INTRODUCTION TO WINE INVESTMENT

The trading of fine wine first began with the advent of the en primeur system – still in practice today – whereby major Chateaux request payment for wines early (whilst still in the cask and therefore as yet unbottled). This is so that they can more easily maintain the financial liquidity necessary to approach the forthcoming year’s production – and also to ensure that demand for their wines is consistent from year to year, even when the performance of the vintage is not.

Those buying wine in this way are generally happy to do so because of the attractive difference between en primeur and delivery pricing. However, as bottled wines are not released to market until 2-3 years after the vintage in question, consumers or investors must always be confident that their chosen merchant will be solvent when the time comes for delivery.

Fine wine investment strategy is not restricted to en primeur purchasing; any modern fine wine portfolio should expect to contain highly regarded back vintages, especially considering that since the incredible 2005 vintage en primeur prices have begun to climb closer to actual release prices. The selection of investment-grade back vintages increases the potential of the portfolio as a whole; particularly when one is able to take advantage of small movements in the market to pick up temporarily undervalued wines.

Historically fine wines have consistently been traded on for profit at various points within their lifespan.

These days more and more investors are choosing such alternative asset classes as an area of diversification; indeed, many now view fine wine as an essential element of any growth portfolio.

So how and why can fine wines rise in value?

Of course as a wine matures it increases in quality and this can be a contributing factor towards upward movement in price. However, of far more fundamental importance is the way in which pricing itself can be governed by the basic economic laws of supply and demand…