Wine investments: how to avoid the £100m scammers
As new reports of fraudulent companies damage the reputation of the wine investment trade, Robert Powell finds out how to tell a profitable Bordeaux from a bogus Blue Nun.
No grand cellars, decrepit oak barrels or eccentric tuxedo-clad owners. Instead, an understated, white-walled office on a narrow road just off Baker Street. This is the modern reality of wine collecting, trading and investing.
Wilkinson Vintners was founded twenty years ago by Patrick and Fiona Wilkinson. And save for a shelf of ancient-looking wine bottles in the corner – which Patrick is quick to rearrange when we point our camera at it, in order to emphasise a particularly impressive vintage, I can only presume – the London HQ looks much like any other office.
Putting money in fine wine has grown in popularity over the past decade, spurred on by the declining returns of more traditional investments. But the wine investment industry (or to use the preferred Vintner term, trade) has not been without its problems. A recent BBC investigation estimated that as much as £100 million may have been lost by investors over the past four years following the collapse of several bogus investment firms, as we covered in This scam has cost victims £100m in four years!
Tony Levene, a journalist who has written extensively about wine scams for lovemoney.com, says wine investment fraud works by taking advantage of the lack of knowledge the general public has about fine wines. Companies cold call consumers promising huge returns, and claiming in-depth knowledge of the sector. When the investment falls through, you lose your money and they make tracks.
“A 23 year old at a [wine investment] business that has been running for two months is not an expert in my book,” says Levene. “They take your money; are the bottles there? Maybe yes, maybe no – who knows?
“A problem with wine is that I don’t even know what the right price for any bottle of wine is,” he continues.
But there are genuine experts out there that do know how much a bottle of wine is worth, regardless of what it tastes like.
Investing in wine is no modern phenomenon. Connoisseurs of the grape have been realising the extra-imbibition potentials of a good bottle for years now. Historically, collectors would purchase crates of the latest vintage, let it sit in the cellar, pop the corks on a few after the years have passed, and sell-off the rest for a healthy profit for the home.
The domesticity of this process may now have ended, but the logic is the same. And what’s more, as an investment, wine has a few unique characters that make it especially attractive. The Inland Revenue classes wine as a ‘wasting chattel’, a term carried over from ancient tax regimes to describe a product that will ultimately deteriorate in value. As such, profits from wine are exempt from capital gains tax.
Wine is also unique among investments as it is in constantly depleting supply. Put simply, as bottles are quaffed, the price of the remaining stock rises. Ian Elton-Wall, head of Private Sale and Purchasing at the fine wine merchants Wine Networks, sees a happy overlap between drinkers of fine wine and the investors.
“For the drinkers there is more pressure on supply [as new investors enter the market and start buying] which has focused people’s attention on getting the wine that they want. We’ve seen pricing development at the same time as consumer development,” he says.
I go on to ask Elton-Wall the basic, layman question: does it matter what the stuff tastes like? “Only if you’re a collector-drinker, rather than an investor,” he replies. So if the highly respected wine brands (Chateaux, I correct myself) bottled up any old dishwater, people would still buy it?
“Brand is critically important,” he says, unsuccessfully holding back laughs at my question.
Indeed, for pure investors, what the wine tastes like is redundant. All that really matters is the price – something that is influenced predominantly by the views of one American critic.
Picking a winner
If you’re after a financial equivalent, critic Robert Parker is the Warren Buffett of the wine investment world. What he says goes.
Parker’s key publication is the The Wine Advocate, a newsletter he founded in the late 70s. An attorney by trade, Parker brought across a 100 point system he initially learnt at law school to rank the quality of wine – most predominantly, bottles from the Bordeaux region of South-West France. It’s this wine that should be the prime concern for any newbie investor.
Paul Bowker, a director at Wilkinson Vintners, believes that Parker transformed wine criticism. “The Holy Grail for any wine is to be given 100 points by Parker. The minute he does this, the wine shoots up in price,” he says. So are Parker’s ratings now something of a self-fulfilling prophecy in terms of wine investment? “Well, yes, to an extent,” Bowker replies, “but there are now several other balancing journalists. Really strong demand comes when they are all in consensus.”
These balancing journalists are essential sources of information for anyone thinking about getting into wine investment. Robert Parker will always be the overarching authority – but any rookie investor should also consult critics like Jancis Robinson, James Suckling and Neil Martin for additional insight.
The 1855 wine classification that separates out Bordeaux wines into first to fifth growth is another essential resource. “Take that classification and concentrate right at the top of it,” says Patrick Wilkinson, founder of the Vintners that shares his surname, “you need to buy the greatest wines, in the greatest years”.
Wilkinson also believes strongly in the importance of doing your own independent research: “buy a copy of Decanter magazine, in the back of which you’ll find the wine prices, some of the biggest wine merchants also advertise in there.
“One should be extremely cautious if you are cold-called. This should be a decision you are making yourself,” says Wilkinson.
Avoiding the scams
This is especially important if you are considering putting money into en primeur. The wine equivalent of financial futures, en primeur is a method of buying up stock that is still in the barrel. This allows the investor to purchase wine at a cheaper price. However you have no guarantee that the wine will retain its value when it comes to be bottled.
Investing in en primeur can also expose you to heightened levels of fraud. As no physical bottle is purchased, bogus companies will make false assurances about the stock they have bought. This makes it especially important to know and trust your merchant.
En primeur wine is often placed directly into a bonded warehouse after it is bottled. This means that you will not pay VAT or duty on the wine, though an annual storage fee to the bonded warehouse will be due.
Wilkinson Vintners recommend that all investors set up an account directly with a bonded warehouse to guarantee that you get the wine you pay for. Yes, not being able see and physically touch your alcoholic investment may seem aesthetically dissatisfying. But then again, who ever said wine was solely for drinking?
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