A recent Article in ET quoting the example of London-based financial professional Ian Dodd who got a 300% annual return on his investments in fine wines, delWine had a few telephonic queries from a few subscribers who wanted to know if they should invest in such ventures. Our reply was that we do not advise on such investments except that the potential investors should exercise caution especially since advisors may stress the past performance which is only an indicator but may not be repeated, besides a few other risks.
According to the article in ET, the key indices of Liv-ex, the London-based leading source of independent fine wine price information and research, including the industry benchmark Liv-ex Fine Wine 100 Index, have shown double digit annualized compound growth over the past 10 years. It focuses on Amphora Portfolio Management-a UK-based firm that helps high net worth individuals (HNI) to build a wine portfolio of investment-grade wines. Wines are stored in government-bonded warehouses in the UK on behalf of their clients who are kept informed about the prices and other data.
"We have been operating in China for two years now and the trend of investing in wines is catching on in a big way. Our research shows that in India too, high net worth individuals are increasingly consuming fine wines from around the world and are open to the concept of making money from their wine investments," reportedly says David Jackson, CEO of Amphora Portfolio Management (APM).
"Though every year is not that good, overall the Liv-ex Fine Wine 100 index has been doing well," says Dodd, who has been investing in wine for about six years now.
Although there are many indices to work with, the Liv-ex Fine Wine 100 Index is indeed a good way of gauging the market. It is the industry’s leading benchmark. It represents the price movement of 100 of the most sought-after fine wines for which there is a strong secondary market and is calculated on month-ends. The majority of the index consists of Bordeaux wines, a reflection of the overall market sentiment although wines from Burgundy, Rhone, Champagne and Italy are also included.
Liv-ex Fine Wine 100 Index
We took the data from the Live-ex website during the last 5 years as it seems to be more in tune with the market situation and dynamics
31.7.14 |
234 (Latest released) |
|
31.7.13 |
273 |
31.7.12 |
258 |
31.7.11 |
359 |
30.6.11 |
365 (Peak) |
31.7.10 |
301 |
31.7.09 |
218 |
Five years ago the index stood at 218. It showed a steady climb till 30th June, 2011 when it peaked to 365-showing an appreciation of a whopping 67% in 23 months! This is perhaps the attraction for most investors some of whom are temptation-prone. But then the Chinese story started going sour. The prices of these wines started coming down and reached a low of 234 on July 31, 2014 leaving a notional appreciation of a measly 7% in 5 years. The Chinese wine aficionados who invested 2 years ago have lost 9% only on the index-other expenses not considered.
One must also remember to ask the question before opening the purse strings- these are not the actual buying and selling prices. There are additional annual costs of storage, commissions for negociants, other intermediaries and the advisors-these may cost up to 10% of the transaction.
Then there are other real risks-howsoever marginal- there are often cases of fake wines being bought by the financial advisors some of whom are extremely savvy- the recent case of Rudy Kurniawan (reported extensive in delWine) is only one such example. If your portfolio included a couple of bottles of wines from him, you are doomed unless you are a billionaire like Koch who can afford to spend over $20 million in legal fees alone just to teach people like Rudy a lesson.
If you are a regular reader of Decanter or the Drinks Business you will also frequently hear of some firm or the other going bankrupt-despite seemingly strict controls in UK.
We have not even touched the subject of Liv-ex 100 itself. There is no guarantee that it would jump so exponentially as it has in the 90s and 00s.
Indian Experience
It might be pertinent to know that Sonal Holland, a Mumbai-based consultant and educator and now working with ITC Hotels, started representing Antique Wine Company in London in July 2010 (reported in delWine). She informs delWine that she found out that there was a significant market for fine wine investments in India and that she had discontinued the representation.
Investment consultants Ayesha Chenoy and Ishaan Ahuja, who claimed to be pioneers in India for fine wine investments in 2011, have now moved out of it, according to the Report. Their company Drayton Wines now reportedly operates only as a fine wines advisory service and focuses on organizing events for high net worth Indians (HNIs) and corporate clients. According to our reliable sources Ahuja is running, among other activities, a Fine Wine Forum in which privately selected members shell out Rs. 150,00++ a year for four dinners with fine wines.
"Interest in wine investments in India will be tempered by the current taxes on wine imports which penalize the better wines," says Ahuja in the Report. However, a Press Release dated October 26, 2011 had projected fine wine investments as very lucrative. It had also stated, ‘Clients' portfolios are private, in their own name and completely liquid. The wine can be stored until auctioned for a profit at a later date and/or consumed whenever a client wants. Drayton Capital is backed by an international advisory council, which in India includes Gautam Singhania and Suhel Seth and in France includes Baron Frederic de Luze and Bernard Pujol. They have clients both in India as well as overseas’. Hopefully these clients recovered their investments with some return.
Fine Wine Investment is a very complex business-one certainly does not want to get lured by the fact that wine can be consumed whenever the investor wants. Apart from the complication of bringing these wines into India, the taxes are too high. Then there is the question of income tax which legally has to be paid on all profits. Taking money out for investment is no problem through legal channels- $125,000 a year for each member of a family is much higher than anyone with prudent thinking would want to risk investing when the Indian Stock market is poised for an annual increase of over 20% with minimal risks.
Whether one should invest in fine wines in India is a personal decision and delWine would not like to advise for or against it-except that since there are no statutory warnings required in India, the investors should ask plenty of questions and discuss all the risks mentioned here before entering this complex instrument for investments.
Subhash Arora
Tags: Ian Dodd, Liv-ex, Index, Liv-ex Fine Wine 100, Amphora Portfolio Management, Rudy Kurniawan |