A wine fund that is more than four years old has launched a concierge service for clients, highlighting how offerings continue to develop around investments in the noble grape.

With the great fine wines such as Bordeaux having chalked up double-digit percentage gains over 2016, there remains plenty of interest in the business of investing in the noble grape, even for those who want to sidestep the chore of buying and selling directly. 

The approach of investing via a fund, rather than owning bottles in a cellar, has been around for a few years and is not universally popular - some people might be concerned about fund fees, valuation methods and redemption gates. But as with other niche areas of collectibles, such as fine art, innovation in how collectors can win a piece of the action continues. 

One such fund in the wine space is the Wine Source Fund, a regulated alternative investment fund-registered vehicle. It is affiliated to the Wine Source Group, a UK-based firm that supplies wine to major hotels and restaurants worldwide. Over the four years since it was founded in September 2012, it boasts annualised net returns of 7.2 per cent. It recently announced it was offering investors a concierge service, broadening membership of what is called the Melchior Club, to qualifying investors. Clients can reserve tables at the best restaurants and rooms at top hotels, enjoy the services of a personalised sommelier as well as charter flights and yachts, along with other services. And that is all on top of the hoped-for returns of wine investing.

This fund has a few rivals, such as the Wine Investment Fund, a UK-based vehicle structured as a limited partnership with a five-year holding period; other examples include the Fine Wine Investment Fund, which is aimed at institutions, professional investors and eligible high net worth individuals, and WAM Fine Wine PCC, which offers managed accounts for institutional and eligible private investors. This sector has had its controversies: in 2014, a wine fund called Nobles Crus, which had been suspended from the market by the Luxembourg regulator in 2013, was allowed (source: Financial Times) to let certain shareholders make exits. At one point that fund had assets over €100 million ($105.9 million). (This publication attempted to contact Elite Advisors, which managed that fund, for any update, but was unable to do so.)

The Wine Source Fund, its managers say, was set up to address potential difficulties and meet demands of sophisticated investors, such as having clear access to the primary market for fine wines, independent valuations, robust regulation, investor control and the ability of investors to realise asset appreciation when they sell.

To drive these points home, co-manager Philippe Kalmbach explained to WealthBriefing, for example, how the fund is fully regulated and registered to comply with the European Union’s Directive for Alternative Investment Fund Managers; valuations are carried out by valuer Wine Owners, verified monthly by its independent administrator Alter Domus (part of PwC) and also checked annually by auditor Deloitte. 

Another important feature, he said, is that the fund carries more than 1,000 types of wines and spirits to balance risks; no single wine, winery or brand may exceed 10 per cent of the assets. Bordeaux and Burgundy, the most actively traded markets for fine wine, represent less than 60 per cent of the assets and the balance of the portfolio is made up of wines from the top producers elsewhere in France, Italy, Spain, the USA and other major wine-producing countries. As an aside, the fund has 10 per cent of the portfolio invested in spirits and its early investments in rare aged whiskies have performed “particularly well”, he said. Liquidity in the fund (excuse the pun) is relatively robust. It turns over about one third of its assets each year on average so can pay out redemption obligations without delay.   

Recent figures would seem to back up a picture of a buoyant market. During the 12 months to the end of December 2016, the Liv-ex 100 Index of fine wines rose almost 25 per cent from a year earlier. That compares, by the way, with total return - capital growth plus reinvested dividends - of 7.1 per cent on the MSCI World Index of developed countries’ equities (in dollars).

“The laws of supply and demand make fine wine a good investment. Over time the stock of the best wines and vintages dwindles as they mature and reach their `drinking window’. Since its inception in 1988, the Liv-ex Benchmark Fine Wine Investables Index has risen exponentially. Wine allows investors to diversify their portfolio since it has a very low correlation with the performance of financial markets,” Kalmbach said. To reinforce that point, he added that at the end of October 2016, the performance of the Wine Source Fund had a 0.078 correlation with the S&P500 Index of equities (with one being a perfect correlation and zero no correlation). 

Concierge
So what led to the Melchior Club? “We felt that with the reach of the Wine Source Group and its clientèle that this was a service that we should offer to the fund’s largest investors as a reward and recognition of the positive contribution their investments make to the fine wine industry,” Kalmbach said. “For investors who invest at least £250,000 in the fund we are offering them the same benefits - access to the top tables in the world, bespoke sommeliers and other lifestyle benefits through our partnerships with yacht and private jet charter companies." 

The wine market continues to evolve. Besides funds, investors and collectors can use services such as those provided by Berry Brothers & Rudd (see an article featuring this organisation here). Such firms offer cellar facilities in which a client can lay down a collection and have it professionally managed and curated over time. Other specialists in this sector include UK-headquartered Cult Wines, which earlier in 2016 opened a new office in Hong Kong to tap into Asian demand for fine wine. (See here.)