Wine investment can really make sense once you know what you’re doing and these tips are here to help with that.
- The wines - whether you hold them in a fund or in your name directly - should be reported on and valued on a regular basis. Valuations should be independently conducted by the fine wine exchange Liv-ex, which is the only source currently of pricing information that you can rely on.
- Invest in "liquid" wines, like those that have sufficient volume and liquidity of supply, as well as wines that have well-established track records. The wine investment and its risk profile can increase significantly if a wine portfolio contains vintages in bottles that are not a standard size, wines that are more than 25 years old, en primeur or very young wines, or wines that have less financial liquidity.
- The wine company that you invest in should have an actual physical office and not a serviced or "virtual" address that just has call forwarding and mail forwarding services. To make certain that the wine company actually exists, visit their office in person if possible. As global economic power has shifted towards Asia, new tastes have been introduced into the fine wine market. However, Bordeaux is still the dominant type of wine.
- The company that you are investing through must take physical possession of every wine that your purchase. The wines should all be stored inside of a UK government-bonded warehouse. Ask if you can visit the warehouse in person and see the wines yourself if you have any doubts
- All wines must be fully insured at their replacement values.
- All of the costs that are associated with the wine investment, including purchasing and sell the wine, along with managing and redeeming your holdings, need to be clear at the start of the investment period.
- Make sure that no conflicts of interest exist - the interests of the investment adviser or fund manager needs to be in alignment with the investor's interests.
- Avoid any companies that send unsolicited mail and cold call - this is not only bad practice but most likely it is illegal as well. For example, in the UK, regulations are in place to prevent promoting fine wine as an investment to the general public. Any companies that make promise guaranteed returns should be avoided.
- Check all documentation. All information memoranda that are issued should come from a company that is regulated and authorized by the UK Financial Conduct Authority or a similar regulatory body that operates in another jurisdiction. A transparent legal structure is required, with internationally recognized auditors and lawyers. In addition, all expenses and costs (which include performance and management) fees must be clearly set out and detailed.
- Always work with an experienced management team that has a five-year record at least. This is the minimum that institutional investors are required to have. The management should be comprised of a team that has several members and not just one person, which can result in significant "key person" risk. A clearly defined investment process should be in place - and not an attitude towards the investment process of "if anything goes wrong we can always drink the assets" or this is just for fun. You are investing in order to make money. Therefore, specific investment criteria need to be in place regarding the wines that are being invested in.
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