Wine as Liquid Asset: Do Wine Investment Funds Deliver?

Investment funds in wine are increasingly popular in the U.S., but do they offer safe returns?

Wine as Liquid Asset: Do Wine Investment Funds Deliver?
Original wooden cases of collectible wines "rest and vest" in a temperature-controlled facility. (Deepix Studio)
Sep 13, 2022

Wine investment funds are having a moment—again. After the collapse of several such funds a decade ago, triggered by the abrupt Chinese retreat from the luxury wine market, they are again coming on strong. While their methods differ, all wine funds project a common message: It’s smart to augment your traditional portfolio of stocks and bonds with an alternative investment in ageworthy wine.

"You are looking for a low-volatility asset that is uncorrelated to the rest of the economy, and that’s what wine is," said Tom Gearing, co-founder of London-based wine investment firm Cult Wine. Case in point: When the stock market plunged during the 2008 financial crisis, investment-grade wine prices barely budged. So far in 2022, wine is again ignoring stocks: The Liv-ex 1000, a composite of the most widely traded investment-grade wines, is up 8.6 percent, while the S&P 500 is down 16 percent, as of Sept. 1.

Fine wine, so goes the argument as framed by the funds, is not only an alternative asset but a "wasting asset." That is, soon after a highly praised vintage hits the market, bottles start to be consumed, often well before they reach their ideal drinking window. As their count diminishes, the remaining bottles inevitably rise in price. Only once they have reached peak maturity does the upward price pressure relent. Long before that point, an alert wine investment firm will have sold the wine you invested in at a profit—and taken its cut.

But wine is not as straightforward an investment as shares in a company or government bonds. Investors should do their research and understand how the funds work and how much they will pay in fees. Is this sort of liquid investment such a good idea?

An American push

Wine investment funds were once more popular in Europe than in the U.S, primarily due to tax and storage in bond rules, but that’s changing. Taking advantage of a fairly steady multiyear upswing in prices of collectible wines, two U.S.-based wine investment funds have launched successfully since 2019, while London-based Cult, aiming to penetrate the North American market, opened sales offices in New York and Toronto in 2021.

In all, more than half a dozen wine investment funds on both sides of the pond are currently targeting customers to invest in wine for eventual profit, pleasure, or both. At least, that’s the plan.

The hardest charging of the new funds is San Francisco–based Vinovest. Barely three years old, Vinovest claims to have already snagged 11,000 investors and to hold almost half a million bottles of wine purchased for them. Last spring, during en primeur season in Bordeaux, Vinovest tried to grab notice by hosting a webinar at top Pomerol property Vieux Château Certain.

Vinovest’s founder, Anthony Zhang, already a serial startup entrepreneur at age 27, is a relative newcomer to the wine business. "I saw the rise of people moving to alternative investments as a key tailwind," Zhang told Wine Spectator. "I looked at art, classic cars, handbags, but it was wine and whiskey that really stood out to me."

Zhang claims that his fund’s "average users are in their thirties, not their fifties," and he believes that at least some of this cohort is looking for shortcuts to getting into wine. "Say goodbye to rigorous research … we do the hard work for you," states Vinovest’s website homepage. At the bottom of the homepage, a crawl appears to announce new customers in real time: "A client from Texas just deposited $85,000 … a client from New Jersey just deposited $20,000, a client from the United Kingdom just deposited $9,896 …." But the crawl simply repeats, month after month, with no new clients popping up.

New Vinovest customers, advised by a "team of world-class sommeliers," can purchase a personal wine portfolio for as little as $1,000. The fund charges an annual fee for authentication, storage, insurance and "active management" ranging from 2.85 percent to 2.50 percent depending on the amount invested. Additional fees include a 3 percent penalty for asking Vinovest to sell your wine within three years of purchase.

Vinovest says it sources its necessarily high volumes of client wines from "wineries, global wine exchanges and merchants." What happens when clients want to sell their wine? In a Q and A, the fund tells investors that "we will sell your wines to the highest price buyer in our network. This process typically takes two to three weeks."

But the fine print in its terms and conditions is less reassuring: "You may, at any time, ask that we liquidate your portfolio. However, Vinovest is under no obligation to do so … [and] is not required to purchase your wine from you or to find a third-party purchaser should you wish to sell any of your wine." Asked about ease of selling wine held by his firm, Zhang said, "If you stick to the plan then you shouldn’t have a problem selling it."

What is that plan? According to the fund’s website, "Vinovest investors typically hold their wine for five to 10 years."

Buying shares of wine

The other recently established U.S. fund, Virginia-based Vint, boasts a unique concept: It offers only SEC-registered series of shares in mini-wine portfolios—about three dozen since its 2019 start-up (a few collectible whiskey series have also been offered).

As at Vinovest, investors can spend as little as $1,000 to buy shares in a Vint series. An early offering of a 10-case vertical of Château Lafite Rothschild covering vintages 2010 to 2019 was priced at $120 per share. The full offering of 1,210 shares reportedly sold out in 55 minutes. A 3-bottle unit of Domaine Leroy’s Richebourg 2015, valued at $70,000 and priced at $100 per share, also quickly sold out.

As for selling your stake in Vint, you can’t. You must wait for the fund to cash out any portfolio you may own shares in. Vint projects, for example, that the Lafite series will be sold between 2023 and 2027, the Richebourg trio between 2025 to 2027. The proceeds, minus Vint’s "sourcing" fees of up to 10 percent (in lieu of annual fees), will then be returned to shareholders.

Last July, Vint executed its first successful cash-out, selling a fifth of a collection of 284 bottles called Champagne Stars. Held for just over a year, the bubbly had increased in value by a per annum rate of almost 22 percent, according to the fund.

Like Vinovest’s Zhang, Vint’s founder, former banker Nicholas King, is a newcomer to the wine business. "I looked out there at the wine investment world, and it seemed opaque, inefficient and largely inaccessible," said King. "You could send $25,000 to some guy at a fund in the U.K. and might not even know what wines you were getting."

More investment than beverage

Both Vinovest and Vint, among other funds, seek wines from vineyard regions worldwide on behalf of clients. One that does not is London-based Wine Investment Fund, which claims to be the “first independent wine investment fund seeking to generate above-average returns from a professional investment in wine.” Founded in 2003, this London-based fund restricts its portfolio to selected vintages of just Bordeaux first-growths and "super-seconds"—360 wines in all.

"For us, it’s all about ‘risk screens,’" said fund co-founder Andrew della Casa. While some funds buy en primeur, when wines are still in barrel, della Casa won’t do that. "If you look at price volatility in a wine’s first four years," he explained, "it can be quite high—too high for us. Our catalog is framed by risk aversion. For that reason, we also don’t look at any property that produces less than 15,000 to 20,000 cases annually. Buying stuff is easy, but selling is tricky. So we need to focus on wines with a deep secondary market—wines such as Latour 2000 or 2005."

Della Casa acknowledges that "superb" wines do come out of other wine regions. But he believes that because emerging regions are still growing, their value could shift more over time. Bordeaux’s top estates are less volatile, guaranteeing a more reliable return.

The minimum investment by private investors in della Casa’s fund is £10,000 ($11,700). There’s a "subscription fee" of 5 percent, an annual management fee of 1.5 percent and a performance fee, similar to what hedge funds charge, of "20 percent of net returns above the high watermark."

Strictly speaking, only firms such as della Casa's or Vint, in which clients own shares rather than individual wines, may be called wine funds. Others, such as Cult and Vinovest, which do hold individual wines owned by clients, might best be called wine investment platforms.

It’s normal to cast a cold eye on the fees that every wine fund takes. But, as Justin Gibbs, co-founder of Liv-ex, sees it, those fees can be justified: "I can invest the money in my pension fund myself, of course," Gibbs said. "But there’s still a role for a fund manager who is spending full time studying the market and making clever decisions. The same applies to wine fund managers."

Funds like these are focused on returns, rather than consumption. If you have used a fund to buy specific bottles outright, they can be delivered to you to be enjoyed at your own table. But if the wine has been in a European bond warehouse, brace yourself for add-on duties, taxes and shipping.

Sad fact for U.S. investors: Unlike their U.K. counterparts, they cannot sell a wasting asset, such as fine wine, free of capital gains tax. Also worth remembering: While wine investment funds may hold firm during financial market downturns, they will not, unlike a vast array of stock and bonds, pay dividends or interest.

If an investment wine is to be eventually sold, buyers will want assurance of impeccable storage. Wine funds provide that service. The British have long had a network of climate-controlled bonded warehouses where wine hibernates free of duties and taxes until it is released to an owner. "Any wine investment company worthy of its soul will be using bonded storage in the U.K.," said Martin Pruszynski, a wine advisor at London-based fund WineCap. "It’s the guarantee that wine has only and ever been stored properly. When a wine has left bond, it can never go back in."

Would-be wine investors need to watch out for fraud. In June, the FBI arrested a British man for allegedly orchestrating a scheme that swindled over $13 million from more than 150 victims in multiple states. Perpetrated primarily by cold calling elderly victims, the scammers allegedly promised big profits on wine that, once purchased, would be held on behalf of clients in a bonded U.K. warehouse.

Given the long bull market in wine prices, it shouldn’t be a surprise that no major wine fund has floundered. Should rough times come, however, the tide could turn: Instead of investors clamoring to put money into the funds, there could be a rush to take money out. As the Vint platform says, "Past performance is no guarantee of future results."

One sign that the good times are not perpetual: Liv-ex's bid-to-offer ratio dropped from January to June from 1.8 to 0.8, meaning that more merchants now want to sell wine rather than buy it. Another sign of potential market-cooling winds to come: The Liv-ex Fine Wine 100 index declined for the first time in over two years, dipping 0.3 percent, and the Fine Wine 50, tracking prices of the Bordeaux first-growths, declined 0.9 percent. "Rising inflation and fears of recession are undoubtedly setting the scene for a testing autumn and winter period," Liv-ex’s Katherine Hewitt told Wine Spectator.

Wine as asset class

It’s no secret that a wide range of sought-after wines, especially from Bordeaux and Burgundy, are now unaffordable to wine lovers of moderate means. Even those who can afford to pay for those wines may forego them in favor of bottles that can satisfy for far less. Does the marketing of wine investment funds contribute to the upward spiral of prices? Are they turning wines made with love and dedication into pure commodities, like pork bellies?

The owners of RareWine Invest, a wine investment and brokerage firm based in Denmark, claim the opposite. In an essay on its website, titled "The Wine Investor vs. the Wine Romantic," they argue that, "In the pursuit of stability and returns, the wine investor contributes to fewer wines being lost as a result of incorrect handling" and to "ensuring that more wines are drunk only when they are ready to drink …. Without the wine investor, more wines would perish, and the supply of mature wines would be smaller and the prices thus also higher."

But there’s another truth held by many a wine lover. It’s summed up by Rob McMillan, founder of the Wine Division at Silicon Valley Bank. "I do get the investment side of wine," he told Wine Spectator. "And I know people will say that certain wine prices have gone up more than, say, Apple stock. Personally, I just look at wine as what I drink with friends."

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