della Casa adds that aside from the downturn in 2008 which saw all major asset classes nosedive, studies show that the correlation between wine and equity returns is generally very low. "This means that including wine as part of a diversified portfolio is likely to lead to greater overall stability of returns," he says.
Go East
While the traditional markets of America and Europe are slowly recovering after being out of the market for the past 18 months, Asia has picked up the slack and is leading the demand for investment quality wines.
Simon Staples, director of sales and marketing at Berry Bros. & Rudd, Britain's oldest wine merchant, says that over the last year there has been an enormous demand for fine wine from the East, in particularly China and Hong Kong. "Not only is wine being traded for investment, but it is also being consumed, and in quite significant quantities. For investors this is good news as a lot of these wines weren't going anywhere for the last four or five years - apart from moving from investor to investor," he says.
Returns on wine investing are influenced first and foremost by demand - good vintages attract more buyers and since there is a strictly finite quantity (reducing as the wine is drunk) prices tend to rise. Given that Asian consumers are predominantly buying to drink, the demand and supply dynamic remains very much in place.
Mr Staples believes that Asia is where the future lies and says that "we have hardly touched the surface of China's potential demand. Prices have risen significantly, with the cost of Chateau Lafite Rothschild, a favourite among Asian consumers, climbing by about 30-50 per cent over the last year."
Another vintage increasingly finding favour among Asian buyers is Chateau Mouton Rothschild, a top performer over October as some buyers moved their allegiance from Chateau Lafite. Mouton prices were up around 10 per cent in a month for the best 1990s vintages.
"Even if we go through economic turmoil as we have done - if you buy the best wines from the best vintages, provided you can afford to hang on to it, fine wine is a resilient investment. It was one of the last commodities affected by the adverse economic conditions and has been one of the first to recover from the downturn," comments Mr Staples.
The problem with physical investing
While there certainly is an enticing argument to be made for physical investing, especially for those in the know who can back their individual knowledge, there are significant downfalls. Firstly, you can't just put a Chateau Lafite in your kitchen wine-rack; fine wine demands careful storage, with even temperatures and humidities, and most homes do not have the right conditions.
In addition, if you buy the wine you have to pay duty and VAT on the wine when it is imported - and of course there is the temptation to drink your investment if it is held in the cellar. Even if you can resist the temptation, merchants and auction houses will charge significant commissions for selling the wine on.
An alternative is to ask a merchant to put together a portfolio and keep the wines 'in bond' which means that duty and VAT do not need to be paid and the wine can be kept in good storage conditions. But merchants can face a conflict of interest in the choice of stock that they buy for you, the prices which they charge you for it – and subsequently the commissions they charge for selling it.
That said, an attractive tax advantage attached to investing in wine is that under UK tax rules, fine wine has generally been treated as a 'wasting asset', which means it is expected to have a life of less than 50 years and any capital gains generated do not attract capital gains tax (CGT).
What about wine funds?
If you want to buy and store wine yourself you need a great deal of expertise and the right infrastructure. But there are alternatives, such as investing in a wine fund.
The Wine Investment Fund (TWIF), set up as a limited partnership in England, requires a minimum investment of £10,000, only buys stock that is at least four years old and predominately chooses wines from the finest 40 Bordeaux chateaux. TWIF aims to generate double-digit annualised returns, and in order to achieve this, each portfolio needs to generate approximately 1.2 per cent compound growth per month to achieve the target after fees and expenses. There is a 5 per cent subscription fee and a 20 per cent performance fee at maturity.
During October, TWIF significantly outperformed the main fine wine indices with an average increase of 2.3 per cent across all its portfolios after all fees and expenses. The fund anticipated the increases in Mouton and has held some large holdings of the wine. "We expect further sharp increases in prices for this Chateau in the coming months. Stocks of the maturing wines are becoming scarcer as they are drunk," comments Mr della Casa.
While to date there have been very few pure wine investment funds, as wine becomes a viable asset class, it is expected that more funds are likely to come available. The advantage of investing in funds, such as TWIF, is that the wine is stored under the correct conditions in a UK government bonded warehouse and is insured at replacement value. "In addition, wine held in a fund can qualify as a Sipp investment - but loose bottles in your cellar will not," adds Mr della Casa.
Finally, it is important to remember that because wine itself is not a regulated asset, wine investing is not regulated. The manner in which a fund that invests in wine is sold, however, is regulated.
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