Peter Lunzer of Lunzer Wine Investments explains the role of wine as an asset class, including who buys it and why, as well as other features of this commodity.

Date: Dec 2011

Tags: Wine, Asset allocation, Correlation

• One of the biggest hurdles when presenting wine as an asset class to potential investors is the fact that they visualise the process of drinking and enjoying it
• The main reason for people looking at wine as an asset class is the fact that the economics are simple: there is finite supply for a global market market which is growing
• When looking at the structure of companies offering wine as an investment product, most of them are not institutionalised in terms of how the board or advisory panels are set up
• Wine custodianship is an important part of the investment process

According to Peter Lunzer in an interview, one of the biggest hurdles when presenting wine as an asset class to potential investors is the fact that they visualise the process of drinking and enjoying it.

However, they should treat it as a commodity, he explained, with its own inherent features, and one in which they can generally expect to see a rise in their capital over time.

Wine buyers

A variety of investors buy wine. For example, said Lunzer, these include family offices, institutions and private individuals. Yet the number of people who have started to look at wine as an asset class, compared with the number of consumers it has, is relatively small.

The main reason for people looking at wine as an asset class, he explained, is the fact that the economics are simple: there is finite supply for a global market market which is growing.

Wine has another unusual characteristic, added Lunzer – unlike assets such as gold, cars, watches, stamps, and possibly diamonds, every time a bottle is opened, this means there is one less left.

Getting access to wine

According to Lunzer, the challenge at the moment in getting access to wine is related to the fact that merchants have always been the main portal for individuals to buy stock and to hold it.

A relatively new trend in this area, however, is the development of structured products, enabling people to invest in wine as a commodity, but usually as a collective investment scheme.

But Lunzer added that when looking at the structure of companies offering wine as an investment product, most of them are not institutionalised in terms of how the board or advisory panels are set up. For Lunzer Wine Investments, he explained that it has only relatively recently got the suitable due diligence documentation in place, along with the track record, to give institutions comfort to invest and justify to their shareholders.

Growth potential

Given the turmoil in the world’s financial markets, and since wine is one of the most renowned weakly-correlated asset classes, Lunzer said he is now seeing enquiries from a broader range of wealth management firms, family offices, institutions and some individuals who don’t want to put cash in the bank and want a “safe haven”.

While there is no guarantee that wine is safe, historically it’s been extraordinarily consistent, he said.

When looking at investing in wine, Lunzer said the common risks for investors to be aware of are no different to those of other financial instruments, with portfolios potentially going down as well as up.

In terms of opportunities, he said Asia is a major player in today’s market, as is South America and India. Considering Europe and America used to drink every bottle they made, the rising demand in emerging markets and pressure on finite stock means that the risks seem quite low.

Custodianship

Investors like the idea of knowing that whatever they buy is safe, which includes wine also.

Lunzer said wine needs to be stored in an environment which is not necessarily temperature-controlled, but is one where the temperature doesn’t fluctuate and the humidity isn’t either too high or too low.

As a result, wine custodianship is an important part of the investment process, he explained.