Despite the fact that the Dinghong Fund, China’s first government approved wine fund, has yet to purchase a single bottle of wine, it is already coming under fire from some sectors of the industry.
The first problem, as some see it, is the fund’s decision to appoint a Bordeaux merchant as its chief supplier. There is a potential conflict of interest here, as there is no guarantee that the negociant won’t be tempted to dump all its unwanted stock into the fund. This would be a real concern for potential investors. Vintex SA, the negociant in question, has responded to criticism by pointing out that the company is not a consultant to the fund but simply its chief supplier. They also point out that it is the board rather than Vintex that ultimately makes the purchasing decisions. Vintex argue that, with the glut of counterfeit Bordeaux wines on the market, the fund require a strong partner in Bordeaux to ensure the authenticity of their products. They also point out that a portion of all the wine acquired by the fund ends up in members’ cellars, giving the fund an added incentive to ensure the quality of its product and lending the fund a healthy, non-financial aspect to its dealing.
Concerns have also been aired regarding the fund’s sheer size, about £100 million built up in £20 million annual purchase installments. These large numbers have left some commentators nervous about the fund’s ability to liquidize stock, especially in the event of a serious downturn in the market. Acquiring adequate staffing levels for getting rid of excess stock has also been raised as a potential problem, as has the ability of the wine market in China to absorb such a huge quantity of wine.
Although the money is not yet in place to start buying wine, the fund and its partners are bullish about its prospects, with potential annual returns for investors quoted at %15. Risk will be minimized by spreading investment over many vintages and not just cherry-picking the top names. This is very much in line with current Bordeaux negociant practice, whereby an investor is forced to purchase lower quality growths alongside the very top cases.
Investment for private individuals starts at £100,000.
For businesses the entry level investment is £835,000.