‘Fine wine.’ The term conjures images of exclusive restaurants in Mayfair and Marseille, frequented by snobby elites espousing their knowledge of tannins and ‘terroir’ to other linen-clad guests around the dinner table.
Or perhaps the term conjures images of dusky brick cellars housing arcane wines of long-forgotten vintages.
But for a growing cohort of wealth managers, fine wine is rapidly emerging from the basement to become one of the fastest-growing alternative asset classes out there.
According to the experts at fine wine investment agency WineCap, the global fine wine market is growing and diversifying at an “unprecedented rate”.
And it’s not just the older, seasoned investors – who have historically been the primary demographic – driving change.
Collating data from 50 UK-based wealth and investment managers, WineCap’s research shows that younger, less experienced investors are being drawn to fine wine investing, thanks in no small part to the increasing accessibility of this alternative asset class.
A Riesling asset class
Fine wine investing is, as a whole, still an exclusive affair.
Around 30% of the UK’s high-net-worth investors incorporate fine wine into their portfolios, which sounds like a lot, but allocations decrease sharply as the scale increases.
Within the group of HNWIs investing in fine wine, 56% allocate up to 10% of their portfolio to the asset class, but just 2% allocate more than 31%.
This suggests a lingering sense of caution for this little-understood asset class among HNWIs, at least in comparison to mainstream assets like stocks and bonds.
But is this beginning to change?
Confidence in fine wine as an asset has increased 16% since last year, according to WineCap, with poor economic growth and high inflation actually benefiting the industry.
“In times of hardship, people want something solid. Literally,” said WineCap’s chief executive Alexander Westgarth, adding: “Tangible assets like property, gold or fine wine tend to feel more valuable during market downturns.”
Then there’s the little topic of tax benefits. While capital gains tax (CGT) thresholds on traditional assets continue to be choked, fine wine is, unflattering as the term may be, a ‘wasting asset’.
This places fine wines, like other luxury items, outside HMRC's remit. This means, if your case of 2010 vintage Château Climens increases 88% in value (as was the case in 2023) and you decide to sell that case of 2010 vintage Château Climens, you get to keep 100% of the profits.
Additionally, the secondary fine wine market is becoming more liquid, literally and figuratively.
It is true that fine wine remains less liquid than stocks and bonds due to its tangible nature, but “trading it today is easier than ever before”, said WineCap.
This is due to online platforms making it easier to track prices and buy and sell accordingly. Liv-ex and Wine Track, for instance, provide up-to-date price discovery for over 3,000 labels.
Blockchain technology is also becoming more prevalent in the industry, with 80% of investors believing this nascent technology will increase the security and confidence in fine wine trading.
Loire of attraction
Overall, it feels like the winds are blowing in fine wine’s favour right now. But barriers and challenges remain.
There is a lack of awareness of fine wine’s role in diversifying traditional investment portfolios. 44% of existing investors believe that tackling this lack of education is key to increasing its appeal.
Improving liquidity in the secondary market will instil even greater confidence.
To that end, WineCap has built out an agency linking fine wine investors to the secondary market. WineCap also runs price discovery platform Wine Track, which tracks daily prices of over 75,000 investment-grade wines.
FYI, the Jean-Claude Ramonet, Chevalier-Montrachet Grand Cru is currently the top performer, rising 34% in value over the past 12 months. One case (12 x 750ml bottles) of this white Burgundy will set you back £21,569.
That’s a lot to pay for fermented grapes, but it is actually a buyer’s market right now, meaning less experienced buyers now have the chance to access premium brands at significantly lower prices.
“With the right analysis tools and expert advice, prospective investors can find great value opportunities with significant potential for future price appreciation,” said WineCap’s wine investment expert Martin Pruszynski.
The Angel’s Share
According to WineCap, fine wine investment companies are shifting into rare whisky too.
78% of wealth managers expect increased interest in rare whisky investing, although the secondary market is still in its infancy.
Nonetheless, there have been some remarkable records set in recent times.
Earlier this year, a 30-year-old bottle of The Emerald Isle by The Craft Irish Whiskey Co. was auctioned for $2.8 million.
This sale broke the world record for the most expensive bottle ever sold, previously held by a bottle of 1926 Macallan, which sold for $2.7 million.
These prices significantly surpass the record for the most expensive fine wine auctioned.
The 1945 Domaine de la Romanée-Conti Grand Cru holds this title with a price tag of $558,000.
Fah Mai Holdings Group Inc (OTC:FMHG) is one company at the forefront of rare whisky investing.
Through its Whisky Bull Auctions platform, Fah Mai focused on sourcing and trading unique, limited-edition whiskies.
As an alternative asset, whisky has many of the same benefits as fine wine, including CGT exemption, tangibility, attractive returns and exclusivity.