Liquid Assets by Kate Galbraith

In the mid 1980s, Harvard’s Kennedy School of Government benefited from an unusual windfall. As the tale was related to The New York Times, a Harvard alum decided to sell “over 100 cases of superb Burgundy and Bordeaux,” with vintages from the 1950s, 60s, and even 1945. The asking price for the lot was $96,000, and proceeds over $45,000 were to go to Harvard.

Graham Allison, then the dean of the Kennedy School, consulted a wine expert who said that the bottles were collectively worth at least $200,000 (which the alum undoubtedly knew). He bought the collection for a bargain price – and quickly resold a portion of it, at a profit. The money went toward scholarships for the Kennedy School.

Little was kept for consumption. “We want to serve good wines but we certainly can’t afford to serve ’64 Lafite all the time,” he told the Times.

Academics would doubtless dispute Allison’s last point. But this story offers two useful pointers for anyone contemplating an entrance to the fashionable field of wine investing. First, a good wine collection can command large amounts of money – both the alum and Kennedy School made a profit. Second, holding on to rare wine brings special challenges: note that Harvard did not want to keep most of the wines over the long term.

These days, $200,000 for such a collection would be a pittance, since values for top-tier wines are soaring. The London International Vintners Exchange, better know as Liv-Ex, has seen its “fine wine index” double in the past 18 months. It comes down to simple economics. Demand is rising, including in the Far East, which showed little interest in wine until recently. Meanwhile, the supply of excellent wine is limited. If it were possible to increase production of exceptional grapes in California or France, someone would have done it.

New opportunities for wine investors are opening up. Europe is home to several fine-wine funds, though fees can be comparable with hedge funds. The Vintage Wine fund, based in the Cayman Islands and managed from London, advertises for a minimum investment of 250,000 Euros ($342,000 at press time) and charges 2 percent annually plus 20 percent of performance. Redemptions are quarterly. Arch Financial Products, another British group, is reported to be launching a new wine fund later this year. But beware: Experts say some wine funds have gone bankrupt in recent years, and, of course, it is always risky to pile on when the market is at a high.

A wine fund may soon open up in the United States, possibly this country’s first of its kind. Its prospective operator, The Wine Trust, is based in Connecticut and has an intriguing history. Richard Bakal, the Executive Director, began buying wines more than 30 years ago in order to build a private family collection. He has focused on top-tier Bordeaux-acquired on-site in France-for two main reasons. First, there is sufficient production. Second, they have a shelf life of decades; collectors do not want their wine to go bad after three years. “Occasionally a bottle from the 1870s shows up, and still turns out to be great wine,” he says.

When Bakal’s family ended up not as gung-ho about wine collecting as he had hoped, he turned his collection into a trust. He now sells his holdings to fine wine shops and high-end restaurants such as the 21 Club and Veritas in New York, Charlie Trotter’s in Chicago and the Lodge at Pebble Beach, near Monterey, California.

Bakal expects to start a Wine Trust 2, open to outside investors. Details are still evolving, but he plans to bring in professional management and hopes to have it running within a year. Some of the wines will be different. “My concept will be to expand from Bordeaux to investment-grade wines worldwide, including some in California, Australia, Spain and Italy,” he says.

Bakal has had great success in building The Wine Trust from scratch, but do-it-yourself collecting is not easy. First, for those who are not prepared to trek to the vineyards of France or California, it’s necessary to build a relationship with a trusted fine-wine shop. Then there are very restrictive laws about the reselling of wines by individuals – many states to not allow it at all, even to licensed retailers. Be sure to understand these laws before getting into the business.

Finally, investors should be prepared to hold the wine for a while, and find proper storage, since the best wine will take a decade or two to age. Then the rough decision must be made: Is it time to sell-or drink- the investment?

Connecticut Cottages & Gardens – 09.2007
  

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