What you need to consider before dabbling in fine wine funds
Some wine investment funds have taken a hit in recent years as top-tier Burgundies and Bordeaux have slid down in value but wine funds aimed at middle-tier labels are raising a glass to the rosy returns on their investments and continue to attract investors.
As an investment strategy though, investing in wine is not for the faint of heart.
Wine funds began grabbing headlines in around 2009 as prices of the most sought-after labels began to spike in value. Pricing data tracked by Liv-Ex.com shows the top 100 labels gained 75% from the start of that year through mid-2011. Since then, prices have fallen, dropping by 25% through August.
Despite the slump, funds focusing on wines that are a few rungs down the top-label ladder remain confident about the earnings they are generating for investors.
“In wine, what happens in downturns is that the big names fall the hardest,” said Brian Mota, co-founder of TWT Investment Partners LP. “We like to be positioned in names that are not the tip of the iceberg.”
The Oracle Paradis Wine Fund was launched six months ago in the United Kingdom, according to director David Nathan-Maister. This month, the fund announced it had purchased one of the oldest bottles of white wines from the Jura vineyards in France, a 1781 Chateau Chalon valued at about $50,000.
In total, the Oracle fund has attracted about $5 million in investment through a dozen investors, including some from the U.S. Mr. Nathan-Maister said the firm aims to raise $15 million over the next 12 months, and the fund is on track to deliver returns above 10% by the end of the year.
The fund has homed in on three wine and spirit categories beloved by expert collectors — 19th-century Tokaji wines from Eastern Europe, French wines from the Jura vineyards and 19th-century cognac.
“The prices in these specialist areas have not increased to anything like the degree that [the big labels] have,” Mr. Nathan-Maister said. “We feel, therefore, that there's underexploited value in those areas.”
Mr. Mora has a similar strategy for The Wine Trust, which he launched in August 2011 with partner Timothy Clew, just after the height of the fine-wine price spike. The fund is private-equity based and focuses on long-term holdings. The partners aim to acquire midtier wines that are less subject to sharp price downturns, he said.
Mr. Mora declined to disclose the amount of assets that the fund has under management, but said it has been making annualized percentage returns in the midteens.
Another fund — The Bottled Asset Fund — was launched with an initial $9 million investment in 2010 and expects to generate returns of more than 30% when its strategies are exited in the next four to five years, said fund director Sergio Esposito. He said the fund focuses largely on wines from Italy, which is a prime wine-making region but a largely inefficient market. Wine sales there are made through relationship-building rather than waving the biggest check, he said.
“Everyone else is playing in the bigger pool, and we're playing in the smaller pool and really capitalizing on it,” Mr. Esposito said of wine funds.
Mr. Esposito is preparing to launch another fund this fall, The Bottled Asset Fund 2, which has a goal of $20 million in investment and is open to U.S. investors. Demand for Italian wine is surging as the number of quality Italian restaurants grows worldwide, Mr. Esposito added. He doesn't see that dying down anytime soon.
“It used to be cool 20 years ago to have Bordeaux and Napa and that's it, with a little bit of Burgundy and Champagne mixed in,” he said. “It's no longer cool to have a wine cellar without Italian wine.”
Rick Kahler, president and founder of Kahler Financial Group and an amateur wine collector, said he doesn't advise investing in wine funds to people who aren't avid collectors with a love of the industry.
“If I had a client who was passionate about wine that wanted to put a small fraction of his money into a wine fund for fun, that would be fine,” he said. “I certainly wouldn't recommend it as a serious investment.”
Mr. Kahler said he has had fun with his own collection of about 1,000 bottles, a combination of midtier French and American wines he's been accumulating for about 20 years. He has periodically sold wine at auctions and said he'll always regret turning down a $300 bottle of 1982 Petrus when he was offered one 15 or 20 years ago. It now goes for 10 times that amount, he said.
Although wine investing takes expertise, Mr. Kahler said there is one big upside: Any of your assets that don't crack the market can be cracked open over dinner instead.
“I have bottles that I've purchased that do nothing but go down in value,” Mr. Kahler said. “At least with this type of investment, you can enjoy your mistakes.”
