With volatility in traditional financial markets, investments in whiskey are on the rise. But, let’s think about it, is this a case of liquid gold or fool’s gold?
They call it “liquid gold” – and as an investment, whiskey is starting to live up to its name. Last May, at the Bonhams Fine and Rare auction in Hong Kong, two bottles of The Macallan 1926 sold in separate lots to different bidders for over $ 1 million each, breaking world records for the spirit established a month before.
This was yet another sign of the growing importance of investing in whiskey, an asset that, at least on paper, has seen dramatic gains. Over the past decade, rare whiskeys have appreciated 580%, overtaking the stock market and most commodities, according to Knight Frank’s 2020 Wealth Report. And even on a more conservative scale, the Rare Whiskey 101 Apex Index of Top Performing Bottles has measured 7% annual return over the past few years.
“Whiskey is a very unique asset class – it’s what we’re asked the most about – there’s nothing quite like it,” says Andrew Shirley, editor of the Wealth Report by Knight Frank. âIt’s been established for a long time, but it’s only recently that he’s seen a huge amount of momentum around him. Wine has new vintages every year, but very rare whiskeys aren’t the same – you have this limited supply, which is why it’s such an interesting thing to collect.
This new interest in rare whiskeys is largely driven by millennial investors in Asia, with the Covid pandemic seeing sales increase as they seek investments that play a dual role in drowning their sorrows. Stocks and bonds are their safe haven, and auction houses’ dramatic increases in art, wine, and vintage cars make them feel overpriced – but whiskey is an affordable asset. with the possibility of massive returns, all driven by passion.
âWe see young collectors coming onto the market who fall in love with the spirit; it’s a passionate investment, as we know: the heritage, the chemistry, the skill, the talent, âsays Andy Simpson, co-founder of Rare Whiskey 101 consultancy.â Some will open the bottles, and he So less are left on the market, making them rarer and more difficult to collect from an investment point of view, so values ââalways rise. “
History, heritage and societal prestige; a stable physical asset that is less complicated or expensive than its established counterparts, easily bought in bottles or bought through a fund – and with the added “cool” factor of very large bragging rights. But, as with any investment, it is not without its dangers and pitfalls.
âThe good thing about whiskey is that it’s affordable, you can start from a few hundred dollars, up to seven figures,â says Daniel Lam, director of wines and spirits at Bonhams. âPrices are going up every day, blue chips are getting more and more expensive, but there is a lot of potential in the market and you have to do your homework because things change every month. “
Entering his world is as easy as buying a few rare bottles at auction and storing them at home, with Scottish and Japanese whiskeys generally being the âblue chipsâ in its class and Irish, Indian, Australian âemerging marketsâ. and Americans. But earnings aren’t always guaranteed, and research and at least a little bit of interest are seen as essential.
âOver 99% of all whiskeys will not gain value over time,â says Joseph V Micallef, independent whiskey expert and author of Scotch Whiskey: Its History, Production and Appreciation. âYou have to rely on experts, who know the whiskey market, to identify those who have the potential to appreciate.
If ROI is your end goal (as it should be), rather than a shallow personal collection, whiskey funds are starting to be viewed as reliable. Just as an index fund holds a basket of stocks with safe potential, whiskey funds give investors access to experts who seek financial value through quality, balancing blue-chip bottles with those from emerging markets. ready to appreciate, before paying off after a certain number of years.
âA good fund invests in the whiskey, the liquid itself, the golden drops,â says Christian Svantesson, CEO of The Single Malt Fund, which is regulated by the EU as an alternative investment. âIt’s a two-pronged strategy to invest in whiskey: we choose distilleries using our expertise, but whiskey is not a commodity either – it’s a consumer good, so under the industry, we invest below market price with a trade discount, so it appreciates from day one.
Government regulation, as in the case of The Single Malt Fund, is rare in the market, but it is becoming a growing symbol of reliability, and similarly regulated funds can now be found in tax-advantaged regimes such as Hong Kong. and Singapore.
The good thing about whiskey is that it is affordable, you can start from as little as a hundred dollars.
Daniel Lam, Bonhams
But for better or worse, investing in whiskey is still in its infancy, with only a decade of reliable data from which to source. Due diligence is imperative, losses are to be expected, and fraud is sometimes rife, with overpriced bottles on one end of the spectrum, counterfeit products in the middle, and labyrinthine trust patterns on the other.
âMacallan, which has always been the number one investment whiskey, has actually depreciated according to the RW101 index, so it can happen,â says Svantesson. “And while the whiskey industry is pretty tightly controlled and counterfeits aren’t as common as in the fragmented wine industry, you can still be unlucky if you don’t know what you’re doing.”
Experience is, of course, highly coveted, but common sense is also underestimated. Over the past five years, cask investments have been touted as the next wave of whiskey investment, where speculators buy the liquid maturing in oak barrels, even before it can even be called legally. “whiskey”. An extensive Google search for “investing in whiskey” has plenty of ads and articles targeted for casks, with guaranteed annual returns of almost unheard of 20%.
âI strongly suspect that there is an emerging fraud in the barrel investing market, a classic Ponzi scheme with multiple sales,â Simpson said. âCompanies sell kegs on the basis of certificates and that’s nonsense – I could give a hundred more people the same certificate of title, and I could sell that keg multiple times. There is a very distinct way that things have to be traded in the whiskey industry and it is not. “
Owning a whole cask may sound alluring, especially with prices advertised for as little as US $ 1,000, but experts say basic checks such as sampling the whiskey, getting accurate measurements of the bottles you will receive and tracking paper traces such as delivery slips and unique keg numbers are essential before any transaction.
Despite the whiskey’s recent track record, it is difficult to predict the future of the asset as a stable investment. Of particular concern is mass speculation on the high end of the spectrum, with fears of a possible bubble emerging, although many say there is nothing to worry about, especially if you are aiming for the long term. .
âThere is currently a new Discovery Distillery in almost every country in the world, and this globalization of whiskey will only stimulate demand for older and rarer whiskeys,â says Shirley. âAs an asset class it will certainly continue to remain popular – we don’t know how this will be reflected in prices, but it’s not bubble territory like we’ve seen in fine wine assets. . “
Indeed, the wine offers a clue through the lessons learned: mass speculation on Bordeaux vintages ultimately caused a stock market crash, but which sparked increased interest in Burgundy. Likewise, while top-notch scotches decline, rare Japanese whiskeys are steadily increasing, especially as distilleries stop whiskeys with mention of age (Suntory’s Hibiki 12 and 17 are the best known, but even Entry-level Hakushu and Yamazaki 10 are now selling for 10 times their original retail price).
Other countries to watch, according to Svantesson, are Ireland (“the birthplace of whiskey”), Australia and Taiwan. And for investors who want to take a swipe, now is the time, with affordable bottles offering the best returns. âWhat is fascinating are the significant increases in the low end of the market, between US $ 500 and US $ 2,000 per bottle, with a lot of stress and significant drops above US $ 5,000,â explains Simpson. âIt’s a result of Covid – people are more careful. They are not willing to spend $ 10,000 for a single bottle, when you can buy 10 and democratize the risk in different distilleries. “
While Covid still creates uncertainty and bubble shouts in everything from global stocks to housing, the majority could be bullish – but even if the asset does crash, as Micallef puts it: âWorst case scenario , you can still drink up your investment. “