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Wine, an investment that should be left to age

“Turnkey” cellars or specialized funds: wine investment can entail risks and should be seen as long term.

While amateurs take advantage of wine trade shows to hunt out bargains, some wonder whether Bacchus’ nectar is a worthwhile financial investment. Like the stock market, top of the market euphoria is also a danger to this field. In recent months, problems such as the Luxembourg fund “Nobles Crus” being unable to cope with a wave of redemption requests, and liquidation of the Vintage Wine Fund have dampened amateurs’ enthusiasm to invest in wine. Bordeaux wines recorded a decline in prices especially after being boosted by the newly affluent Chinese. Over two years, the Liv-ex index of the 100 most famous wines, which acts as a reference for trade between some 500 professionals around the world, has shown a decrease of 25 %.


Take advantage of the current down turn 

Should we stop investing in wine? Obviously not. Lower prices, of Bordeaux in particular, could be a good place to start. But be careful! Whatever the formula used, be it personal cellars, turnkey cellars or specialized investment funds, wine is still a risky product. As well as this, being the first to buy a Bordeaux first growth means it requires time to become profitable and may not always be the case. Today, for example, a bottle of Château Margaux 2009 is listed at 790 euros but it was put onto the market at 1012 euros including VAT, the price that an individual would pay for a bottle.


Patrick Noël, 49 years old, telecommunications consultant

“My turnkey cellar earns more than 10% per year”

pic1My passion for wine came late. Just before the age of 40, I started to build my cellar. But it became a real mess. As I travel a lot, I didn’t have time to look after it and I did not have a cellar book. Among the 300 bottles that I had accumulated, many had gone off. It was such a waste. I then noticed sites like Cavissima emerging, who offer support to establish and manage a turnkey cellar. I choose their premium offer which means investing 100 euros per month to buy fine wines, mainly Bordeaux and Burgundy. Taking into account some additional payments, I invested more than 8,000 euros in three years. Based on the ratings provided by Cavissima, my cellar earns more than 10 % per year. And I haven’t sold a single bottle. This solution allows me to combine pleasure and investment. If and when I need cash, I will sell.



Wealthy clients 

For those who do not have the patience or the knowledge, there are alternative options: investment funds and turnkey cellars. But beware… reserved for wealthy clients, investment funds are mainly Anglo-Saxon. They predominantly speculate on well-known Bordeaux wines, which are then stored in free zones in London and Geneva to avoid paying VAT. They charge between 1.5 and 2 % management fees and take 15% commission on performance. Often based in tax havens, these funds escape all controls. At the moment, Uzès Grands Crus, the fund of Uzès, is the only fund subject to approval by the French Financial Market Authorities (AMF) (see table). “The AMF stamp of approval obliges us to be completely transparent”, confirms Dominique Goirand, CEO of the Uzès fund.

Beware of derivatives

To get around the heavy regulations of going public, companies like Patriwine, Cavissima or La Bergère had the idea of commercializing turnkey cellars. Unfortunately, these companies specialized in selling custom cellars are not subject to any external control, except their auditors. “It would be good to have an official body to regulate our business” admits Thierry Goddet, president of Cavissima.


For the time being, all excesses are possible. Up until last June, Patriwine bought most of their wines from a negotiator who was also one of their shareholders. But with prices so far above their competitors, Franck Nogues, the founder of Patriwine, has decided to go through other suppliers. “Our new catalogue has been available since September and is between 10 and 15 % more competitive.” Obviously, this good news will annoy customers who created a cellar at the more expensive price!

That’s not all. Turnkey cellar vendors are faced with two major problems: the risks of valuation and liquidity. Today, professionals rely on estimations reserved for Bordeaux professionals, which are based on three sources: iDealwine (who control auction sales), Winedecider and Liv-ex (who combine auction sales and sales between professionals). Unfortunately, these ratings have their limitations: excluding tax, the same Château Latour 2009 is valued at 1140 euros by iDealwine and 1468 euros by Winedecider. Whereas Haut-Brion 1995 is estimated at 396 euros by Winedecider, compared to 295 euros by iDealwine.

An annual return of 3 to 5 % 

pic3The market is pretty illiquid. Michel Tamisier and Myriam Mascherin, managers of the Luxembourg fund Nobles Crus, founded in November 2007 know all about this. Their fund cannot cope with the massive sell-off of investors forced out for regulatory reasons. The result? Nobles Crus is forced to get rid of their wines for less than they are worth.

Angélique de Lencquesaing, delegate general manager of iDealwine, who specialise in selling wine at auction, is clear: “To hope to make a profit, wine investment must be for a minimum of seven years.” Do not expect astronomical valuations. No more than 3 to 5 % per year over seven years; already a pretty good valuation. Obviously, wine investment can offer good long-term opportunities. But it can also entail risks and should therefore be consumed – you know the rest – responsibly! Jean-Pierre de La Rocque

Source: Challenges.fr
12th September 2013






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