Fine wine investment should be treated with the same scrutiny and accountability as any other investment vehicle. Wine is a fantastic product and with the right approach financial performance can be generated. We believe the following is a lazy industry exploiting a mismatch in understanding.
Some companies will charge a one-off entry fee as high as 15%. They may also charge management fees, generally these fees are necessary for ongoing asset management. However, a high level of management is simply not required with wine investment.
Barring rare short-term opportunities fine wine is a buy and hold investment. The speed and frequency of any form of “active trading” is a far cry from traditional investment methods. Beyond storage and insurance, justifications for such large fees are unacceptable.
Over inflation of portfolio values
Many companies will generate the perception of market beating returns by offering unrealistic portfolio values. Many investment companies utilise the social trust surrounding Liv-ex to quote prices that are in reality not achievable.
Liv-ex offers invaluable data regarding liquidity, market sentiment and price history. However, there can also be managed misinterpretation when it comes to using their data.
Lack of exit strategy
The over inflation of prices leads into our final core issue, the lack of exit commitment. At present wine investment companies are under no obligation to help you exit the market. In fact, in many cases, they have zero incentive to help you exit as they have made their money through up-front management fees. In the worst instances the wines are overpriced, and not investment grade, making exit almost impossible.
This creates an enormous distortion in alignment of incentives.