INVESTMENT PROCESS
INVESTMENT PROCESS
Wine is an asset with a historically repeatedly proven exceptional level of return and limited dependence on the performance of capital markets in the long-term horizon.
A) VALUE OF INVESTMENT WINE
Investment wines have a high potential to continue to mature in the bottle over the next few decades. The value of investment wines therefore usually rises as their age increases. The final price of a wine is then influenced by factors such as its origin, quality, vintage, availability and expert evaluations received. Over time, in addition to quality, the rarity of the wine grows in direct proportion to its decrease in availability (wine is gradually drunk). The total share of investment wines in global wine production is very low and does not exceed 0.2%. For a wine to be considered investment grade wine, it must be a first-rate wine with a unique origin and a demonstrable ability to mature well over a long period of time.
B) INVESTMENT WINE PRICE DEVELOPMENT
The price of wine normally passes through three stages of development. The first significant increase occurs after about two years, when the wine is bottled and marketed. All wine lovers who do not have a direct allocation from the producer or importer must, of course, pay a higher price to make the owners of the allocations willing to sell the wine at all. Another initial price increase then comes when one of the major critics gives the already bottled wine a higher-than-expected score. The second phase of rising prices usually occurs after another 6 to 8 years of maturation, after which a considerable supply of the wine has already been drunk. In the next 15 to 20 years, the supply of the wine usually drops to minimal and the wine also reaches its maximum possible quality, because it is usually already in the stage of optimal bottle maturity. This maturity is attentively sought after by wealthy wine lovers and connoisseurs, which naturally leads to repeated price increases.
C) VOLATILITY OF INVESTMENT WINE
Wine, like other asset classes, may demonstrate a higher rate of volatility, especially in the short-term horizon. Therefore, it is good to consider an investment in wine to be a long-term investment.
∴ Graf: LVX 100 Fine Wine Index: 10 years
We evaluate each new investment opportunity very carefully and we choose the most suitable combination of buying bottled wine and so-called “en primeur” wines to achieve our set investment goals.
En primeur, a concept widespread mainly in Bordeaux, refers to the purchase of young wine, which comes from the previous year’s harvest. Bottled wines are usually purchased in the following two ways:
A) PURCHASE FROM IMPORTERS OR SELECTED WHOLESALERS IN THE EU
Over the past decade-plus, we have built exceptional relationships with major importers and wholesalers in the European Union. We have become an esteemed client for them, and therefore very often we receive preferential offers of first-rate investment wines at discounted and interesting prices. Such wines are most often bought in EUR, GBP and CHF. Of course, investments in wine additionally involve significant costs for its transport, subsequent storage, insurance and, in some cases, commissions to wine merchants. One expedient way to effectively minimize these costs is to invest collectively through an investment fund.
B) PURCHASE THROUGH THE LIV-EX WINE EXCHANGE
Liv-ex Ltd., Battersea Studios 2, 82 Silverthorne Rd., London SW8 3HE (hereinafter Liv-ex) is the world’s largest exchange for first-rate wines, where only vetted professional traders can buy and sell. Liv-ex also serves as the foremost source of important, independent information regarding the price development of investment wine and simultaneously as a source of a number of price indexes.
To allow investment wine to mature properly, it must be stored in a specialized vault that has a stable temperature, is darkened, free of vibrations, has a stable humidity of over 50%, and is well-secured and insured against various unexpected events. All our investment wines are stored in warehouses that meet the highest logistical requirements, including professional security in Měšice near Prague
The valuation of all assets and debts from the sub-fund’s investment activities is performed under the supervision of Grant Thornton Valuations four times a year, always on the last day of the calendar quarter or on another day on which the shareholder applies for the issue or redemption of investment shares and the Fund decides on the valuation date being as of this day.
The Fund will value the assets from the Sub-Fund’s investment activities on another date if it deems this necessary for the protection of the Sub-Fund’s shareholders. The value of the investment share is then determined for these dates. The valuation itself is based on data from the Liv-ex London Stock Exchange, or according to the world’s largest wine price comparator, wine-searcher.com.
The recommended investment horizon for investment wines is a period of at least 10 years. Only after this period has elapsed, has a sufficient amount of wine been drunk, significantly reducing its overall availability on the market, which then leads to a gradual increase in the price of the wine. This established trend then strengthens even more significantly over time. The longer the expected investment horizon, the greater the chance of above-average appreciation.
The wine is then sold through the world’s largest exchange, the Liv-ex, carefully selected by world traders and leading auction houses or through direct sales to renowned, prestigious restaurants, which in most cases do not have sufficient funds to hold their own comprehensive portfolio of young wines to their bottle maturity.
We consider aged investment spirits to be whisky, rum and Cognac. Other types of spirits represent only a negligible amount in the total volume and represent only truly unique series or lost pieces. Whisky is an alternative asset whose value increases with age. This makes it significantly different from other commodities, and that is why it is more than a suitable investment at a time when inflation is rising. Investing in whisky begins in a similar way as with many other investments.
Today, whisky represents more than 90 % of the world potential for investment in aged investment spirits. Expert appraisal of specific bottles of investment whisky is carried out using data obtained from a detailed and long-term analysis of the market in investment whisky, and monitoring the development of the stock market, the World Whisky Index and the Rare Whisky 101 Index.
The Wine Management Fund primarily focuses on the purchase and sale of Scotch Whisky. Only a product distilled exclusively in Scotland from water and barley malt to which only other cereals may be added, using only yeast for fermentation, can be considered as Scotch whisky. The spirit must contain less than 94.8% alcohol, to preserve the taste of the original ingredients used. The spirit must also be aged in Scotland in oak barrels for at least three years. It may be bottled at a minimum strength of 40% alcohol, and under no circumstances may anything other than pure water and caramel for the final color be added to the end product.
We consider aged investment spirits to be whisky, rum and Cognac. Other types of spirits represent only a negligible amount in the total volume and represent only truly unique series or lost pieces. Whisky is an alternative asset whose value increases with age. This makes it significantly different from other commodities, and that is why it is more than a suitable investment at a time when inflation is rising. Investing in whisky begins in a similar way as with many other investments.
Today, whisky represents more than 90 % of the world potential for investment in aged investment spirits. Expert appraisal of specific bottles of investment whisky is carried out using data obtained from a detailed and long-term analysis of the market in investment whisky, and monitoring the development of the stock market, the World Whisky Index and the Rare Whisky 101 Index.
The Wine Management Fund primarily focuses on the purchase and sale of Scotch Whisky. Only a product distilled exclusively in Scotland from water and barley malt to which only other cereals may be added, using only yeast for fermentation, can be considered as Scotch whisky. The spirit must contain less than 94.8% alcohol, to preserve the taste of the original ingredients used. The spirit must also be aged in Scotland in oak barrels for at least three years. It may be bottled at a minimum strength of 40% alcohol, and under no circumstances may anything other than pure water and caramel for the final color be added to the end product.
Investment whisky is mostly bought on the UK stock exchange through the well-known Whisky Invest Direct internet platform. Other purchase options are various auctions and, last but not least, purchases can be made directly or indirectly from sales representatives of specific distilleries. Investors buy whisky in liters and pay fees for its subsequent storage. Investment whisky matures for a specified period of time, in oak barrels of various sizes, most often with a volume of about 200 liters. The Wine Management Fund mainly buys whisky in two ways – directly from the distillery or at various ongoing auctions.
As mentioned above, whisky today represents more than 90% of the world’s potential for investment in aged investment spirits. Whisky matures in oak barrels of various volumes, often even for many long decades, and this aging process ends once it is bottled. A suitable way to invest in whisky is to focus on limited editions, which are expected to have high potential for price growth. Another recommended approach is to start collecting editions of a single brand, where the value of the collection increases once the collector has completed the set. A further possibility of an interesting investment is the purchase of investment whisky from a no-longer-existing distillery, or to purchase bottles filled specially for important occasions. Each particular bottle of whisky appreciates in value over time. The total value of a given investment whisky is decided mainly by its owners (generally investors or collectors). Expert appraisal of bottles of investment whisky makes use of detailed and long-term analysis of the market in investment whisky, and monitoring the development of the stock market, the World Whisky Index and the Rare Whisky 101 Index.
The overall price of investment whisky is fundamentally influenced by the supply and demand of individuals, investors, collectors and various institutions. Currently, there is no specific benchmark for wholesale whisky prices, so it is not at all easy to determine the value of whisky and it is very difficult to realize how whisky works as an asset class. The development of global prices for investment whisky is monitored, for example, by the Whisky Invest Direct Grain Index, the Malt Index, the World Whisky Index and the Rare Whisky 101 Index.
Like other asset classes, investment whisky can evince a higher volatility rate, especially in the short-term horizon. For this reason, it is suitable to consider investment in whisky to be a long-term proposition.
LONG-TERM NATURE
Investment in rare whisky should be considered of a long-term nature.
RARE WHISKY CHART
∴ Graf: Rare Whisky 101 Index
Investment whisky can be purchased in several possible ways, such as through purchase at auction, buying directly from specific distilleries and on various platforms, such as Whisky Invest Direct Limited, which was established in June 2014 and is currently based in London. This particular company focuses primarily on the purchase of mature Scotch whisky, offers its customers whisky at wholesale prices and guarantees them very low storage costs.
After maturing in barrels, whisky can be tapped off in so-called cask strength, but in most cases, it is diluted to 40–43% before bottling. Nowadays, it is common practice for whisky to be undercooled before bottling and filtration. In this way, cold filtration eliminates all substances that could cloud the final product. The whisky is then bottled, either directly by the distillery or by independent bottlers, which expand the choice on the whisky market and often bring interesting specialties that are not normally readily available. After bottling, the production and maturation of whisky is definitely over, because whisky can only mature in barrels.
Whisky must be properly stored in a dark environment, without sunlight and under constant temperature and humidity. In contrast to wine, as mentioned above, whisky loses its ability to mature further once bottled. Bottles of whisky must always be stored in an upright position, so as to prevent the cork from impacting its taste.
Wine Management fund’s appraiser is our whisky expert Václav Rout, who has many years of experience in valuing investment whisky. For valuation purposes, he uses monitoring of stock movements, changes in market trends in attractiveness and growth potential of investment whisky and the Rare Whisky 101 index.
Based on the experience of Václav Rout, monitoring of trends and the growing potential of whisky for investment, it can be stated with a high-degree of confidence that spirits are enjoying a growing popularity among investors in the Czech Republic and worldwide. Provided that the spirits are stored correctly in suitable conditions, they have a shelf life of, potentially, decades. Whisky can thus become a truly long-term investment and, moreover, with interesting potential, even for future generations. If we are considering investing in spirits and their subsequent sale, it is advisable to buy only tax-stamped bottles (they guarantee authenticity and compliance with applicable legislation). Even the type of tax stamp can have an impact on the final price of the bottle. Similarly, there is a risk of a possible change of the label, which should be original and intact, not re-pasted and not modified in any way. If we decide to buy a non-stamped bottle, it should come directly from the source (from the distillery) and it is good to keep the proof of purchase. It is definitely not recommended to make purchases on unverified websites, via eBay and the like. The longer the expected investment horizon for investment whisky, the higher the chances of above average appreciation.
The sale of investment whisky is usually carried out through auctions, or by offer directly to collectors, which is mainly the case for bottles without tax stamps (these are older collector’s pieces for which there was no legal obligation to apply a tax stamp to the bottle). Another option is direct sales to various companies, prestigious restaurants, renowned hotels and other institutions, for which difficult-to-obtain and exclusive whisky is becoming an extremely interesting product.
Occasionally, through our specialized market contacts, an exclusive offer comes up for the sale of specific distilleries, vineyards or wineries that are either among the top in the field and already have a broad portfolio of regular customers, or those that have not yet been able to fully realize their expected business potential. The Wine Management Fund’s main goal is to become aware of such unique opportunities as soon as possible and, with the assistance of our lawyers, negotiate the most advantageous terms for a potential transaction with the seller in close cooperation with legal, tax and financial advisors who set the main terms of the transaction.
