Is investing in wine the right decision for oenophiles?
WHEN MY FRIEND Jeff started collecting fine wine in the 1980s, he did it because he loved wine. In 2011, Jeff knew he would never drink it all, and he sold most of his cellar at auction for $3.6 million. In Jeff’s view, the proceeds from the auction “paid for all the drinking” he had done over the years.
The money Jeff made was a by-product of his passion, not an end in itself. Lately, however, I’ve been receiving email offers highlighting the tax advantages of investing in wine. My social media feed was also filled with offers. A sponsored post on Facebook,
of wine investment platform Vinovest, urged: “Fight stock volatility with wine investing”.
It is increasingly common to invest speculatively in wine via these platforms, although it involves risks and, in my opinion, it is much easier to buy the wine you like, whether it takes value or not.
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A London-based wine investment platform, Cult Wines, has been around for 15 years. Founded in 2007, the platform markets itself as a “wealth management” firm whose portfolio managers and research analysts buy and sell wines on behalf of clients. The company’s collections, stored in bonded warehouses in the UK and Europe, are worth more than $320 million, said CEO and co-founder Tom Gearing. Traditionally focused on selling into European and Asian markets, Cult Wines has only recently courted more US investment; currently, Mr. Gearing noted, some 12% of Cult Wines’ “several thousand” customers are Americans.
Investors with Cult Wine Investment pay a minimum of $10,000 to join “Cru Classé”, the lowest level of investment; the highest, “Cult Cru,” has a minimum of $700,000. The portfolios include “investment-grade wines” from places such as Bordeaux, Burgundy, Champagne, Tuscany and Napa, the company’s press materials say. Annual management fees range from 2.95% for an entry level account to 2.25% for the top tier.
Vinovest was founded in 2019; in 2020, their seed capital was $3 million and they raised another $13 million in 2021. They have around 10,000 investors, said co-founder Anthony Zhang, a tech entrepreneur. Vinovest customers can buy and sell individual bottles of wine (as they would with an online auction company such as WineBid.com). Clients also have the option of investing a minimum of $1,000 in Vinovest’s managed wine portfolios. These portfolios come with management fees, which include storage and insurance, of between 2.25% and 2.85%, on top of the amount invested. As with Cult Wines, Vinovest investors own the bottles they invest in, and those wines are stored in warehouses around the world. The investment wines, chosen by a team of Vinovest sommeliers, include “wines from Bordeaux, Burgundy and Champagne,” Mr. Zhang noted in an email.
“In my opinion, it is much simpler to buy the wine you like.”
Founded in Richmond, Virginia in 2019 with over $1.5 million invested on the platform, the Vint wine investment platform offers the ability to invest for a minimum of one share, ranging from 10 at $75, free of charge. (The company declined to name its number of investors or current capital.) With Vint, investors don’t actually own the wines but rather fractional shares of a portfolio of wines chosen by Vint. On the other hand, Vinovest and Cult Wine Investment investors can access and take possession of their wines if they wish, subject to transport costs and/or early liquidation penalties.
One of the names most often cited by wine investment platforms is Domaine de la Romanée-Conti, whose wines are among the most expensive in the world. These prices have risen exponentially over the years, in part because the quantity of wine is so limited and its distribution is tightly controlled.
When I mentioned the investment in wine to the estate’s longtime co-director, Aubert de Villaine (now in an advisory role), during a visit to New York to present the 2019 vintage, he said: “We refuse to sell to these funds. We want the wines to go to the people who will drink them. (While the DRC controls the initial sale of its wines, resale at auction is beyond its control.)
There are reasons to be skeptical of any type of investment, wine or otherwise. Unwitting investors loaned nearly $100 million to the executives of Bordeaux Cellars, a wine investment firm said to be backed by a fine wine cellar that turned out to be non-existent. The two directors, Stephen Burton and James Wellesley, were recently charged with conspiracy to commit wire fraud, wire fraud and conspiracy to launder money by federal prosecutors in the Eastern District Court of New York. Lawyers for Messrs. Burton and Wellesley could not be identified.
Jeff Zacharia, president of Zachys, a Westchester, NY-based wine retailer and auction house, was less concerned about fraud than practical matters. “There are a lot of variables, with the storage, the risk of breakage,” he noted. While collectors store wine at home or in a nearby warehouse, most wine investment firms store bottles in Europe and Asia, making wines more difficult for US investors to access.
Mr Gearing said wine stored overseas was in better condition than wine shipped across the ocean. “American bottles with import labels cost less globally than European stocks because the bottles are known to have flown further and therefore could have been exposed to conditions that could have negatively impacted the quality of the bottles,” he wrote in an email. “Knowing this, a buyer located in Europe or Asia is more likely to pay more for a bottle that has been stored in perfect conditions close to the source.
Mr. Gearing and his team are working to provide greater price transparency. At the end of March, they will officially announce the creation of CultX, a partnership between Cult Wines and wine-searcher.com, the retail wine search engine, which will allow customers to access data on wine prices – auctions and sales retail – anywhere in the world. .
However, as with a stock, there is always a risk that a wine may fall in value. Mr. Zacharia noted that wine, like art, is subject to trends. “People were talking about Porto in the 1980s, but its value didn’t increase,” he said. Potential investors would be wise to consider the cost of exiting the market, advised David Parker, CEO of Benchmark Wine Group, whose subsidiary Wine Market Journal is a database of global wine auction data. “If you try to move a lot of wine, you run the risk of getting a low price,” Mr. Parker said. Management fees also add up.
Given all of these risks, if I still wanted to invest in a modestly priced wine that is likely to increase in value, would Mr. Parker have one to recommend? “Chateau de Beaucastel,” he suggested. “He has a history of appreciation.” The current vintage of Beaucastel’s grand Domaine Châteauneuf-du-Pape flagship wine is around $100 a bottle. And since I like Beaucastel, if its value does not increase, I will gladly drink my investment instead.
Write to Lettie Teague at [email protected]
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