Welcome to the world of fine wine investing!
For the majority of people, investing means buying stocks, bonds and mutual funds. But, have you ever heard of making money from a bottle of fine wine? The answer is yes! The business of buying and selling exclusive and expensive wines is called ‘Wine banking’. Investors buy bottles of wine, store them and sell at a higher price in future. The quality and scarcity of rare wines increase over time; and that precisely is the underlying principle of wine banking.
For fine wine banking, there are broadly two categories of players in the institutional space; wine traders and wine bankers. A few of them are listed below.
Wine investment firms
Sommelier Capital Advisors
The Wine Investment Fund
Zepponi & Co
Jascots
Vint
Wine banking firms
Silicon Valley Bank
Credit Suisse
UBS
Wine Bankers & Co
Societe Generale
What makes wine a lucrative investment?
Fine wine can be a great investment. Wine has many characteristics of being a luxury asset.
- Scarcity and desirability of a rare wine.
- Perishable nature of liquors.
- Incubation period, 10 to 15 years sometimes.
- Backed-up by established brands.
- Ratings / commentary from wine critics.
Robert Parker is one of the famous wine critics. The Parker points system to rate wines is quite influential in making investment decisions. The system ranks wines on a scale of 50 to 100.
50 to 69 points: unacceptable to below average
70 to 79 points: average
80 to 89 points: above-average to very good
90 to 95 points: outstanding
96 to 100 points: extraordinary
What are the factors affecting the value / price of wines?
A wide range of factors affect the potential appreciation in the price of the wine. The factors range from fundamental characteristics of the product to market driven; demand /supply equations.
- Price history and scarcity
- Ageing potential and longevity
- Wine producers’ reputation
- Critic ratings from wine bankers (tasters)
About Vineyards and Wineries
Vineyard is a piece of land where grapes are grown; especially for the purpose of wine production. The vineyards hence, are often termed as wineries as well. However, there is a difference. A vineyard is a plantation land that grows grapes meant to produce wine. A winery, on the other hand, is a licensed property that makes wine.
A vineyard can have a winery that produces wine from the grapes it grows, but it can also sell its grapes to outside wineries and purely act as a grape-grower. Conversely, a winery can operate without having a vineyard, by making its wine with grapes brought in from outside vineyards.
The Liv-ex fine wine indices
Liv-ex (The London International Vintners Exchange) is the global marketplace for the wine trade. Founded in 2000, the vision of Liv-ex is to make fine wine trading transparent, efficient and safe. There are 560 wine trading members across 43 countries worldwide. The fast and reliable trade settlement is enabled via global payments and logistics networks.
There are 3 major indices that track movement of fine wine prices in the secondary market; the Liv-ex Fine Wine 50, the Liv-ex Fine Wine 100 and the Liv-ex Fine Wine 1000. Apart from the global indices, there are various regional indices as well. Liv-ex 1000 has returned around 285% since its inception in 2004.
References for further reading
This banker gets to drink wine all day.
The London International Vintners Exchange story.
Ready to invest in fine wines! Here are a few platforms for wine investment. Drink and invest responsibly! Thank you for reading.
