A new form of wealth creation- Having Wines?

NEW-GENERATION ASSETS: Intoxicating Investments

In the final instalment of a four-part weekly series featuring alternative investment options, GABRIEL CHEN explores the love affair that an increasing number of Singaporeans are having with premium wine

BLUE-CHIP WINES can earn investors annual returns of 10 to 12 per cent, if not more, because of the fairly limited supply. However, risks can be high too, especially for those who buy at a high price and pay hefty commissions to their brokers.

THE stock markets are volatile and property is starting to look a bit shaky, but Mr Andrew Soh is a happy man and quick to raise a glass to toast his own investing skills.
The real estate agent plonked his money into wine investments in 2005 and is now firmly in the red - and white and rose for that matter.

In fact, Mr Soh, 37, is having a vintage year, with paper gains of about 32 per cent after expenses are deducted.

His initial investment was about $80,000. After just a few months, he added another $120,000 worth of wine to his collection.

His portfolio - which includes premium French labels such as Ch�teau Lafite Rothschild and Ch�teau Latour - is now valued at about $300,000, says Mr Soh, a wine drinker himself.
If he were to liquidate his holdings, he would be sitting on a tidy profit of $64,000, after paying commissions of 12 per cent to his wine broker, Premium Liquid Assets.

Pay now, take delivery later

THERE is a wine futures market, or en primeur as it is better known in French, where people buy wine early.Buying en primeur means you buy futures in a wine hoping its quality and value will leap in later years. When you buy en primeur, you pay for the wines upfront, with the merchants' assurance that you will get the wine when it is released from the chateau or vineyard two years after the vintage.

Liquid assets

If Mr Soh were to liquidate his holdings - which include premium French labels such as Chateau Lafite Rothschild and Chateau Latour - he would be sitting on a tidy profit of $64,000.Not bad for someone who describes himself as a conservative investor.

Mr Soh, who has sunk 40 per cent of his investment portfolio into wine and the remainder into stocks and property, is just one member of a growing breed in Asia.

These new-breed investors enjoy drinking the wine while participating in the monetary returns it offers, says Premium Liquid Assets chief executive Eldric Ko.

The benefits are tempting. A portfolio of blue-chip wines can yield annual returns of 10 to 12 per cent, if not more, thanks to the relatively limited supply, experts say.

But wine investing involves various commissions and fees that can eat into gains. A broker can charge 5 to 12 per cent to buy and sell the wines, and there are also storage, insurance and shipping fees.

At one broker, Australian Wine Index, clients often invest at least $10,000, which covers shipping, insurance and three years of storage. Its wines from Down Under cost between $60 and $500 a bottle, and are stored at a temperature-controlled warehouse run by Cougar Express Logistics in Boon Lay Way.

The greatest risk, especially for alternative assets such as wine, is buying at too high a price, says investor Curtis Montgomery. Some of his 10,000 bottles are from Australia, but most are from the Bordeaux region in France.

'There are wine brokers who charge a large premium. An uninformed investor using such a broker might overpay significantly and have to wait many years to reap a profit,' says Mr Montgomery, whose portfolio is worth more than $2 million.

While commissions might be high, wine brokers now offer a service that used to be extended to old money only. They undertake the difficult and time-consuming task of analysing and recommending investment-grade wines.

Investors should pick brokers who have demonstrated their ability to sell wines and who have adequate exit strategies, backed by an international network of dealers, importers, traders and auction houses.

Investors who feel confident about investing on their own can buy wines from distributors such as Crystal Wines, Condale Consultants, Vinum and Grand Vin.

'The worst thing you can do is put the wine in your home cellar and watch the value fall,' says Mr Clinton Ang, the managing director of Hock Tong Bee, which has been in the wine and spirits trade for more than 60 years.

'It is not just about getting a 12-degree environment, but also about finding a facility that is recognised worldwide or one that is owned by a wine specialist that is recognised worldwide.'

Some private banks offer wine funds. SG Private Bank's Ultimate Wine Fund, which partners wine specialist Ficofi, invests in premium wine from Bordeaux, but to get on board, you must have at least US$300,000 (S$432,840).

Mr Tommy Lam, who owns the Cafe de Amigo restaurant at Funan DigitaLife Mall, recommends that novice investors keep risks low by sticking to the most reputable wines in the best vintages.

'If you could always get your hand on first-growth Bordeaux, you would hardly lose any money,' said Mr Lam, who holds a wine MBA from Bordeaux Ecole de Management in France.

Wines fall into various classifications and most first-growth or premier cru wines come from Bordeaux. These include Chateau Lafite Rothschild, Chateau Haut-Brion, Chateau Mouton Rothschild, Chateau Latour, Chateau Margaux and Chateau d'Yquem.

Experts say another important factor is vintage, which refers to both the year the grapes were harvested and the wines made from those grapes. Warmer seasons will produce riper grapes and better wine, while a poor growing season can significantly lower a wine's quality.

Certain vintages are so poor that some regions might have no investment-grade wines for those years. Bordeaux faced this problem in 1991, 1992 and 1993, whereas vintages from there in 1990, 1995, 1996, 2000, 2003 and 2005 are outstanding, says Mr Montgomery.

The value of wines can also be dictated by renowned wine critics, such as Mr Robert Parker, Mr Jeremy Oliver and Mr James Halliday. For example, a perfect 100-point rating or one in the high 90s from Mr Parker could send the price of a wine soaring, even if it did not belong to the finest vintage.

'They are what the industry refer to as the litmus test of wine labels and vintages,' says Mr Dominic Sim, the chief executive of Universal Assets Group, a wine investment firm.