29
In fact, it has been reported that over
50 fine wine funds in the UK have
been liquidated either due to fraud or
‘colossal mismanagement’ in the four
years to 2012
68
and investor losses have
been estimated at £100 million.
44
However, the Wine Investment Fund - a
Collective Investment Scheme with
offices in London, Bermuda, Hong Kong
and Zurich – predicts a 9% rise for the
fine wine market in 2015, following four
consecutive years of decline for trading
platform Liv-ex.
49
An alternative to a traditional fund
structure is government backed
schemes such as Enterprise Investment
Schemes (EIS) and Venture Capital
Trusts (VCTs), which are attractive
as they provide generous tax reliefs
to investors, although, in order to
access these benefits, investors must
hold their shares for at least 3 to 5
years and so are effectively locked in.
These schemes fall outside of current
unregulated collective investment
scheme regulations.
In the EIS landscape, investors can put
their money into an individual company
by buying shares which gives them
some security over the assets of the
company: a UK company can qualify for
EIS status as long as it does not carry
out certain restricted activities and
meets other criteria regarding its size.
It is also possible to increase
diversification by investing in an EIS
fund, which is an arrangement by which
investors can spread their investment
through a number of EIS companies.
This is likely to simply be via a series of
separate portfolios which together are
referred to as the ‘fund’. The investment
manager will then commit a portion
of each investor’s cash into each
investment in a qualifying company (in
line with the investment management
agreement).
EIS funds are exempt from the Collective
Investment Scheme regulations, but
some activities of running an EIS
fund are monitored and controlled by
regulatory bodies as they are caught
under the EU Markets in Financial
Instruments Directive. Nevertheless,
the underlying companies are generally
unlisted, making liquidity uncertain and
their constitutions are often drafted to
give full control to the product provider
in terms of management.
Some body corporates have also
recently entered the market place with
a bond issuing structure, whereby,
instead of equity, they sell debt in the
company in the form of bonds. One
such company which issued bonds in
2013 was Naked Wines whose plan was
to use the money (up to £3 million) to
invest in independent winemakers over
a minimum of three years, enabling
them to finance the production of “fine
wines”. The entry level can be low in
these projects – just £500 in this case,
with a maturity of three years.
However, again, such companies are
generally unlisted and, although bonds
and shares are classed as securities and
their promotion is therefore restricted,
the rest of the offering is not currently
FCA regulated, although indications are
that this may change in the near future.
INITIAL AND ONGOING
COSTS
These can be related to the purchase
and sale, as well as ongoing fees in
relation to simply owning the asset
and mitigating physical risks to these
tangible assets via insurance and
storage in suitable conditions to
preserve their quality.
Depending on how wines are acquired,
various commissions may need to be
added to the purchase price - anything
bought or sold at auction will incur high
transaction costs. Both buyers and
sellers have to pay a percentage of the
hammer price to the auction house.
This varies across auction houses but
Sotheby’s charges a buyers premium of
15% on top of the hammer price, while
Acker Merral and Condit charges 23.5%.
On top of this, VAT or local taxes must
be added.
In terms of sale of wine, any capital
growth that investors might enjoy could
be subject to an auction house’s seller’s
fee, which can range from 0 to 18% of
the final bid. This varies according to the
rarity, quantity, quality and condition of
the consignment. If the consignment is
significant, a seller’s fee of about 6% is
fairly standard. Since the final amount
is negotiable, there is some scope for
shopping around for the best rate. An
additional 1% insurance fee may also
be added to the estimated value of the
lot and covers the wine while it is in the
temperature-controlled storage facility
of the auction house prior to the sale.
69
Other sale and purchase methods
such as BBX (Berry Bros & Rudd online
broking exchange) charge a smaller
commission of 10% on purchases, whilst
Aston Lovell’s wine platform, which
allows wine collectors, restaurants,
consumers and investors to buy and sell
wines direct from Liv-ex, charges a 6%
fee on all wine purchases to include the
Liv-ex trading fees and 2.5% fee on all
sales of wine. VAT also applies.
Storage and insurance is currently in
the region of £12.50 to £20 per case per
annum (12 bottles).
Brokers/Agents fees vary from company
to company, for example:
Aside from storage charges, Berry Bros.
& Rudd will take a 10% commission
from all online broking exchange
transactions, which suggests a fee may
be payable both on purchase and sale.
There are no other costs other than the
wine itself.
Cult Wines applies a 15% management
charge with each new stock purchase,
so they take their commission upfront
and the fee includes storage and
insurance and comes with a guarantee
to sell investors’ wine with no added
commission.
According to the Economist, “Funds
charge hedge-fund-like fees”
67
and
certainly, layers of investment
management can increase costs: a
UCIS might charge an initial fee of 2%
to 5% of the subscription amount, plus
around 1.5% per year management fee,
plus 15% to 20% performance fee when
certain profit/growth based targets are
“There is an increasing variety of ways to invest in fine wine”
