The liquid asset: Myriad joys of wine | The Financial Express

The liquid asset: Myriad joys of wine

Wines are a versatile joy, heavenly for the senses, and also a smart investment option. Here’s why

The liquid asset: Myriad joys of wine
Then came a shocker of a reveal. “Does knowledge of a wine region and its vintages help while investing?” I asked. “Surprisingly, a deep knowledge of wine as a drink, its origin and heritage, is pretty much useless since taste trends in wine have remained stagnant since the 1930s.”

The world today has two types of wine lovers, those who buy to drink and those who flip it to turn a profit. Both involve passion, just their “high” is different.

As a sommelier, I understand how wines can seduce our senses, but I must be honest I have never invested in wine to resell for profit. I used to often quip that wines are my only “liquid asset”. So, it was fun to sit down for an exchange with Suman Bannerjee, chief investment officer of Hedonova, an investment fund with quite a diversified portfolio. What makes them unique is that they allow investments into the alternative (read: lesser orthodox) sectors like NFTs, crypto and even wines.

Bannerjee gave me a quick reckoner on how it works. “There are essentially three ways to invest in wine—one, buy the winery and sell the grapes for profit. Two, buy premium bottles and wait for the prices to rise. Three, buy wine in barrels, hold them for two to three years before selling them to bottlers,” he said. His company involves itself with the latter options.

Then came a shocker of a reveal. “Does knowledge of a wine region and its vintages help while investing?” I asked. “Surprisingly, a deep knowledge of wine as a drink, its origin and heritage, is pretty much useless since taste trends in wine have remained stagnant since the 1930s.”

This pretty much shattered all I had believed about wine investments. “One needs a deep understanding of the wine business and geopolitics to make a buck. Geopolitics are important because the wine prices are dictated by export laws and tariffs, so it’s important to be able to predict which direction custom duties can move,” he said. Makes sense, if tastes have remained a constant, best to study what else can affect supply and demand.

Another question often asked is why wineries don’t hold back their wine and make a bigger profit off them. Well, winemaking is a capital-intensive business. From the time the grapes are harvested, made into wine, aged, bottled and finally sold, there can be an easy three to four (or more) years of wait. No winery will have working capital to see them through such a long period of unending bills and mortgages. Which is where these investment arms help, who step in, identify the wines, and buy barrels in advance so as to tide the winemakers over financially while they wait to ready their product for delivery.

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The advantage here, for people like Hedonova, is being early-stage investors, they pay a much lower price (but run the higher risk). Once the wine is ready, they sell it off to other companies, most often other investment firms who possibly didn’t have the means to buy and hold earlier.

So how does it translate into money for us? Well, we invest with them—Bannerjee said one can start with an amount as low as $5000 (you could go up to $250,000 too) and they look after the rest. (To invest more one would need to route it through feeder funds under Hedonova). It’s still easier than buying wines from established regions and prized vintages because (A) these wines may not appreciate much further and (B) when we go to market, provenance matters (i.e. where did we get them from and how well were they stored) and without answers to satisfy the most discerning of wine critics, chances are we won’t find many takers for our lot, or else we’d find buyers but not for the profit we imagined. Instead, it’s simpler to pay the 5% brokerage fee and people like Hedonova will handle everything right down to finding the buyer for us.

Wines, as an investment, can give an 18% return per annum (on average, as per Bannerjee), which sounds good. “Wine is safer than watches but riskier than art; paintings by the masters are limited in supply, they’ll never be another one painted. Art is timeless while wine does have a finite shelf life and there’s more being produced. But buyers of art tend to be ultra-high net worth families who have disposable cash regardless of economic downturns, hence art prices fell only 8% during 2008 while wine fell 18%. Wine is usually bought by upper class folk who tend to reduce spending during downturns,” he explained.

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I also asked about which regions are most sought after. “Burgundy in France accounts for 50% of the wine market in terms of volumes. Two styles that are picking up are Chilean white wines and California Napa Valley wines,” he replied.

To conclude, Bannerjee had some lovely tips. “The wine you like to drink isn’t the wine you invest in. You want wines from big name-brands—they’re lower risk and more often traded on exchanges on Liv-ex, hence easier to sell. And lastly, you want a wine from a country that has relaxed export laws and low tariffs with US and China since they’re the largest wine drinkers. Till May 2021, the US had imposed high tariffs on French wine. Once they were changed, returns increased 3x,” he said.

In the end, whether you wish to invest through a company like Hedonova or simply buy some bottles to open them with friends, we can all agree that wine can deliver joy in myriad ways. In case you are investing, you know whom to reach out to, and in case you have a precious bottle to uncork, you know where to find me.

The writer is a sommelier

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