A love of fermented grapes their rich flavour, bouquets and aromas — might draw the wealthy to diversify their portfolio into wine, but alcohol percentage is not the only measure of strength and the asset promises high returns and overall stability.  During the financial crisis of 2008 wine industry benchmark Liv-ex 100 dipped 20% but recovered by 2011, climbing by 70% in that year. Over the last five years, the same index has grown by 11.1%. Some famous wines can see their value soar by more than 10% in one year, said Eran Habets, managing partner at Cellar Investment Partners, confirming fine wine's high return potential.

The Luxembourg-based alternative investment company manages a wine fund. This operates much like a hedge fund, pooling people's resources to invest, in this case in tens of thousands of fine wine bottles. This volume allows for a diversification in products from multiple regions, which increases the chance of making a profit. Like all wine funds, CIP uses bonded warehouses, free from the payment of duties or taxes, which allows the firm to invest more money.

Eligible investors for CIP ‘s fund, and most others like it, are ultra-high-net-worth individuals, family offices or professional investors. Getting into the wine investment game requires capital. Famous wines can go for EUR 5.000 or EUR 10.000 a bottle with vendors often selling cases of six or twelve bottles. But companies like Vinovest, established in 2019, are lowering that entry point, with a minimum investment of EUR 1.000. There are also new platforms that offer shared wine investment with multiple people owning parts of a bottle or case. Those services are still at a nascent stage.

LESS IS MORE

When Germany occupied France during World War 2, the price of Frnech wine rose by 600%, says Liv-ex on its website. As is the case for luxury goods, the worth of wine is dfefined by scarcity. Less than 1% of global production is made up of wine defined as investment grade. The domain (a parcel of land under the control of the winemaker) of Burgundy wine producers, for example, is fixed. Even if demand becomes higher, output cannot really increase. Wine also has a drinking window, during which consumption is deemed optimal. When that period arrives, value increases even more, “it is cunsumable. In the end, people drink their wines. As time passes, expensive wines becomes extremely scares,” said Habets. As long as a bottle of wine is unopened it can be enjoyed, even a long time after the drinking window has expired, he said. However, it's worth will start to diminish.  

Brand, domain, the vintage and, of course, the score it is given by well known critics determine the price of a bottle. "It is similar to stocks. They give wine a rating like Morningstar does with investment funds," said Habets. A high ranking also helps when it comes to selling. This part is somewhat tricky. Not only do you have to sit and wait for seven to ten years for your wine to gain value, but you must also find a buyer. Auctions are a popular place to sell wine, especially for private investors. CIP uses those, as well as trading platforms and specialised wine traders. The latter are more active and could even approach a wine fund manager about purchasing some of their bottles. They don't have the equity to invest themselves but do so for their clients.

Unlike funds, private investors cannot amass the same quantity that will yield significant results. Finding a seller is also more difficult for an individual than it is for wine funds, according to Habets. Buying directly from a domain is harder, as a fund's offer to purchase much larger quantities might be more appealing. Purchasing directly from the winemaker, however, is the best way to certify that what you're selling is precisely what is in the bottle. Scams are a very real concern. "The older the wine is, the more transitions of ownership there have been, and the older the wine is, the bigger the risk is," said Habets.

ON THE HORIZON

Blockchain has the potential to help with traceability, and there are many new companies offering this service. It is still relatively new, however, and it will have to gain the trust of investors, which is important in the luxury goods sector. As the years roll by and new technologies start to have an impact on wine investment, so will climate change. Its effects are already being felt in Champagne and Burgundy. Higher temperatures have pulled the harvesting period forward by two weeks and the grapes tend to be riper and with higher concentration of sugar. Spring frost has seen winemakers in France and Germany use candles in an attempt to save their grapes while extreme heat, drought or rot from humidity have marked recent summers. Climate risks are expected to affect production, which from a cold-blooded investor perspective isn't always bad. "If we can buy good wine at the right price and we sell it correctly, in the long term, it will develop in the right direction for sure," Habets said. Since fine wine's price is directed by scarcity, logic dictates that cult wines like Chåteau Pétrus or Chåteau Lafite Rothschild will only become more premium.

The market is also looking to become more competitive with increasing interest in China and the Middle East. This could lead to higher demand and therefore an increase in prices, said Fabienne Stanitz, founder of FabstWines. The German national turned her passion for wine into a platform connecting buyers with winemakers. Not only are buyers coming from new regions but also the wines themselves. New Chinese domains are starting to win prizes, said Stanitz. "You never know where it will go. But if you look at the French, Italian, Spanish wine industry, or California wine, there is so much history and prestigiousness. That storytelling takes ages to develop," she said. A 2010 bottle of Pétrus, one of the most sought-after wines, can easily go for over €5,000. Although it has no premier cru classification, it has made a name for itself and is among the most expensive fine wines. It was served at Queen Elizabeth's wedding and is known for having been a favourite of John F. Kennedy's.

"As long as the economic system is based on profit first and the human comes in 10th or 11th position, it cannot really work” - Francois Dickes

Wineries can remain under the management of the same family for four, five or even ten generations, said Stanitz. FabstWines works with a winery from Bordeaux, which has operated since 1507 without the owner's last name changing, "There's so much passion, so much luck with nature, and so much art in one bottle. And each bottle in the world tells a story," said Stanitz.

At the same time, diving head-first into this history-rich world can result in an unwelcome hangover and the FabstWines founder advises newcomers to be aware of fraud and counterfeit. Doing research and getin touch with wine merchants and auction houses is a good way to go, said Stanitz. Being at an auction is extremely exciting, she said, and even though her personal collection is still in its early stages, she is fond of it.

THE SOUR TASTE OF PROFITABILITY FIRST

But not all wine connoisseurs have acquired a taste for investment. Francois Dickes, who owns wine bar Vins Fins and grocery store La Cave de la Grocerie, has little advice for aspiring buyers, except perhaps "don't do it."  "I am convinced that the economic model that rules the planet for the moment is bringing the planet down. As in every speculation, you do it for the profit of someone but against the profit of many. As long as the economic system is based on profit first and the human comes in 10th or 11th position, it cannot really work," said Dickes. The close contact with the producers is the hallmark of Dickes' way of working. Rather than banking on a bottle, the merchant wants to see investment that supports the winemakers. Dickes plans to grow grapes for natural wine in Portugal in the coming years and expects this operation to require the help of a few investors. Those would "not be people who want to speculate but who believe in sustainable wine making," he said.

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