Diversified portfolios, spreading of risks, alternate asset classes and new investment forms have been the focus of the investing world in recent times. Everything has a price and the finer things of life are usually dearer than the rest. Classic cars, old stamps and coins, rare arts and crafts are some of the obvious things that come to mind, while discussing luxury products that grow in value with time. However, another such product that is more sought after as it ages is wine. Sweet, bitter, dry, semi-dry, wet, tangy, thick, fruity, white, red, rose; the variety is mind boggling, from this drink that has universal appeal and is yet a symbol of finesse, class and style.

Wine can be invested in three ways; one is as an individual wine collector, another as a private investor or owner of a vineyard and lastly through wine funds. As per Edelweiss Securities, the wine industry has seen a CAGR of over 25% in the past three years in the premium wine segment. Industry watchers also feel the growth momentum would continue for five to six years. Kapil Grover, CEO and founder of Grover Wines says, “The wine market has grown at a rate of 30% year-on-year for the past three years, and being a conservative guy, I still expect the industry to maintain a growth of 25-30% for the next 3 decades.”

Currently, many new players are entering the market, with the likes of Seagram, Diageo and UB also launching wines in India. “With increasing competition and big multinationals now making a foray into the wine markets, some of the current market leaders would experience a drop in market share. However, this will also increase the overall growth of this sector, which will be beneficial to all,” explains Kapil. Currently, Chateau Indage, Grover and Sula wines have 90% of the market share in India and are even served overseas in places like New York and London. However, wine experts from there are of the opinion that “While Indian wine is not bad, it still has to mature. Age and experience will help these wines get better as they are still a bit too fruity and sweet. They need to improve on their texture and complexity before they can compete with the more ripe and sophisticated collectable wines.”

This being said, India as a nation of growing wealth and taste, has, along with China and Russia, become an emerging wine market, apart from the traditional US, Europe, Japan, Hong Kong and Malaysia.

Wine selecting

Selecting the right wine to compliment your food has always been important in fine dining. Some go as far as claiming that the wine selection can make or break your meal. Similarly, in investing and creating a portfolio, one must be sure of not only what are they investing but also as to how and how much does one want to invest. This being an alternate asset class, it should ideally comprise “that amount which you are comfortable investing for long-term capital appreciation, and which you can afford to risk,” feel wealth advisors overseas, where such investments have already caught on.

If one wants to invest as an individual collector and own the wine themselves, then a few things should be kept in mind. A common notion most people have is that old wines are the best performing wines. However, this is not always the case. Some of the best returns in the last 2 decades have come from top-tier red Bordeaux from the finest vintages of 1982, 1986, 1989, 1990, 1996, 1998, 2000 and 2005. Ideally these are the wines that investors should look to invest in initially, although seeking value in less well regarded vintages is a sensible approach for the more established. Other wines, including great Burgundy like Domaine de la Romanee-Conti are also highly investment-worthy as they offer price appreciation.

A lot of great wines sit on lengthy price plateaux during periods of maturation. “There are relatively few (perhaps only about 75 in total) investment grade labels, whose production levels remain more or less fixed,” according to Decanter, a UK wine magazine. “Wines such as Bordeaux are highly exclusive (less than 1% of all the wines in the world are of investment grade), finite in production quantity and often improve in quality over time. The chances of a crash in investment values are minimised and the only time a wine investment would depreciate would be in a global depression,” as per portfolio managers in the UK. Studies indicate that blue-chip wines have not depreciated by 1% in the last 25 years. Wine investment is able to generate 12% to 30% average returns per annum. The annual production of the top 16 Bordeaux wines is less than 250,000 cases. Over a period of time, demand exceeds supply and prices rise. Bordeaux wines have a long life; in good vintages a minimum lifespan of 20 years is to be expected from the top wines.

Analysing the performance of 50 investment-grade wines from 1983 to 2002, Mahesh Kumar, author of Wine Investment for Portfolio Diversification, found that wine outperformed the Dow Jones Industrial Average, the FTSE 100 Index and a UK government bonds index, with lower volatility.

Wine funds

A number of wine investment funds exist throughout Europe, the UK and much of the rest of the world. These funds allow investors to put money into fine wine, while avoiding the complications associated with collecting wines like cellaring, regulating the environment for quality control, issues with imports and, of course, the desire to drink it. These funds have done well in recent years. The Premium Fine Wine Index demonstrated that returns on investment from a portfolio of wines traded on the secondary market had outperformed even the most buoyant Asian stock indexes over the last five years. A wine fund works just like any other investment process. The client decides the sum which he wants to invest and the allocation of wines he is interested in purchasing. The client gets an allocation, and the wine stock is monitored just as any other type of stock or asset. Sometimes the managers choose the portfolio of wines and store them in a temperature-controlled warehouse. In return, they charge a management fee and sometimes a performance fee, too. Wines are purchased directly from the chateaux en primeur, which is a type of wine future. Wine is bought when it is released by the chateau the summer after the harvest, but before it is bottled. It is received by the buyer in another 18 months. The Wine Trust cellars the wine for 10 or 15 years and then sells it to high-end retailers and restaurants. Wine funds act as the broker for the client’s stock, finding buyers and sellers. Basically, one does not actually own bottles, one owns shares.

Andrew Davison, manager of the Vintage Wine Fund while speaking about wine funds says, “Wine funds operate as public mutual funds as well as private funds. We are an offshore (Cayman) public company. We made returns of 24% in 2006, 25% in 2007, 2008 has been flat up to now but is beginning to look better. Some funds have lock-in periods of 5 years while others have no minimum lock-in period. Initial investments in wine funds vary from fund to fund; we have an entry barrier of 250,000 euro. The prospects for wine investments in an investor portfolio and the industry growth are both looking excellent, we are only at the beginning of a huge growth of interest in the very best wines, especially in countries relatively new to wine such as Russia, Korea, China, and India.”

In the medium term, investors can expect between 8 and 10% p.a. returns on their investments. Wine investments are not something you can hold for the short term if you really want to see profit, or turn around to make a quick buck. Wines, like stocks, are subjected to market forces and their prices are affected by demand and supply, as well as the perception of their quality as they mature.

Private investing

Ultimately, wine investment is something that can only appreciate as long as you have the liquidity to remain with the investment.

With the Indian wine market growing at a speedy rate and alternate asset classes and investment avenues opening up, it won’t be long before wine funds based in India are knocking at our doorsteps, waiting to start an altogether new investment trend.

“People are looking at wine as a serious investment these days. We get inquires for investment purposes regularly. In fact, last year, we roped in 2 partners who were looking to invest in the industry.

Ideally, wine companies target HNI’s looking to make a long-term investment. Many people look to investment bankers to help them make investments in wine and that is the most commonly used medium for investors looking to get into the Indian wine industry,” explains Kapil.

Investors keen on getting into the foray immediately should get in touch with investment bankers and vineyard owners to find a suitable investment to make.

And, for the adventurous few, they should know that the industry is not capital intensive; it needs just Rs 1-1.5 crore to set up a 100,000-litre wine plant. Grapes, bottles, and corks make up about 20% of cost.

The rest depends on where your tastes lie, and how big a player within this largely expanding industry do you wish to be. Cheers!