Investment overview: an introduction to investing in fine wine and rare spirits

June 17, 2024
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Alternative assets open investors to an expanding variety of potential opportunities to create and protect wealth beyond publicly available stocks, bonds, and treasuries.

Among the most interesting of alts is fine wine and rare spirits. This category comes with a fascinating real-world history, an exciting and differentiated risk/return profile, and material tangibility, all of which are attractive to many investors curious about fine wine and rare spirits.

Investors are increasingly turning their sights on the space as opportunities evolve and emerge. A new wave of digitized platforms like Vinovest, Cult Wines, and Vint have spotted that growing interest, and they’re making it easier than ever for retail investors to access potential opportunities. For those investors curious about participating in wine investing opportunities, Alto supports them by helping to mobilize both retirement and non-retirement capital.

If you’re interested in how to invest in fine wine and rare spirits for portfolio diversification, here’s a starting point to understanding the asset class.

Table of contents

In this overview, Alto covers:

  1. Alternative assets: What they are and ways they’ve benefited investors
  2. Introducing investing in wines and rare spirits as a potential addition to alternative portfolios
  3. The disappearing barriers to investing in fine wine and rare spirits
  4. Specific benefits of adding fine and rare to alternative investment portfolios
  5. Ways to begin investing in fine wine and rare spirits today

Alternative assets: What they are and ways they’ve benefited investors

Alternative assets are investments that fall outside the traditional categories of registered securities like stocks and bonds. They include private equity, private credit, venture capital, and commercial real estate, but also lesser-known categories such as farmland, fine art, fine wine and rare spirits, and digital tokens.

In the last decade, alternative assets have seen an increase in popularity among investors for a variety of reasons.

  • Portfolio diversification: Advisors have long championed the benefits of diversifying investments to mitigate risk. Individual investors are increasingly taking that advice by looking for new and unique ways to expand their portfolios into assets not correlated to the performance of the public markets.
  • Potential returns: Reducing risk is great, and more than sufficient a reason to consider allocating to alternatives. But alternatives can go a step further than mitigation of risk due to public market volatility. Investors also may want to achieve higher proceeds from their investments, and some mainstream alts have – on average – outperformed the S&P 500 and fixed-income strategies over the past 20 years.

Source: Cambridge Associates, eVestment, Bloomberg via Merrill Lynch

  • New and improving entry points into the markets: Both regulatory developments and advancements in tools and processes are allowing participation from people who haven’t had access to the space until now. Rules like label laws can be a hassle for producers or brands, but ensure that at least some provenance is displayed and verifiable for investors on the exterior of each physical asset.

  • Better (and more widely available) education: Investors who find success navigating the capital markets rely heavily on information. Issuers, fund managers, data providers, and even individual analysts are now conducting primary research to uncover and report alternative investment trends as they happen. Many are making their findings available for free to interested readers who want to dig in to find the most relevant information for their needs. For investors who want to conduct more thorough due diligence into an investment, paid options are also available. As new investment categories become increasingly accessible in a hyper-connected digital world, individual research is more important than ever, and luckily, more available too.

Considering these benefits (and more), it makes sense that investors are increasingly considering the different subcategories of alternative investments, including fine wine and rare spirits.

Wine investing: an alternative to consider adding to your portfolio

The fine wine and rare spirits asset class offers investors a tangible, conversation-sparking alternative investment — and a compelling historical performance.

This segment is a part of the luxury and collectible goods market. The naturally improving quality of wine over time as well as the enjoyment of rare spirits on special occasions create an allure that has endured throughout history and spread across the world.

Investing in wine and spirits first began when wealthy families or passionate individuals curated personal wine collections to both enjoy and express themselves. The unique nature of each collection showed the owner’s knowledge and appreciation for the products, and even today, this form of self-expression lives on.

Giancarlo Esposito plays wine connoisseur Stanley Johnston in Guy Ritchie’s The Gentlemen

Source: Netflix via Wine Spectator

Politicians, pop stars, and athletes often collect fine wines. Now, they’re increasingly creating their own lines of wines and spirits.

“The key is what you do when a particular wine has reached its market peak, do you drink, sell, or hold?”

Mike Veseth,
Editor of The Wine Economist

But, Mike Veseth, editor of The Wine Economist, points out that merely collecting creates a conundrum. “The key is what you do when a particular wine has reached its market peak,” he writes. “Do you drink, sell, or hold?”

To unlock a wine or spirit’s added value, making it an investment-grade asset, it must be sold for profit. The people and processes involved in valuing, buying, and selling these assets are what create and sustain the longstanding and thriving market.

Meet the managers and institutions typically involved in wine investing and spirits transactions

Wine and spirits investments require professionals who ensure that everything from selection to storage meets certain standards.

Analysts, advisors, spirits experts and sommeliers, procurement specialists, logistics and storage managers, lawyers, and compliance officers all work together to be sure the products meet authentication requirements. And all of this is overseen by portfolio managers and fund partners who orchestrate the processes.

What's the process to manage transactions for wine investing? 

Much of the work involved in buying and selling fine wine and rare spirits for profit is ongoing or cumulative work, like growing market knowledge and equipment expertise. But when a fund manager decides to pursue a target investment, a series of events takes place:

The disappearing barriers to investing in wine and rare spirits

In the past, individuals who have wanted to invest in alternative assets have often encountered seemingly insurmountable challenges, and the wine and spirits investment ecosystem is no exception. Some common barriers investors have faced are:

  • Inaccessibility: The people and processes involved in transacting investments into fine wine and rare spirits haven’t been tailored to help individuals participate with smaller capital allocations. The administrative burden of juggling smaller investor checks and relationships  has historically not been worth the investment from their side.
  • Lack of knowledge: Institutional knowledge is the cumulation of a team’s collective experience, which hasn’t typically been available to individuals without large amounts of resources or rare connections.
  • Complex contracts and regulatory hurdles: The space has been known for fraudulent people and products, resulting in enforcement actions, which prompted more complex contracts. The uncertainties investors have encountered while executing these agreements have prevented would-be investors from participating in legitimate deals.
  • Little or no standardization for valuation or processes: Inconsistent pricing markets have long baffled individuals, and there has not been a clear way to settle transactions or transparently move funds between all parties.

Thankfully, all those barriers are changing, and some are disappearing altogether.

  • More access: Leaders of fine wine and rare spirits platforms are increasingly paving the way for retail investors to participate in wine and spirits investment transactions. They see the growing interest from retail investors in alts and know those investors have funds to deploy. Technology is enabling these GPs and their investors to come together en masse.
  • Better information sharing: Exchanges like Liv-ex share indices and insights from primary research and reviews. Technology is allowing investors to learn the markets for themselves as well. For example, CellarTracker has empowered collectors to do preliminary valuation work. One of the best ways to round out your own learning is to choose a vocal commentator from within the market and subscribe to their updates for a unique-to-them perspective. Journalists and their interviewees like those contributing to Wine365 are particularly insightful. Or you can even find actual inside dealmakers who tend to be active on social media. Wine Angels’ founder Laurent David is an example of this (although you may need a separate tab open for language translation). The unstructured nature of these “lone publishers” shows that they only post when they have an interesting new observation, but the newer feed-subscription features of posting platforms ensures you don’t miss one.
  • Increasing quality of leadership: Fine wine and rare spirits investment platform leaders are gaining more experience and expertise, leading to better collaboration and stronger relationships with target acquisition leaders, investors, and service providers. These outcomes position the partners to make better business decisions and fulfill regulatory requirements, all for even more investor access.

What are some benefits of adding fine wine and rare spirits to alternative investment portfolios?

The advantages of alternative investments generally apply to wine investing and rare spirits, but this particular subgroup has a few unique potential benefits just for its investors.

Fine wine and rare spirits have seen a historical sustained value growth that’s been more predictable than some other assets. In the last ten years, investors saw growth good enough for analysts to call “silly”, per Nick Martin of Wine Owners. The values of the wine and whiskey markets have grown 149% and 322%, respectively, in the last decade. The volume of whiskey sold also grew steadily, revealing an attractive upward trend.

Source: Statista, February, 2023

Amid these overarching developments, investors hear stories of impressive exits. One investor’s wine collection is expected to fetch $50 million at auction, and an especially rare whiskey was sold for $2.7 million in November 2023.

Perhaps even more interesting to investors than news-making deal sizes is the average internal rate of return for more typical investments. For example, Vinovest’s track record shows a variety of appealing fine wine and rare spirits exit stories, like the Domaine Anne-Francoise Gros, Beaune Premier Cru, Les Boucherottes 2017, which returned 193% in three years.

Many alts only enjoy this kind of growth in certain regions or within niche sectors. For example, a logistics company's growth equity may increase based on its proximity to ports, or a gasket manufacturing startup’s scenario models may shine if new types of commercial fridges gain popularity.

But the growth seen in fine wine and rare spirits transcends geography, surprising investors throughout history. Current hot spots include South Korea, where wine consumption increased 3% year over year, and the UAE, which has recently relaxed alcohol laws, decriminalizing its consumption and sale. The value of vine-suitable land in England nearly doubled between 2015 and 2023, going from an average of £11,000 to £20,000 per acre, and French wine producers are still scooping up UK acreage at a remarkable rate.

Another benefit is the quality of resilience. The fine wine and rare spirits asset class has not only survived inflationary environments before — it’s one of the few investments that thrives in them. That’s because fine wine and rare spirits are accompanied by scarcity. Scarcity creates a sense of exclusivity and desire, which can have the effect of stabilizing values even when general equities experience volatility.

Ways to begin investing in fine and rare spirits today

An investor’s entrance into fine wine and rare spirits depends on their goals.

Auctions are a traditional way to begin participating, with renowned auction houses like Sotheby’s and Christie’s hosting regular sales that feature rare and vintage bottles. Buyers can engage in person or online, bidding on single bottles or complete, expert-curated collections.

New, online platforms are another way investors are finding an entry point into the fine wine and rare spirits investing category. Investors can sign up for peer-to-peer online exchanges like Vinovest Exchange, Liv-Ex, Vint, Cult Wines, or Cavex and carefully learn their way around before making any investment decisions.

If the goal is to partner with already-established fund managers in the space, then a more efficient and effective way may be to explore Alto and its Marketplace. Alto brings together all the parties needed for fine wine and rare spirits investment transactions, as well as the standardized forms and processes. Here, those same people can build relationships and explore future investment opportunities together for potential success.

Need-to-know information required before getting started with wine investing

The responsibility remains on the investor to research all viable investment options thoroughly before making decisions. Here are a few important things to know to get started:

  • “Insulated” doesn’t mean invincible. All investments face risks. In this space, real risks include insurance rate changes, regulatory updates, and inflationary costs of business expenses like labor, logistics, and materials.
  • Investors can start at any time. A common misconception is that you’re either too young or too old to diversify into fine wine and rare spirits as a portfolio diversification move. But that isn’t true. “The younger investor is in the same boat as the older investor,” says Scott Harrigan, President of Alto and CEO of Alto Securities. “If they hadn't had exposure to alternative assets, they're both starting from the same point.“ Just like your net worth, your age shouldn’t play a prohibitive role.
  • Your chosen partner or issuer matters. Due diligence starts with the largest risks and works through to smaller risks. For example, make sure your fund manager passes a background check to ensure they're trustworthy. Then you can start evaluating their compatibility with your needs. The Institutional Limited Partners Association’s (ILPA) official questionnaire lists over 220 questions to help vet general partners.

“The younger investor is in the same boat as the older investor. If they hadn't had exposure to alternative assets, they're both starting from the same point.”

Scott Harrigan,
President of Alto and CEO of Alto Securities

As a diversification play, fine wine and rare spirits are an alternative investment that’s worth the buzz

Alts are experiencing rapid evolution, and within that space, special opportunities like fine wine and rare spirits continue emerging as especially interesting diversification strategies. The subgroup gives investors the benefits of alternative investments with a few unique, compelling benefits of its own.

Best of all, the barriers that once kept individual investors from participating in fine wine and rare spirits deals are crumbling. Strong, clear processes are being built and replacing what used to be walled-off entry points.

Alto is the builder creating those processes by centralizing resources and nurturing industry relationships between issuers and individuals looking to access those assets.

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