Investing in rare whisky: potent asset class comes of age
Investing in rare whisky: potent asset class comes of age
The Craft Irish Whiskey Company smashed all records when its Emerald Isle Collection sold for $2 million (£1.52 million) with an NFT (non-fungible token), last year. These intoxicating prices are becoming increasingly common with rare whisky experiencing a meteoric 483% rise in value over the ten years to 2021, the Knight Frank Luxury Investment Index found.
By comparison, vintage cars rose by 193%, luxury handbags by 108%, collectable coins by 72%, fine art by 71% and fine wine by 127% in the same timeframe, the index shows.
The average per-bottle price hit £426.58 by 30 June 2021, according to Rare Whisky 101, a whisky indices company. Full-year data for rare whisky sales in 2021 has not yet been released, but Rare Whisky 101 predicts a 40% increase in 2020 sales values.
This rise in value is not limited to bottled whisky either. Investor interest in Scotch whisky casks was valued at $40 million in 2020, according to the IWSR, a global benchmark for wine and spirit data. The broader market closed the first half of 2021 up 9.06% with a full-year estimate of 17.5% growth in investment values, according to Rare Whisky 101’s Apex1000 Index.
As with many alternative assets, whisky does not correlate with traditional financial markets, the University of South Africa found. So, when the pandemic hit, the value of top-end whiskies barely flinched. When the S&P 500 dropped by 34% in August 2020, the value of rare Scottish single malts rose by 3%. By the end of 2020, that figure had risen to 11%. And, as inflation climbs and Russia’s invasion of Ukraine rocks financial markets, this trend looks likely to continue.
What’s behind rare whisky’s high prices?
Buyers’ enthusiasm for investing in and collecting whisky is one of the key drivers of this growth. It is often described as a classic passion investment.
The industry’s supply and demand dynamics are appealing. If there is only one cask of a collectable whisky, there are only 54 bottles in a global supply. If one of those bottles is drunk, the remaining 53 are even more valuable. Some websites crash following a new release, leaving secondary and auction markets as the only place to buy.
What’s more, rare whisky’s rise in popularity has also coincided with the industry successfully selling into China and other Asian markets. Asian buyers are investing heavily in Scotch, says Rupert Patrick, CEO of Whisky Invest Direct. “People think it’s a very attractive asset,” he adds.
Between 2000 and 2021, the Scotch whisky exports to China went from £107 million to £198 million, according to the Scotch Whisky Association (SWA). Taiwan, Singapore and Malaysia are also growing markets. In 2021, exports of Scottish whisky to the Asia Pacific region increased in value by 21%, the SWA reported.
While Scotch prices remain far higher than Asian whiskies, Japanese distilleries such as Karuizawa, Yamazaki, and Hanyu are increasingly growing a reputation for fine whisky. In fact, rare Japanese whisky saw a 40.45% rise in value in the 12 months up to 31 January 2022, Rare Whisky 101’s Japanese index shows.
A 54-bottle set of Japanese whisky, the Hanyu Ichiro Full Card Series, recently broke records when it sold for $1.52 million at Hong Kong’s Bonhams’s Fine & Rare Wine and Whisky auction. The previous record for the most expensive Japanese whisky collection ever sold had been set the year before when a full card series sold for $917,000. Old age stated Yamazakis from Japan have also seen strong sales in recent years.
However, there are global increases in demand. It is not just in Asia. In 2021, Scotch whisky exports increased by 8% in the US, 21% in the Asia Pacific region and 71% in Latin America (albeit form a lower base), according to the Scotch Whisky Association.
Are whisky’s high prices a bubble?
Some argue that rare whisky’s intoxicating increase in value is a red flag. “Much of whisky’s dramatic rise has been fuelled by investors thinking there’s a quick buck to be made,” says Rupert. “It won’t last forever – it is a bubble,” he adds. “If it all goes wrong, would you be happy to just sit there and drink it? If not, you’re just speculating on an asset class.”
However, other experts disagree. Some suggest that while anything is possible, the market’s bullish characteristics make it unlikely. Others cite the tangibility of a bottle of whisky: “Bubbles burst and leave nothing. You can’t have nothing with whisky,” said one industry expert.
Should you buy bottles or casks?
Investors can buy whisky in both casks (barrels) and bottles. There are pros and cons to both, so some investors buy both to hedge against the other’s potential downsides.
Once whisky is bottled, it won’t age anymore, whereas whisky in casks continues to age, gathering value while doing so. The barrel market has proved itself to be resilient in recent years, seeing significant growth despite economic turmoil. Barrelled whisky kept for at least six years returns, on average, 60% profit, outperforming FTSE shares and London property.
However, cask investors in particular should be aware of the risks as well as the rewards. As long as the closure of a bottle of whisky is good, it can outlast its owner by multiples of ten. Whereas, if whisky remains in a cask, over time it will evaporate or the flavour will go off. Casks can also crack and leak, creating the potential for total loss.
Barrels can be vulnerable to fraud. This is partly due to the three-way relationship between the buyer, seller and storage warehouse. Warehouses storing casks are licensed by HMRC as holding duty-suspended bonded goods. “Certificates of Title” are given outlining this along with the details of the cask owner.
Rupert agrees: “Certificates, as a way of proving ownership, are a very bad thing in a whisky environment. The barrel sits in a government-regulated warehouse and, if your name is not on the warehouse keeper’s records, then you don’t own that whisky.”
Wholesale whisky prices have risen by roughly seven to eight per cent a year, over the last 40 years, according to Rupert, so it is not a quick in-and-out investment. “Invest for three to four years minimum and be prepared to sit there for medium to long-term too, the market can go down,” says Rupert.
Combating fraud and high mark-ups
Whisky Invest Direct works to overcome some of the challenges faced by the cask industry. As whisky often sits in a barrel for eight to nine years, value forecasts can often be unreliable. Whisky Invest Direct manages the long-term inventory of distilleries and allows investors to buy and sell casks at the wholesale level without any mark-up on the price.
To combat fraud, the company has a transparent online audit that publicly states ownership, where the cask is stored and the cask number. The value of the barrels is backed up by Whisky Invest Direct, its bank and warehouse managers. The company is also insured against cask leakage.
Some are using NFTs to prevent fraud. NFT stands for “non-fungible token” which is a digital code that lives on a blockchain. When the William Grant and Sons distillery sold 15 bottles of 46-year-old Glenfiddich whisky for $18,000 a bottle, each one came with its own NFT which includes artwork and a counterfeit-proof ownership certificate.
For those planning to enter the whisky market, Rupert recommends doing price research before making any purchases. “Most people don’t understand what whisky costs. That is a very dangerous place to start from,” says Rupert. “A new barrel of whisky costs about £300-400 but some companies will sell for £3,000 to £4,000.”
Like fine wine and art, whether you can profit from whisky depends entirely on what you’re buying. The most profitable are usually rare whiskies from a famous distillery, such as Bowmore, Dalmore, Macallan. Without a good understanding of these values and other market dynamics, it can be hard to turn a profit.
For information purposes only, not a recommendation to buy or sell.
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This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.
Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested.
This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements.
All data contained within this document is sourced from Cazenove Capital unless otherwise stated.