The evolution of fine wine investment
This report delves deep into the insights of industry experts discussing the evolution of the fine wine investment over the past decade. Each week, a new volume will be released covering topics such as fractionalisation and inflation hedging. The first volume covers democratisation and barriers to entry in the fine wine investment market.
Volume 1 | Democratisation and barriers to entry
How has the fine wine market evolved over the past decade? What role has technology played in this? Why do leaders in the space believe that fine wine investment is more democratic, and accessible, than ever?
These were some of the questions discussed by a panel of four key players in the US fine wine market. It was moderated by Michelle Erland of Colangelo & Partners, and featured:
- Robbie Stevens – Americas Territory Manager at Liv-ex
- David Parker – Founder & CEO of Benchmark Wine Group
- Jim Silver – Managing Director of New Frontier Wine Co
- Adam Lapierre MW – Director of Wine at Vint
What’s the difference between collecting and investing in wine?
Collecting is about purchasing wine that you intend to drink. Investing is about sourcing wine that you intend to sell later at a profit. It’s useful to understand this before diving into how wine investment has been democratised.
David Parker, Founder and CEO of Benchmark Wine Group, offered a useful explanation during the webinar. He suggested a further distinction between collecting and investing, in that only a small proportion of wines are investible.
‘There are only about 3% of wines in the world that have a secondary market on a regular basis, that are meant to age’, he said.
Until recently, access to fine wine was reserved for a select few.
He added that it’s important to store – and look after – investible bottles correctly: ‘If you’re investing, you’re keeping those bottles in perfect condition. You are watching the prices that you buy, and that you potentially can sell at, very, very closely, and you have the information to do that’, he said.
While wine collecting has been around for millennia, it has only emerged as an alternative investment asset more recently. A recent Liv-ex report explored the history of fine wine investment in more detail, explaining how it has become an attractive portfolio diversifier.
Can anyone invest in wine?
Today, anyone with an internet connection can invest in wine. The internet has made it easier for anyone to invest in wine for two major reasons: information is more accessible, and routes to market are more straightforward.
Historically, it could be difficult to find information about wine – both basic information about the product, and about pricing.
‘The consumer [found] it difficult to understand a wine, what was in the bottle, what was on the label’, Robbie Stevens said.
Valuation information was also difficult to obtain, undermining confidence in wine as an investment asset. Transparency, as Liv-ex Chairman and CEO James Miles explained in an article on the role of an exchange, is widely acknowledged to stimulate a powerful virtuous circle of increased confidence, participation and volumes.
Nowadays, questions about wine can be answered via a quick Google search. Investors can access in-depth data on fine wine pricing via their merchant; many provide independent valuation information as a complementary service. Subscription services like Cellar Watch are also available to all. This makes for a much more transparent market.
‘I think the amount of information on valuation that’s now available makes that transaction more transparent as well as more secure for both the buyer and the seller. I think that’s been an enabling element of allowing the whole market to be more comfortable for people’, Parker says.
The amount of information is now available (has allowed) the whole market to be more comfortable for people.
In other words, greater access to information has made fine wine investment a more democratic space.
‘The internet has brought about transparency, which has brought around new consumers’, Stevens concludes.
More straightforward routes to market
The internet has also made it easier to buy and sell wine, another important factor in democratising the market. ‘When people talk about wine investment, they talk about the ease of both acquiring wine and then potentially liquidating it’, says Stevens.
In recent years, it has become easier to sell wine, or liquidate your investment: ‘Traditionally there was only one way that people knew to liquidate their wine, and that was to take it to a wine auction. Maybe your retailer would buy it back, but in most states, that wasn’t possible. Now the number of different options is much, much broader’, says Parker.
In fact, a recent study by Liv-ex revealed online platforms to be the most popular place for investors to sell their wine – an option that didn’t exist 15 years ago. Auction houses, brokers and merchants are also popular choices, highlighting the various options that investors have.
As webinar host Michelle Erland suggested, ‘until recently, access to fine wine was reserved for a select few’. Thanks to greater market transparency, and wider access, this is no longer the case.
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Volume 2 | Technology and infrastructure
Technology has played a significant role in democratising fine wine investment, the panel agreed. This starts with the technology available to the trade, many of whom have transformed their businesses in the past decade.
How are American wine retailers embracing technology?
Fine wine merchants in the US have been ahead of the game in adopting new technology, Liv-ex’s Robbie Stevens suggested.
‘US wine merchants that are members of Liv-ex have historically been more proactive in adopting technology and using it to increase efficiency’, he said, pointing out that merchants in other markets have not been as quick to take advantage of new technologies.
An example of this is a US-based retailer who has been using trading automation since 2016. He uses it to automatically list guaranteed stock from Liv-ex for sale on his website. This enabled him to grow sales and attract high value customers while reducing inventory and staff costs.
Others are connecting their stock systems to data suppliers and other partners such as Liv-ex. This means that they can find everything from pricing data to accounting information all in one place. It also enables them to generate valuation reports for clients automatically. Each of these themes is explored in depth in Liv-ex’s report, The Wine Business of Tomorrow.
How is technology helping fine wine collectors?
‘Wine names have been historically pretty difficult to understand’, said Stevens, referring to long and complicated naming conventions that have led to wines being mixed up. This can cause costly errors.
LWINs, or Liv-ex Wine Identification Numbers, work quietly behind the scenes to make sure that data about fine wine is shared accurately and efficiently.
An LWIN, which is like an ISBN for wines, assigns 7, 11, 16 or 18-digit codes to wines. This makes sure that everyone is referring to wines in the same way, and that no mistake will be made identifying them.
‘We are seeing adoption [of LWIN] across the industry, which is allowing computer systems, warehouses, critics, and wine merchants, for example, to talk to each other,’ Stevens adds.
Essentially, it allows computer systems to exchange information about wines accurately, making developments like trading automation and automatic valuations possible – something which is explained further in Liv-ex’s LWIN guide.
During the panel discussion, Benchmark’s David Parker suggested that technology has helped democratise fine wine investment in two ways.
It’s another way to market. It’s another way to be seen.
‘The first enabling technologies that really helped make the market were more transparent valuations – Liv-ex reports, and the Wine Market Journal’, he said, adding that the whole activity of fine wine investing would otherwise have been too opaque to grow in the way that it has.
Today, around two thirds of collectors receive independent market data and trends from the trade to inform their investment decisions, according to a recent study by Liv-ex.
Parker also pointed to the increased accessibility of the market: ‘Clearly we’ve moved on in 30 years, from having to sit at an auction, or walk into a fine wine shop – if you were so lucky to live near one – to being able to access that on the internet’, he said. As well as being ‘only a click away’, as Parker puts it, the number of products in fine wine retail and auctions has expanded considerably.
Speaking from the perspective of a producer, Jim Silver added: ‘I like the idea of the democratisation of wine that we’re discussing, because I think it is yet another channel to reach a customer. And it’s another way to communicate. It’s another way to market. It’s another way to be seen’.
The whole supply chain, therefore, has the potential to benefit from the democratisation of fine wine, which is accelerated by new tools and technologies available to the trade.
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Volume 3 | Trends and inflation hedging
Which are the most investible wines? How has this changed in the past decade? What influences price changes? And how engaged are US buyers in fine wine investment, versus fine wine collecting?
The panel explored each of these topics, agreeing that the market has evolved considerably – and for the better – in the past decade.
Which fine wines do people invest in?
Only small number of wines are considered investment-grade. These typically come from classic fine wine regions, such as Bordeaux and Burgundy, but the market has broadened considerably in the last ten years.
In 2010, 95% of wines traded on Liv-ex were from Bordeaux. In 2022, that number dropped below 35%, as the chart below shows.
California has been a recent benefactor of this trend, increasingly finding a place in collector and investor portfolios.
‘In 2019, on Liv-ex, we saw 2% of wine by value trade from California. And in 2021/2022, we saw 8.5 to 9% of trade for Californian wine’, said Stevens.
‘As the world wakes up to a broader wine marketplace, it brings forward new brands that perhaps may have only been known on the domestic market, then they become globally known’, he added.
Quite often it makes a good hedge to your other investments.
As such, Bordeaux has not been pushed out – it has simply been joined by an ever-increasing range of wines from other classic regions.
‘Bordeaux has not actually lost any share in terms of absolute value’, explained Stevens. Rather, the investible or collectible market has expanded and broadened.
Is fine wine a good portfolio diversifier?
Fine wine is considered a good portfolio diversifier. This is because fine wine price movements show very little correlation to other asset classes.
‘The dynamics tend to move, not necessarily contrary to the other markets, but independent of the other markets. So quite often it makes a good hedge to your other investments’, said Parker.
‘We used to say, when the stock market goes up, the wine market goes up faster. When the stock market goes down, the wine market stays flat, or it goes up’, he added.
This has proved true in recent years. The fine wine market has delivered welcome stability, outperforming major equities and commodities in 2022. Since the start of last year, the Liv-ex 100 and the Liv-ex 1000 indices have both performed better than the Nasdaq and S&P500 – evidence of the market’s robustness during challenging times.
What influences the direction of the fine wine market?
The direction of the fine wine market is influenced by a broad number of factors. These range from global political and macroeconomic events to ones specific to the world of wine.
‘There are macroeconomic effects that can impact the market’, said Stevens, who points to the example of the 2008 duty reforms in Hong Kong. These led to increased demand for red Bordeaux from Asia, and subsequent price increases.
Similarly, and more recently, the devaluation of Sterling following the Brexit vote made stock held in the UK significantly cheaper for buyers in other currencies. This led to a flurry of buying activity from other countries – particularly the US.
It’s a very credible investment now.
Other, more micro, events can also impact the wine market, Stevens points out. “Whether it’s a particular vintage being critiqued as excellent or poor; whether it’s yields… or whether it’s an influencer on Instagram talking about a wine that causes people to go out and buy it”.
Is fine wine investment popular in the US?
Fine wine investment is popular in the US market – but this hasn’t always been the case. US buyers have not had a long history of purchasing wine as an investment: “There were…a lot of collectors in the US who were acquiring wines because they were passionate, but not really thinking about wine as an investment opportunity”, said Lapierre.
This has changed. Today, fine wine is the second most popular alternative investment among Americans, according to Parker. “It’s a very credible investment now”, he said.
This shift is partly thanks to the increased transparency enjoyed by market participants, but it also goes back to the inherent artistic appeal of wine.
“You have a tangible, beautiful thing in your hand, and that appeals to a lot of people as compared to a sterile investment, like a share of stock”, Parker said.
This change has been reflected in buying patterns on Liv-ex. Today, nearly one third of purchasing is driven by US-based wine businesses, versus just 1% back in 2011. This is being supported by initiatives designed to help buyers navigate the three-tier system and gain greater access to the global fine wine market – something that the Liv-ex Americas team can advise on.
The market, therefore, has broadened both in terms of products and players.
When your investors decide to sell, reach a global audience of buyers on Liv-ex.
Volume 4 | Futures and fractionalisation
New technologies – and regulatory changes – mean that it is no longer necessary to purchase whole cases, or even whole bottles, to invest. The panel explored how this is opening up fine wine to a broader range of investors, and how it has potential to help the wine industry in the future.
Can you invest in wine without buying full cases or bottles?
You no longer need to purchase a full bottle or case of wine to invest in wine. Thanks to services such as Vint, it is possible to purchase just a share of a wine bottle, case, or curated collection. In other words, fractionalization has come to fine wine investment.
According to Vint’s Adam Lapierre MW, this has the potential to make fine wine investment much more accessible. ‘One barrier to entry that has historically existed, is that access to the very best wines has historically required a lot of capital’, he said.
And it is these – the very best, and most expensive – wines that often generate the best returns for investors. For example, collectors who had invested in Château Lafite Rothschild 1996 in the early 2000s may now be boasting returns about five times the size of their original investment.
Chart taken from the Liv-ex trading platform showing Lafite 1996’s secondary market.
On top of that, most advisors recommend building a diverse fine wine portfolio, including wines from several vintages, producers, and regions. Purchasing just one case is a high-risk strategy. Historically, therefore, the cost of entry to fine wine investment has been high.
How does fractional wine investment work?
Fractional wine investment gives investors the opportunity to own a share of a wine bottle, case, or collection. The wines are sourced by intermediaries like Vint, and shares are sold online. Often these shares are available at a relatively low price compared to the total value of the product. For example, Vint is currently selling shares of a DRC assortment valued at $194,000 for $100 a piece.
This became legally possible thanks to regulatory changes in the US ten years ago. ‘The Jobs Act of 2012 facilitated these crowdsourcing rules, and enabled startups to create securities and crowdsource funding for them’, explained Lapierre.
‘That’s really what enables a company like Vint to source assets – wines and spirits – and turn them into securities and offer fractional investment’, he added, concluding: ‘It’s really opened up the world of the very best wines and spirits out there to pretty much anybody’.
Is fractional investment good for wine producers?
Fractional wine investment has the potential to help wine producers to improve their cash flow by making it easier for buyers to invest before the wine is released.
‘The other thing that is really interesting, from our perspective, is the ability to use this structure to solve other problems in the industry’, said Lapierre, who explained that many producers struggle with cash flow problems.
‘They’re making wine, buying grapes, turning it into wine, putting it into barrel for two years, three years, and then selling it in three years’, he said.
The other thing that is really interesting…is the ability to use this structure to solve other problems in the industry
Vint is exploring the possibility of purchasing barrels as futures, then offering shares on to investors. ‘Then [the producer] can buy them back in three years at a small cost of financing, or we could sell them through a marketplace to consumers’, he explained.
This strategy could also be used to finance wine as it matures in the cellar; it would prevent it from being pushed through the supply chain, and into restaurants, before it has entered its optimal drinking window.
This scenario is similar to the Bordeaux model of selling futures En Primeur. ‘But there really aren’t too many examples outside of Bordeaux, that I can think of, where that’s being done at scale’, said Lapierre.
When your investors decide to sell, reach a global audience of buyers on Liv-ex.
Volume 5 | The customer and the future
The fine wine market has evolved rapidly – and so have its participants. The panel discussed how consumers increasingly expect transparency, liquidity and control when investing in fine wine. The good news? The industry has all the tools available to serve them.
What information does the modern investor expect from the fine wine trade?
The modern investor expects liquidity, transparency and control when entering the fine wine market.
‘We commissioned a study earlier this year, where we polled consumers from across the world […] on what they wanted to see from their wine merchant and from their wine buying and selling experience’, said Liv-ex’s Stevens, ‘And 88% of them said they’d like to see more market insight and data’.
Investors want all the information in front of them before they make a buying decision.
The resulting report, Liquidating Assets, found that two thirds of investors are receiving independent market insights from the wine trade. This comes from several sources, including their merchant/broker, Liv-ex, online newsletters, critic publications, Wine Searcher, and Cellar Tracker.
Yet some are skeptical of the impartiality of the advice, seeing market insights published by merchants as sales material. Others are hungry for more information, especially to justify commission rates, which are generally perceived as high.
‘Liv-ex is by far the best data set of B2B transactions of fine wine, rare wine, collectible wine, especially in the European market’ said Parker, adding that the Wine Market Journal additionally offers a useful source of auction data. ‘[The Wine Market Journal] tracks every auction trade in the country and in the world, both internet and live,’ he adds.
‘Investors want all the information in front of them before they make a buying decision’, Stevens said.
This presents an opportunity for wine investment companies who can provide sound and impartial market insights to their clients – something that is made easier with access to comprehensive, independent fine wine pricing data.
What do investors expect in terms of liquidity and control?
Fine wine investors expect to be able to liquidate their collections efficiently, at a price that they can control, and with fees that are fair.
Stevens pointed this out during the webinar, referring to Liv-ex’s recent study about how collectors want to sell fine wine.
It found that while collectors are generally satisfied with the speed of selling wine, 44% are currently concerned that they are not always achieving the best price. Many blamed their merchant, who might want to keep prices low to sell more easily, for controlling the sale price – even if achieving a higher price might be possible.
They’re going to become ever more demanding
A further source of concern was the cost of selling: only 37% of investors agree that current rates are fair.
Stevens predicts the rise of wine businesses that can rise to these needs. ‘We’re going to start to see wine businesses […] that offer low cost, transparent information, liquidity, and give the customer control when they want to sell’, he said.
How will fine wine investment change into the future?
It’s likely that current trends – leveraging technology to modernise the world of fine wine investment – will continue.
‘The wine market will continue to expand and bring in new regions, and new players’, said Stevens. ‘In terms of consumers, I think they’re going to become ever more demanding’, he added.
This will require players in the field to evolve to meet their needs – starting with market information, efficient sales, and competitive fees.
New business models, supported by technology, have already improved the offering available to investors. Models offering fractional investment opportunities, for example, open up fine wine investment to a much broader pool of participants by significantly reducing barriers to entry.
‘The wine market will continue to develop and the wine industry will continue to embrace technology and by that metric, democratisation’, Stevens said.
The future of fine wine investment, it seems, is bright.
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