Wine Funds

Bloomberg has an interesting article on a newly formed wine fund.  The Wine Trust is looking to raise $50 million to invest in rare wines.  Like art, wine is starting to become a new asset class for investors.  These types of alternative investments are growing due to the current worldwide economic downturn.

I have posted on many occasions about the luxury market, and the strength of it even during economic downturns.  This article continues to support the growth of additional asset classes for collectors and investors.

Bloomberg reports

“We went to market as first-time managers with a new asset class in the worst economic downturn since the Great Depression,” Mota said. “We were competing with the mattress as much as other asset classes.”

In 2010, investors started showing more receptivity to hard assets, Mota said. “That’s the case we’ve been making all along; it’s a real asset investment much like an allocation to gold, commodities, metals, and other things that have tangible underlying value,” he said.

Management of the fund includes taking advantages of market inefficiencies, such as the price variations of desirable wines in different locations.

“The sought-after wines are sought after whether you’re sitting in New York, London or Hong Kong,” Clew said. “If you know the logistics network and know how to move wine across markets, you can take wine from lower-priced markets and sell into higher-priced markets.”

Retailers, Restaurants

The fund stores its bottles primarily in Europe and sells mainly to retailers and restaurants with which the managers have established relationships or buyers that are listed on the London International Vintners Exchange, an electronic trading and information platform for wine merchants. In that way the fund avoids the 20 percent premium auction houses generally charge.

The Liv-ex Fine Wine 100 index, the industry benchmark, has produced a return of 195 percent during the past seven years. The index, calculated monthly, represents price movement of 100 of the most sought-after wines.

“Returns from wine investment have consistently outperformed other asset classes,” said Miles Davis, a partner at London-based Wine Asset Managers LLP, in a telephone interview.
Wine Asset Managers, with about $25 million under management from two funds, has returned about 10 percent during the past five years.

“At the end of the day, all of these investments are 750 milliliters of grape juice,” Mota said. “So at $1,500 a bottle, is Lafite 10 times better than Lynch Bages at $150 a bottle?”

Source: Bloomberg