Vintage vanguard: A Master of Wine’s take on investment risk

Vintage vanguard: A Master of Wine’s take on investment risk

Volatile equity markets in recent years have buoyed interest in real asset investing – and fine wine and whisky are no different. Potential investors have had their heads turned by a long-term track record of outsized returns, as well as potential tax planning advantages.

At Oeno Group, our clients enjoyed average annual returns ranging between 11 and 16 per cent in the years 2019 to 2022, with 2023 marked by a moderate correction (fall) in average portfolio values. Many of our clients are experienced high-net-worth investors working in financial services – some of whom have an enthusiasm for wine and whisky, and others who see them purely as financial assets. These are people who already understand risk and return, and are almost always active investors in stocks, bonds, and property.

Yet because fine wine and whisky fall outside the purview of financial regulators, financial advisers can be reluctant to recommend this asset class to more clients, leading to the prospective investor being excluded. This is a shame given that fine wine and whisky holdings act as a brilliant pillar to support a well-thought-out portfolio of other savings and investments. Coutts – one of the UK’s best-known private banks, given its customers include the royal family – deemed ‘passion investments’ so important to its clients that it developed an index to track the performance of art, classic cars, fine wine, and other collectibles.

Much like a ‘traditional’ wealth or investment manager, our team – which includes Spain’s first female Master of Wine, Almudena Alberca MW – examines forces like supply and demand, current valuations, market sentiment, tax implications, and client risk appetite when putting together portfolios. Clients often and rightly ask us about the risks associated with the handsome returns we aim for.

Storage and insurance

Factors like light, humidity (too much, or too little), and temperature fluctuations can damage wine and whiksy quality – meaning proof of storage is one of the things a prospective collector is likely to ask about.

For Oeno, Professional storage is a non-negotiable service we offer to clients to ensure the value of their portfolio. We store our clients’ holdings at secure government bonded warehouses – including London City Bond, which traces its roots back to 1870 and specialises in fine wine storage using state-of-the-art security and environment control.

Ultimately, skilled fine wine and whisky selection is meaningless if the bottles are improperly stored.

A slump in demand (or over-supply)

Knight Frank’s Luxury Investment Index 2023 showed that over the last decade, whisky returned an aggregate 322 per cent, with fine wine coming in at 149 per cent – impressive headline figures. But like any investment, uninterrupted price growth is not realistic: this asset class goes through bear years, too. Price corrections in 2023 were primarily a reaction to the wave of purchasing power that was unleashed in 2022 as the world returned to post-pandemic normality. This price correction has created enticing opportunities for investors seeking to enter the fine wine market at more favourable price points.

But navigating supply and demand dynamics requires expertise. While Champagne is a market where production runs into millions of bottles, fine Bordeaux – traditionally called ‘claret’ in the UK – and Burgundy are more scarcity-based plays. One of our differentiators at Oeno Group is an open-minded perspective that allows us to seek out not just the finest ‘blue-chip’ wines, but also hidden gems from emerging wineries in the US, China, Greece, Italy, and Spain, to name a few. Lesser-known producers within both the Old and New World with growing reputations for investment-grade wine can produce outsize returns in the years to come.

Liquidity risk and short-termism

Like many ‘real assets’, fine wine and whisky are – ironically – considered illiquid holdings, meaning collectors should not expect to sell at a fast pace. The process more resembles that of selling real estate. We work with our clients to ensure they do not need the capital they have invested with us to meet their living costs, and we make it clear that for the best returns, one needs to be prepared to wait at least five years.

Having said that, access to exit options is crucial and ensures stronger returns when clients are ready to sell. Unlike many competitors, Oeno Group has exit options built into our private client proposition: via Oeno Trade, our network of prestigious hospitality venues including Michelin-starred restaurants and top hotels and bars; Oeno House, our Royal Exchange-based bar and fine wine boutique in the heart of the City of London; and our network of auction houses across Europe. We also use the global fine wine marketplace, Liv-ex, to sell directly to other collectors.

Provenance and fraud

Because the wine sector is largely unregulated, investors often ask us how they can ensure provenance and prevent fraud. We mitigate these risks through rigorous authentication processes using advanced technologies, such as proof tagging and blacklight signatures, helping verify wine authenticity. Oeno’s anti-fraud unit further strengthens trust by rigorously inspecting wine and issuing OenoFuture certification for verified bottles.

We use FCA-regulated firms for insurance. For those seeking regulated investment avenues, we do run an SEC-regulated fund which offers a structured path to wine investment.

A trusted partner

Oeno Group’s expertise in managing factors like storage, insurance, and market dynamics underscores the importance of choosing the right supplier and has seen us recognised with various plaudits including the the International Investor Awards; the Leading in Luxury Awards for ‘global wine & whisky consultancy’; and the European Global Banking & Finance Awards.

With professional handling and strategic investment approaches, risks associated with provenance, fraud, and market volatility can be effectively mitigated, allowing investors to enjoy the robust returns that these alternative assets can offer.

If you are interested in fine wine and whisky investment, contact our team here. Or, come in and see us at Oeno House at The Royal Exchange, London EC3V 3LL. Find out more here.