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HOW TO INVEST
DIRECT INVESTMENT
There is an increasing variety of ways to
invest in fine wine, although the oldest
and possibly still the most widespread
method is to acquire the underlying
asset in your own name. This means
that no entity can dispose of the asset
without the agreement and cooperation
of the investor, although it also means
that no other entity is charged with
disposing of the asset if and when it
is required – the full responsibility lies
with the investor and this might be
problematic if enthusiasm for the wine
is not driving demand.
That said, if an investor is the sole
owner of a bottle of wine, s/he can
choose when to put it on the market
and what to accept as a sale price – even
if that price represents a significant
loss, it may still give some recovery
of funds, which might not be possible
when money is locked into a fund or
redemptions have been suspended.
The entry level may well be lower than
that which is available in a wine fund
which pools the funds of multiple
investors to acquire assets, whose
minimum investment level is likely to be
from around £10,000, whereas desirable
wines may be bought in the hundreds
of pounds. That said, many brokers
recommend a minimum investment
of at least £5,000, to attain a level of
diversification.
Nevertheless, the diversification that
can be achieved by the bigger asset pool
in a wine fund should be considered,
although such collective ownership also
diffuses control of the assets and gives
less flexibility for those who are looking
to learn and engage with the process of
building a successful portfolio.
USING AN AGENT OR
BROKER
Direct Investment can, of course, be
achieved through entirely private
purchase, or with the assistance of a
broker or agent who know where to
look for the best deals at auctions and
fairs. And for those who are anything
less than experts, in a global market of
specialist events and restricted access,
the use of an experienced broker is a
very sensible option.
Whilst some buyers possess the time,
money and enthusiasm to research,
buy, organise delivery and storage in
a government bonded warehouse,
and know what and when to buy and
sell, only those with expert knowledge
are likely to enjoy continued financial
success in this arena.
Different agents and brokers offer
different services including advice
on the best wines to buy and when,
portfolio building, sales of wine, wine
events and tastings, wine storage to
maintain the perfect provenance and
insurance and valuation.
Less easy to quantify is the buying
power of a trusted, well informed
broker, with the influence to negotiate
prices and contacts to identify the best
opportunities.
INVESTMENT FUNDS AND
VEHICLES THAT POOL
INVESTOR CONTRIBUTIONS
These pooled vehicles have the benefit
of using the contributions of multiple
investors to give greater reach to
acquire more numerous and costly
assets. As a result, investors can enter
from as little as a few thousand pounds,
knowing that the spread of assets
attainable should provide protection to
the overall portfolio. These vehicles may
take the form of Collective Investment
Schemes such as Limited Partnerships,
or body corporates in which investors
take an interest in shares or bonds.
In the UK, the Financial Conduct
Authority polices certain investment
activities. These activities do not include
the sale of land or property. However,
if the project has any of the following
characteristics, no matter what the
underlying asset of the investment,
it is likely to fall into the category of a
Collective Investment Scheme or close
substitute:
The pooling of investor funds and
returns
The investor does not have day to day
control of the management of the asset
There is overall management by one
entity on behalf of the investors.
Many other countries have similar
legislation, however, the level of
regulation is not always as high as some
investors might expect:
There are two types of Collective
Investment Schemes (CIS), those that
are authorised by the FCA and those
that are not; an Unregulated CIS (UCIS)
is simply an investment which is not
subject to the strict set of rules and
reporting requirements laid down by
the FCA for CIS products which have
been reviewed and authorised by it. UCIS
tend to invest in more esoteric assets,
higher levels of gearing are allowed,
there are usually lower levels of liquidity
and promotional literature is not subject
to the same restrictions as literature
associated with an authorised CIS.
Unregulated Collective Investment
Schemes, tend to focus control of the
investment with the operator (an FCA
regulated and authorised entity) and
the investment manager. This may
be viewed as a positive for investors
who are confident in the expertise
of the investment manager, or as a
negative for those who wish to retain
more control. Risks include the lack of
regulatory scrutiny and the secondary
market which may or may not exist
for units in unregulated collective
investment schemes.
The Economist finds that “most funds
lock in investors’ money for at least five
years. Those wine funds that do allow
quick redemptions invest in the most
traded grapes, like Bordeaux”
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.
The last several years have proved
difficult for funds, with the Cayman-
based Vintage Wine fund, one of the
oldest and largest wine investment
funds, winding down at the end of 2013
– a victim of poor market conditions and
heavy withdrawals as investors shifted
to other investment categories.
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