Octavian has more than 1.2 million cases of wine in its cellars, and enlists the advice of wine investment specialists as partners to ensure its customers can access the very best advice when it comes to wine investments – so what its MD Vincent O’Brien doesn’t know about wine investment isn’t worth knowing. We asked him for the lowdown on a highly tempting tangible asset.
What are the main reasons investors are gravitating towards tangible assets?
Since 2008 high-net-worth individuals have significantly increased the proportion of their discretionary wealth they invest into tangible assets of one kind or another – stores of value that they can touch, feel and experience. The 2008 banking crisis started a trend that has positively continued ever since. The FTSE 100 is currently trading 10 per cent below its 2000 level.
Collecting or investing in fine wine makes sense if you have an interest in it – just as people who love cars collect classic automobiles. If you have no enthusiasm for it, you’re unlikely to want to learn more about it, and as such it makes little sense to invest in it. Indeed, the majority of collections are built on a foundation of passion or interest, as demonstrated by a recent Wealth Report attitudes survey carried out by Knight Frank. Passion begets knowledge and knowledge reduces perceived risks around a category.
A market for passion assets or collectible alternative investment classes becomes especially attractive when demand is globalising, supply is limited, authoritative information and analysis tools bring transparency to a market and insights can be deduced through analysis that results in a strong and balanced portfolio. Wine meets all these preconditions.
What advice do you have for anyone thinking of taking the plunge?
A solid approach to wine investment is considering it a store of value and wealth preservation in an area in which you have an interest. Collecting and investing in a passion asset is less about ‘instead’ and more about ‘as well’, assuming you have sufficient discretionary wealth. Relative scarcity and demand drive collectible investment markets and fine wine fits the bill due to its relative liquidity.
Diversify – as with any investment, spread your risks. A portfolio will inevitably include Bordeaux, given the region’s dominance of the fine wine market, along with components that may include Burgundy, Champagne, Northern Italy, Northern Rhone and California. Also, think about markets as being either large and liquid, such as Bordeaux, or scarcity-led and in-demand – think top Burgundy and Piedmont. Avoid the large ‘middle market’ except for your own drinking pleasure, where returns are hit and miss and liquidity is unpredictable or poor.
Personal preferences or interests should quite rightly influence your portfolio. For example, if you are familiar with, and like, top Californians you might choose to buy Harlan, Bryant, Ridge and so on. Always buy the best you can afford.
It’s also worth considering the fact that wines are stored in bonded warehouses, where they can be kept for years or decades without requiring tax and duty to be paid. Storage charges of around £12 a case per annum can disproportionately eat into the profits of lowest-priced fine wine.
Is the UK an advantageous place to invest in wine?
The UK is still, for now, a fine wine-trading hub. It’s a truly global market, with buyers from all over Asia, The Americas, Europe and parts of Africa. Storing fine wine in bond means not paying VAT and duty – costs you would never recuperate on the secondary market. Wine’s ‘In Bond’ status also reassures the buyer that the wine has been professionally stored its whole life, which helps establish good provenance. The exception is older wines that nonetheless should have traceability of history.
What are other considerations to bear in mind?
Ensure where you store has adequate insurance and is financially robust. Many don’t consider these aspects when entrusting their assets into the care of another party. The same due diligence should be carried out as would be done on other aspects of your investment portfolio. Also, check that your name will be on the case – if the party you store with goes bust, you may not automatically get your cases back, as you will be treated as an unsecured creditor.
What are the potential pitfalls?
Don’t buy wine from cold-callers unless you’re certain that you have previously provided your personal data to them. If you have, you still must satisfy yourself beyond all reasonable doubt that they are reputable, and that their prices are competitive. Ask yourself why they are cold-calling you and whether you are comfortable with that approach.
Use a trusted website like our portal or wine searcher to check the true market value for a given wine at any point in time. Typically, cold calls come from ‘wine investment companies’ who call consumers with the promise of extravagant returns. In a regulated market many entities such as these would be open to accusation of misselling. If in doubt, put down the phone!
What are some of the essential aspects of proper storage that most laymen are obvious to?
A major one is humidity – over time, a bottle inevitably loses some wine through evaporation. No cork provides a perfectly impenetrable seal. But if the humidity surrounding your wine isn’t right, evaporation speeds up – and the value of your wine drops. Over 30 years of refinement, we’ve set the industry standard for fine wine storage at 75 per cent – 85 per cent humidity.
Another factor is temperature – your bottle of wine is a living thing that needs to mature slowly to achieve greater complexity. An ideal temperature of between 13-14 degrees is essential to this process. Fluctuations in temperature cause your cork to expand and contract, letting air into the bottle and damaging your wine.
Poor ventilation also damages fine wine. Musty or strong smells can penetrate a cork and affect flavour – which is why fine wine should never be stored near fruit, vegetables or cheese. Stagnant air also allows humidity to develop.
Think, too, about security – you wouldn’t keep your money in a bank that wasn’t rock solid. We’re trusted to look after around two billion pounds’ worth of fine wine. Why? Because we take the security and integrity of your fine wine seriously.
Is there a community spirit among collectors and investors?
On average, about 20-25 per cent of the transactions we carry out are between customers within our care. They can trade directly with peers who have similar appreciation of fine wine, pristine storage and provenance
In what ways does the ‘MyCellarPortal” scheme maximise both enjoyment of collecting and potential returns?
It provides information about owners’ collections, showing drinking windows, how it has performed against the market, an image) of the condition of the wine as well as the history of how long it’s been in our care. This information allows collectors to make informed decisions as to when to invest/divest in items.
The storage history adds new information to aid decision making as many items bought are purchased based on price or trust in the seller. Knowing how long an item has been in our care adds a new element as it evidences provenance and reduces risk of counterfeit items in a world where these are all too common a risk. With verified provenance, the chances of realising more value are greater. Customers also get to trade within the secure and pristine conditions of Octavian, with faster payment and no third party involvement.