Investing in Vino? The business behind our favorite grapes
Cash. Blue-chip equities. Property. They’re all cornerstones of a diversified investment portfolio. But a case of Mouton Rothschild, or a share in a few Languedoc vineyards? They are less commonly put on the table by investment advisors. And yet the world of fine wine is proving to be an attractive place for savvy investors looking to tap into a world of fine returns from fine wine.
But don’t take our word for it!
One of the most reliable trackers of fine wine’s investment performance is the Liv-ex Fine Wine 100 Index. Founded in 2020 by two former stockbrokers, Liv-ex (or London International Vintners Exchange) is a global marketplace for the wine trade. The Fine Wine 100 Index is considered an industry benchmark, tracking the price movement on the secondary market of 100 of the world’s most sought-after fine wines.
From December 2020 to November 2021 that index registered a 19.94% increase, comfortably beating the performance of the FTSE 100, the Dow Jones and gold. Flash in the pan? Look then to the Liv-ex Second Wine 50 index, which tracks the prices of second-label wines from heavyweight European producers. Over the last five years, it has grown 56%.
It’s not all such good news though.
Extend the timeline to five years and the likes of the DOW Jones, S&P 500, even crude oil; comfortably outperform the Liv-ex Fine Wine 100.
And, while the Bloomberg Wine & Cheese Index – yup, there is such a thing – is worthwhile validation of the sector, this capitalization-weighted index of major global wine producers and cheese-makers hasn’t exactly shot the lights out, showing just 20% growth over the past five years.
With the likes of Liv-ex restricted to wine merchants and registered traders, and Bloomberg indices awfully unromantic, how does your average enthusiast or retail investor get a pour of the fine wine market?
For starters, don’t simply rush to your local liquor store and shove a few cases under the stairs, while you wait for that big payday.
Only a fraction of the wines produced each year could be considered investment-grade, whether due to the quality of the wine or the brand value of the cellar. And with most top-performing wines sold on allocation, often before they’re even bottled, getting access to the right calibre of wines isn’t easy.
Say hello then to the Personal Investment Portfolio from South African merchant, Wine Cellar.
With an investment of R50 000, each portfolio includes 102 bottles of investment-worthy wines ranging from iconic estates to pioneering ‘new wave’ winemakers such as Eben Sadie and Adi Badenhorst. Aside from access to sought-after releases, the PIP also offers free cellaring for two years, and access to Wine Cellar’s brokerage platform for reselling your wine.
Presuming you don’t dip into the stash yourself, which is an option, what is the return likely to be?
“Annual growth rates are difficult to measure accurately with variation in vintage per wine,” cautions the PIP prospectus from Wine Cellar, noting that portfolios older than six months “show an average annualised price growth of 12.5% across the PIPs sold since 2019. The older portfolios naturally have higher growth rates, which we believe will peak four to eight years from release.”
The lesson? Be patient.
Your own turf
But what if you want to get your hands dirty, metaphorically at least, with your own slice of terroir. Buying an estate outright is out of reach for most investors; a problem Roland Peens hoped to solve with the 2021 launch of Hemelzicht Vineyards in the Hemel-en-Aarde valley outside Hermanus.
His unitised investment model allowed investors to buy in to the development in units of R1-million, with benefits including wine allocations, estate accommodation, annual cash dividends and the potential for capital growth. However, although it came close, investment fell just short of the R50-million initially required, and the project never got off the ground.
“I was expecting more institutions to invest in R3- to R5-million chunks, and we really only got R1-million investments from target customers,” says Peens. “What we learned is that retail investors are interested as fractional owners of a wine estate. Institutional investors are also keen, but would rather invest in wineries that are already doing well.”
However, globally there are other fractional investment opportunities to be had, with the likes of winefunding.com offer an innovative avenue for small-scale investors and wine enthusiasts to get some skin in the game, while helping small wineries raise capital for expansion and improvements.
Here, wineries list their investment projects, and the capital required, and investors purchase individual units. Winefunding.com offers three modes of investment, with the investment repaid in wine over three years (Wine Pay-Back) or as a Wine Bond, which sees the capital returned to the investor in cash, and interest paid in wine allocations. With their Wine Equity investments, you become a shareholder in the business, with the opportunity for both dividends and capital gain. And the option to buy wine at a discount.
The potential projects are remarkably diverse. In Bordeaux, €1.2-million was raised to create a co-working and events space focused on the wine industry. Nearby, Château Cazebonne garnered €100 000 in micro-investments to help it replant heritage grape varieties, while in the Languedoc region of southern France, Domaine Alain Chabanon raised more than €80 000 to make the switch to sustainable solar energy.
Still want a place to put your name above the gate? If you do happen to have the funds – and the risk appetite – to buy your own estate, the South African winelands offer remarkable value compared to other wine regions worldwide. Grand cru vineyards in Bordeaux or Burgundy change hands for upwards of €5-million per hectare. In California’s Napa Valley that drops to about $1-million per hectare, while Tuscan vineyards can be had for $300 000 per hectare.
But in Stellenbosch – the self-proclaimed ‘Kingdom of Cabernet’ – you can pick up high-quality vineyards for ‘only’ $100 000 per hectare.
“You can get a top-tier wine farm at a very low valuation, and of course the cost base in South Africa is very low,” explains Peens, who today works alongside Vilafonté owner Mike Ratcliffe at Wine Business Advisors, facilitating M&A for investors seeking wine assets in the Cape.
The issue at play in the local wine industry is that too many invest for passion, not profit, and “there isn’t enough of a fine wine business culture in this country,” argues Peens, who says prospective buyers have to consider both the fundamentals of the property and the value of the brand.
This article is the first in a series by Altvest, exploring different alternative investment classes.
Altvest is a disruptive platform democratising private equity by creating access for retail investors to own opportunities previously exclusive to high net worth individuals
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Website: Altvest Capital