Under lock and key

25.07.2019  – Fine Wine Investment  –

The was a scare story emerge in the Financial Times last week under the headline: “The Perils of Storing Fine Wine” whose aim, presumably, was to put people off investing. The essence was to the effect that an established wine merchant had just had £200,000 worth of stock half-inched from his “bonded warehouse” (my inverted commas), and if it could happen to someone steeped in the trade then amateurs should approach with the utmost caution. In fact, run a mile.

Not only, argues the article, are the storage facilities completely sub-standard, (and if those used by an established merchant are easily compromised then surely everyone else’s must be even worse!), but the logistic methodology and efficiencies are completely hopeless and open to abuse. And it doesn’t stop there. Rocketing prices have lured malfaisants back into the space and the long and short of it is you’d be mad as a hatter to get involved.

Wine bonded warehouseAll nonsense, of course. We have just taken this very week one of our delightful Indian investor down to inspect both the bonded facility we at Amphora use, and indeed to have a good look at the cases he owns within it. As it happens, we use Vine, a wholly-owned subsidiary of the Liv-ex platform, who sub-let space from London City Bond down at Tilbury Docks.

In our experience investors from Asia and the Far East are justifiably paranoid about this very aspect of their contract with us. Think about it: we rock up to see someone in a foreign country with entirely dissimilar customs (traditions, mores, habits, and so on, as opposed to taxes and duties) from our own, often using a different language, and we ask them to part with money for an investment in a physical good which they are more than welcome to see, but which is going to be parked about 10,000 miles away. “Honest guv’nor” doesn’t come close!

The fact of the matter is that the wines we buy and sell for investment purposes exist within a government-regulated environment, of which there are only 6 main players in the country. If HMRC were to find that one of these was operating the CCTV only when it could be bothered, and that the facility wasn’t even manned 24/7, the operator would lose its licence before you could say Inland Revenue.

Then there is the question of insurance. In the FT article it has evidently come as a surprise to the professional merchant that he only stands to recoup £1,000 from the warehouse for his £200,000 loss, AND he will have to stump up for VAT and duty, his stock having left the bond. It’s quite difficult to imagine anyone, let alone a professional in the field, failing to be acquainted with the fine detail in the terms and conditions, yet this is what we are expected to believe.

One of the first questions we are asked by any new or potential investor addresses the issue of insurance. It is true that the terms and conditions of the cover can vary from bond to bond, indeed in some you have to arrange it all yourself, but surely that is no excuse for not dealing with it. Whenever you purchase anything remotely valuable you insure it if you can, don’t you? Well we do, and all of our clients enjoy full cover for replacement cost. Excuse our ignorance but we actually thought that was de rigeur in the trade. Obviously not!

We would urge readers of this article, far from being put off, to be attracted to an asset class whose values have been rising happily but, as ever, to go about their investment business in a coherent, sensible manner. Ask all the right questions at the outset. Learn as much as you can. Seek advice, and work out what you are trying to achieve. Whether you end up making an investment in fine wine or not, we are only too happy to help with all of the above.

APMMoving away from this horror story to more agreeable topics, we had lunch last week with wine guru and all round good egg, Steven Spurrier. One of the questions we put to him concerned L’Eglise Clinet. Clients of Amphora and regular readers of this column are familiar with our interest in this fabulous producer, and our efforts to find reasons for its vintages’ perennial underperformance. When we first identified the fact that L’Eglise Clinet was such good value we asked all and sundry for reasons as to why it was, in relative terms, so cheap. In the absence of any good reasons at all, we started to populate portfolios with various of its vintages.

Thus far, sans aucun doute, it has been an indifferent ride. Steven agreed that it was, in investment terms, quite mystifying. Denis Durantou is a fabulous winemaker. The estate’s heritage is first rate. They only make about 1200 cases a year, so you can hardly blame overabundance in the market. The scores are well above average. At times like this we ask ourselves: “so what would Warren Buffett do?” Accordingly, we buy, and we wait. We recommend you do the same.