"Wine offers a greater range for enjoyment and appreciation than possibly any other purely sensory thing which may be purchased." -  Ernest Hemingway

For the average consumer, wine is a sensory asset, benefitting largely from nostalgia and the luxury of expected indulgence. However, an ever-growing population of wine connoisseurs are looking to capitalize on that luxury; transforming the global market for fine wine into an increasingly attractive source of an alternative investment to enhance their portfolio.

A HISTORICALLY NICHE MARKET

Since its emergence, fine wine investing has maintained its position as a strategically niche market. Of all wine produced globally, only one percent of wine is considered investment grade.  In addition, 80 percent of wines that are ripe for investment hail from the same geographic region, as harsh zoning regulations paired with climate conditions geographically concentrate production.  This emphasis on limiting geography is linked intrinsically to the idea of terroir, or the belief that the land and climate where the grapes are grown impart unique characteristics into the wine that could not be imparted by any other region of the world.  To further reinforce scarcity, consumption of well-aged wines shrinks the pool of investable assets.

Conversely, demand for investment grade wines is on the rise, as is its asset value. The emergence of a global nouveau riche is driving demand for alternative investments. Currently, Cult Wines has an estimated US$100 million in assets under management, and average investment minimums sit anywhere between US$10K and US$50K.  Due to supply constraints and high investment minimums, investment in fine wines is generally a venture explored by high-net-worth and ultra-high-net-worth individuals.

LIKE LIQUID GOLD

Asset value for fine wine is also increasing independently of the usual demand drivers such as flavor, pedigree, critical acclaim, and other consumer preferences. Fine wines improve with age, and investment in wine enjoys the advantage of being inflation-agnostic, similar to gold and other commodities. However, investing in wine is not without its share of risks, which include the potential for theft or destroyed inventory. To combat these risks, a new market for alternative investment insurance is growing, which provides more risk-averse investors with the ability to insure their wines against a number of loss scenarios (e.g. breakage, theft, extreme temperatures, etc.).

These unique value drivers, coupled with high-net-worth individuals’ demand for bespoke investment offerings, supply scarcity, and prestige through ownership, force prices upward resulting in increased investor returns.

Kristina Pepe is a Consultant at Capco, based out of the Washington D.C. office, specializing in data transformation, analytics, and data visualization. She has extensive hands-on experience leveraging data and technology to improve operational efficiency, reduce costs, and optimize market strategy, particularly in the Art-Secured lending and Collection Management space.