Wine Market Prolbems

The Financial Times has an interesting article on the wine market and it is now positive.  In the past the luxury market, including fine wines was red hot.  The FT reports the outlook for value increase in fine wines is not only bleak, but many wind investment funds are closing.

The FT reports

“The wine market is dead. It could take years for this market to recover,” says Mr Davison. “I think you have to ask whether open-ended structures are suitable for these sorts of illiquid investments. There’s also a danger that wine funds can get too big. When you allow investors to come in and exit on a regular basis, you get huge outflows when things go bad.”

The closure of one of Europe’s oldest wine funds is not a lone example of why gaining exposure to this sector can turn into a cautionary tale.

The industry took another hit this month when the UK’s Financial Conduct Authority again announced that wine funds – which are unregulated collective investment schemes – must not be marketed to retail investors of limited means.

The demise of the Vintage Wine fund also comes as the Luxembourg financial regulator is forcing Nobles Crus, once the world’s largest registered wine fund worth as much as €109m, to bar its investors from withdrawing their money. It can no longer sell its shares after running out of cash.

The decision by the Commission de Surveillance du Secteur Financier to “temporarily suspend all redemptions and subscriptions” in Nobles Crus came late last month after Elite Advisers, the fund’s managers, admitted they did not have enough cash to meet redemptions.

The fund revealed the news in a letter sent to investors.

“Nobles Crus now finds itself confronted with a few requests from large institutional investors for redemptions involving considerable sums of money,” wrote Miriam Wilson and Michel Tamisier, general partners at Elite Advisers in a letter dated May 31. “Currently, Nobles Crus does not have the necessary liquidity to honour these requests.”

The gating of the fund follows a long spell of criticism of its practices. The valuation system Nobles Crus employs continues to come under attack from other wine fund managers, who tend to rely on Liv-ex prices as a benchmark for their portfolios, but have not reported consistently strong returns.

Rather controversially, the managers of Nobles Crus opt not to use Liv-ex. Their reasoning is that its coverage of the rarer vintages in which they invest is “patchy and inconsistent”.

Source: The Financial Times