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Fine wine as an investment? A case of handle with care…

by Anthony Rose | Nov 11, 2014

Source: The Evening Standard 

Having just completed the auction and investment sections for the fourth edition of Jancis Robinson’s Oxford Companion to Wine, due out next year, I think it would be fair to say that this is one area in which Robinson, the queen bee of wine writing, finds herself holding her nose to avoid the stench. 

She’s not that keen on the idea of wine investment because it’s divorced from the pleasure principle behind the drinking — but acknowledges, albeit reluctantly, that it’s part of the fine wine scene.

I don’t have too many scruples about money being made from wine. There are enough people who do it after all, but am I being sentimental in thinking that there’s a difference between the amateur collector buying two cases to finance another one down the road, and the investor-speculator for whom wine is just another commodity, like silver or gold?

With the market peaking in 2011, Sir Alex Ferguson missed the right time by a couple of years but still did well for himself. Quitting while ahead after laying down wine since 1991, the former Manchester United manager netted a cool £2 million on the sale of his “star players” at Christie’s this year.

If you have money to burn, it’s deeply fashionable today to invest in wine as part of a portfolio. Although no one can put their finger on its exact value, the secondary market for fine wine has been estimated to be worth in the region of £4 billion. The global financial crisis of 2007-08 and the ensuing credit crunch caused jitters, but anxieties were offset to an extent by a period of renewed optimism in the saleroom, when Hong Kong abolished duties on wine in 2008.

Fine wine peaked in 2011 with average auction lot prices at $3940 (£2480), dropping to $2813 last year. Since the highs of the saleroom in 2011, the subsequent decline has been mirrored by a fall in the Liv-ex 100 index, one of the most reliable of the various fine wine price indicators.

Saleroom activity has slowed, and estimates for sale lots at auction have gone down. At the same time, many of the wine funds have sailed close to the rocks, or even collided with them on occasion, as the value of their portfolios has plummeted and impatient investors have asked for their money back.

Yet another alarm bell has rung loudly across the oceans, over the increase in counterfeit and fraud. The most recent high-profile case is that of the Indonesian confidence trickster Rudy Kurniawan.

When federal agents raided his California home, they found an arsenal of wine-faking equipment, whose purpose was to create counterfeit wines for sale at auction, through brokers and for consumption at fancy dinners. Kurniawan was convicted and sentenced to 10 years on August 7 this year in New York.

Yet wine fraud doesn’t end with one conman’s conviction. Not surprisingly, provenance and condition have moved to centre stage. Tough new anti-counterfeit measures currently being adopted by top châteaux and domaines, including laser technology and prooftagging, could help to restore fragile confidence, at least in younger fine wines, although it’s too late for older wines already in circulation.

Ironically, despite economic woes and frauds, a handful of wines continue to defy the laws of financial gravity.

Burgundy’s Domaine de la Romanée-Conti, the darling of the investment market, is the locomotive behind a handful of emerging burgundy stars. De luxe champagnes Krug, Cristal, Dom Pérignon and Salon le Mesnil are enjoying t heir moment in the sun; demand for Italy’s “super-Tuscans” such as Ornellaia and Sassicaia is growing Despite the fact that wine investment has taken a dent in confidence, history tells us that sooner or later it will bounce back — and the hard lessons learned yesterday will be forgotten in an unseemly rush to diversify portfolios.

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