Few investments have the pleasurable upside of fine wine – that if it doesn’t make money at least it can be drunk.
However, the market has been dogged by controversy in the past two years, with the Luxembourg-domiciled Nobles Crus fund’s difficulties shedding an unwelcome light on poor valuation practices in the market. Equally, the price of some benchmark Bordeaux wines has also been falling since hitting a peak in 2011.
The problems of the Nobles Crus fund started early this year when rivals questioned its valuation methods. It is one of the few funds not to use independent valuation group Liv-ex and some suggested it was inflating prices and therefore its net asset value (Nav). The subsequent rush to sell out also revealed the illiquidity of the fund and the Luxembourg regulator was forced to suspend redemptions.
Nobles Crus’ difficulties coincided with a slide in the price of some Bordeaux wine, which is the largest market and most widely traded by fine wine investors. Between 2003 and 2011, prices of the most sought-after wines rose by more than 250 per cent as it became a store of value, but prices have fallen back subsequently as the slowdown in China has removed some of the wealthy Chinese buyers that had previously supported the market.
The problems with Nobles Crus and a number of other wine funds prompted the then-FSA to say that these types of ‘esoteric’ investment should only be promoted to those investors with an annual income of more than £100,000, assets of £250,000 or more or “extensive investment experience and knowledge”. As such, wine remains a niche asset.
Nevertheless, with many of its problems behind it, wine can still be a diversifying option in a portfolio. Matthew Tipping, fine wine sales manager at Berry Brothers & Rudd, says that there are a lot of variables in the price of wine and wine prices will have different drivers to share prices. “There is its provenance as a starting point,” he says. “Then as wine gets older and more is drunk, the price tends to rise.”
There are also signs that performance may be improving. The rise and fall of prices pre- and post-2011 was confined to top-end Bordeaux and the rest of the market has proved more stable. Andrew della Casa, director of the Wine Investment fund, says the market is currently well below trend and yet the supply and demand fundamentals remain favourable.
In general, investors have two main options when investing in fine wine – to invest through a fund or holding direct. Mr Tipping says that in both cases it is worth seeking out an established player, who will use industry best practice for valuations (usually valuing independently through Liv-ex) and storage. Although most of the weaker players, who were drawn in by the high prices in the run-up to 2011, have now left the market, it is still an area that can attract chancers.