Buying rare wines is like investing in a startup: You need 10 years of runway to see significant returns. But unlike a startup, wine is a lot more lucrative these days.
Had you allocated $100,000 to Cult Wines, a U.K.-based wine portfolio manager, your money—which is to say your wine—would have returned an average of 13 percent annually. In 2016, its index performance was actually 26 percent. The fine wine secondary market hovers at about $5 billion, a fraction of the $302 billion global wine market. But Euromonitor International Ltd. projects that while “key luxury players face mounting risks in 2018,” the wine and Champagne category is set to increase by an estimated 7 percent.
When it comes to what private bank Coutts & Co. calls the “passion index,” wine is right up there with fancy cars and rare coins.
Because of the unique nature of wine, however, investors should hire a manager. Cult Wines, Farr Vintners and Berry Bros. & Rudd are a few within a small network that will invest your money depending on your risk level, suggest purchases and track your portfolio. Tom Gearing, co-founder of Cult Wines, said his more than 1,700 clients should hold on to their wine for at least 3 to 7 years before trying to sell them. The management fees, 15 percent of the total investment value, are paid upfront and include storage. Farr Vintners charges 10 percent commission on purchase of wine and 10 percent on the sale.
Such managers buy from only trusted sources so they can confirm authenticity. Cult Wines does guarantee the wine, should it be opened, but this is less than 1 percent of the total value of their annual trades. Most stay corked.
Investment wine even has its very own exchange. The London International Vintners Exchange, which came online in 1999, shed some much-needed light on what had been a very opaque market. It’s now the industry standard for tracking prices of luxury wine and includes the Liv-ex Fine Wine 100 Index, which follows the top 100 most-sought-after wines.
So what to buy? To anyone that knows wine, French is the must-have and French Bordeaux the absolute must-have. The apex is the premier crus, or first growth wines, a classification system begun in 1855 that created a ranking of importance and that’s still in place today. On the list are Haut-Brion, Lafite-Rothschild, Latour, Margaux and Mouton Rothschild. Each chateau can also have secondary labels, which may not be as valuable as the first.
The problem with premier crus is that it’s at the very top of the market. Unless you get in early, your wine won’t see massive increases in value. Jamie Ritchie, worldwide head of Sotheby’s Wine, reports that a diversification has begun. “Last year it was Bordeaux and Burgundy at 40 percent each,” he said. In the past, Burgundy was 20 percent of the total investment wine. “We’ve seen a huge, growing demand in Burgundy. Great Bordeaux is selling well, but there’s actually too much of it.”
One other French quirk is the en primeur market, which refers to the opportunity to invest in wines while still in the barrels. It’s risky business, though, given that the vintage could end up with poor marks from critics. But when the wine turns out well, there are more profits to be had. For investors who don’t mind the risk, there’s a chance for a 20 percent to 40 percent increase in value after only one or two years.
Knowing when to sell is why you trust someone else with your bottles. “There’s a huge market for mature wine, from restaurants and drinkers,” said Stephen Browett, chairman of Farr Vintners, which opened in 1978. “People want mature wine—they aren’t in the market for the wine when it’s first released. We buy the wine back from investment customers and sell it to drinking customers. Private people find it to be a fantastically efficient investment.” With about 14,000 active clients, U.K.-based Farr manages about $523 million of wine in bonded storage.