The London International Vintners Exchange, popularly known as Liv-ex, is one organization that operates phone and Internet-based trading within the industry and in turn provides a wealth of information for fine wine investors around the globe. With the help of Liv-ex, fine wine investment has grown in popularity and is now considered to be one of the better performing alternative investment vehicles available. Today, there are 22 countries with 270 wholesalers located all over the world who engage in anonymous trading with Liv-ex.

Wine investors today are either those who buy into investment funds and or the tangible asset itself. In the United Kingdom alone, more than 2 billion dollars worth of fine wine is kept in bonded warehouses, all owned by either funds or private collectors. Furthermore, the market for fine wine investment has already reached 3 billion dollars annually and is continuing to grow exponentially.

Keep in mind that Bordeaux wine is almost the entire basis for the Liv-ex index, in part because those who grow Burgundies tend to have a greater influence over their wine distribution systems. Of the wines on the index, 91.33% are made up of red Bordeaux wines, 3.49% of Burgundy red, 3.32% of Champagne, 0.63% of Italian wines and 0.19% of Rhone wines. In addition, the hall of famers for this list are vintages ranging from 1986 to 2006 from Petrus, Ausone, Cos d’Estournel, Haut Brion, Cheval Blanc and Lafite Rothschild.

According to many, the market for this type of alternative investment has a strong potential for long-term growth – and demand. This demand is further augmented by increased interest from new markets in the Far East and India. With a naturally limited supply and increasing demand, the potential for fine wine investment truly goes up every time a bottle is opened.

Finally, a change in law was made that allows wines to stay untaxed for a longer period of time, compared to the previous limit, which was only two years. As a result of this change in tax law, France introduced the Bordeaux City Bond, which was presented for the first time in June 2009. To date, the only real disadvantage that has been brought about by the growing popularity of fine wine investment is that individual bottles of wine are growing more expensive by the day.

During the last three years, the Liv-ex 100 index has soundly outperformed the FTSE 100 Index, and many savvy investors have taken advantage of this as an alternative investment option since the economic slump shook the people’s confidence in traditional stock markets. Liv-ex was created to track trades of 100 of the world’s most popular vintages, 90 of which are wines from Bordeaux, which seems to be in the midst of its most successful year on record. Furthermore, since wine is considered to be a diminishing asset, it is exempt from capital gains tax, and if it is held in an approved bond facility there is also no VAT.

Perhaps even more impressively, some wines have outperformed gold over a 25-year period, and this year is looking like no exception. In fact, the Wine Investment Fund, one of the few funds in this sector that has holdings totaling more than £20m announced that it is projecting an annualized return for 2009 topping 16 percent. Since these funds are structured to run for five-year segments, this would mean that 2005’s investors have doubled the amount of their initial investment. Also of note, the economic slump and credit crunch did not seem to affect the fund’s performance in 2004, when investors made an annualized 13.01 percent when the fund matured.

Since the Bordeaux 2009 vintage is not yet bottled and may not be best to drink for five or ten years, many savvy investors may choose to wait until the wine develops a strong trading history before getting involved. For this reason, many of the older vintages are still believed to hold the greatest potential for gains, since the quantity is limited and their popularity continues to grow worldwide.

Global fine wine investment turnover is now over £1.8 billion a year, much of this due to increased demand from the newly rich Asian markets, particularly China. Thanks to the greater transparency in trading due to online exchanges, especially the Liv-ex Fine Wine Exchange, there has been an increase in the number of new entrants into the investment scenario. In December 2009, the Liv-ex 100 had risen by 14.7% over the previous 11 months.

With limited and diminishing supplies coupled with increasing demand, the year saw a decent rise in fine wine prices. As usual, Bordeaux led the way, with Chateau Lafite seeing a price increase of more than 50%.

The outlook for 2010 appears attractive on three counts: firstly, new investors in Asia are continuing to fuel demand for premium wines. Secondly, with the slow but steady turnaround in the economies of the U.S. and Europe, demand is picking up again. Thirdly, more people are drinking wine more regularly these days than ‘harder’ drinks. In the UK, average annual wine consumption is now estimated to be 30 bottles per person.

Will returns on fine wines in 2010 beat the 15% (Liv-ex 100) achieved in 2009? Thanks to the very favourable growing conditions, the 2009 vintage itself is expected to be a great one – so we shall see…

Liv-ex
This Fine Wine Exchange is the leading market place for a network of fine wine investment professionals around the world. An electronic trading platform which provides excellent access to a trusted source of financial information about the wine market, it can also offer non-professionals various packages of information. It can be used by both wine merchants and professional traders or those who just want to keep track of the value of their cellar.

Decanter Magazine
Online version of noted British wine magazine that contains everything you need to know about good wine. It includes a database of over 20,000 wines from around the world, a ‘learn about wine’ tool with and all the information you need to know about wine courses, a wine auction price tracker, the ultimate guide to vintage wines and a wine forum.

Robert Parker’s Wine Advocate
This is the Independent Consumer’s Guide to Fine Wines by the most influential wine critic in the world. You can explore a database of over 135,000 wine tasting notes and read reviews and articles by some of the world’s top wine experts. ‘My Wines’ launching later this year will provide a unique set of tools for acquiring wine, managing a wine cellar and interacting with a community of wine lovers from around the world.

Vinotheque Ltd
A massively constructed 19th century grade II listed industrial building in Burton-upon-Trent houses the Vinotheque wine cellars. It offers the perfect environment for the long term cellarage of fine and maturing wine. London City Bond’s market leading systems have been extended to enable Vinotheque’s 4,500+ private customers to have full visibility of their stock over the internet at all times, as well as giving the ability to make and monitor orders online too.

Wine Spectator Magazine
The definitive wine magazine for wine connoisseurs containing just about everything you ever wanted to know about wine. With full access to a 218,000 strong wine rating database, all the latest news and tasting reports and learning everything about wine from tasting like a pro to buying strategies to storing and serving. And for the wine collectors, search an auction database, which tracks prices and performance for more than 12,000 of the world’s most collectable and cellar-worthy wines.

Wine Library TV
WLTV is a fully-fledged community run by fine wine and social media guru Gary Vaynerchuk. The viewers (self-named “Vayniacs”) convene on an extremely active forum, and have organized numerous off-line gatherings. He has up to 80,000 visitors a day. Gary and the viewers have teamed up with Crushpad in the past year to create the first ever community wine, Vayniac Cabernet.

Zachys Wine Auctions
Zachys is a purveyor of fine and rare wines with an ever-expanding worldwide auction market. As well as an auction division, (hosting 9 or 10 auctions a year worldwide) it also hosts an online retail store and has become the nation’s largest and most powerful retailer of fine Bordeaux. It also offers a private storage service. Its website offers thousands of selections of wine complete with label images and tasting notes and an inventory system that updates constantly.

Christie’s
The world’s leading art business offers fine wine auctions featuring vintage port and rare collections of bottles in parcels in which you can view, register and bid for online.

Sotheby’s
Sotheby’s wine department offers both auction and private sales specialising in offering the finest wine cellars in the world. Auctions are held in London, New York and Hong Kong featuring fine and rare wines for both current drinking and cellaring. If you are nterested in selling your wine, a detailed evaluation of your entire collection will be provided, along with a proposal of how to maximize the value of your wines and complimentary storage until sale. They also offer cellar management, recommendations on wines for investment and for current drinking.

Bonhams
Bonhams fine and rare wine specialises in auctions, valuations and appraisals of fine wine. Seven fine wine auctions are held during the year at New Bond Street in London, alongside a number of tutored tastings and events. The website offers online valuations for those thinking of selling, information on forthcoming auction sales and all the latest news and announcements within the wine industry.

Wine Anorak
This online wine magazine is a consumer-focused site giving reliable, interesting wine content, including buying advice, tasting notes, wine travel and featured articles. This site is by wine writer Jamie Goode and is designed to appeal to wine novices as well as long-term wine nuts. It has reviews and articles as well as a blog of vinous interest.

Jancis Robinson
World-renowned wine authority and Master of Wine Jancis Robinson delivers her tasting notes, wine news, intelligent and courteous members’ forum, and fine wine writing aplenty plus exclusive unlimited access to the world’s only online versions of the award-winning classic Oxford Companion to Wine and the sensationally detailed maps of the World Atlas of Wine.

Wine Pages
Online UK wine magazine which includes fine wine tasting notes, recommendations, articles on major wine producing areas, wine sites, visiting wine regions, wine appreciation course and quiz. It provides a very useful round-up of the week’s reviews from the weekend’s papers and some excellent contributors.

The Wine Doctor
Chris Kissack’s medically oriented wine site that includes independent opinions, recommendations, advice and restaurant reviews. The wine advisory tool is a resource packed with information and advice, aimed especially at the beginner, although there should be something of interest to everyone. Most sections concern storing, opening, serving and tasting wine. There is also advice on reading wine labels, as well as one or two articles on winemaking and other technical aspects, also an insight into the beneficial effects of wine on health.

Wine Searcher
This is the world’s number one search engine of wine stores, winery, and wine auction, price lists and catalogues. Up-to-date, with 4,025,433 offers from the price lists of 14,872 wine merchants, all refreshed (on average) three times a week. The site also offers a wealth of information about wine, whether you are a merchant, winery, connoisseur, a consumer, investor, or a wine marketing company.

The Wine Education Service
A specialist wine education company with qualified staff that provide wine courses and tastings in the UK to suit all levels of knowledge and experience, they also offer wine holidays.

Robin Garr’s Wine Lovers’ Page
This is the oldest, largest and most popular independent wine-appreciation site on the worldwide web. It focuses on wine education, value priced wines and wine-food combinations and includes tasting notes archives and active forums with worldwide participation.

Wine Topix
A wine community that helps people learn about wine whether a beginner or an experienced wine enthusiast. From wine tasting to buying wine and from reading wine labels to wine collecting. Comments and/or participation are welcomed in wine discussions within the forum.

Ebacchus
Unbiased wine ratings, reviews, tasting notes, wine labels, and information.

Arblaster and Clarke Wine Tours
Wine tours specialists with 22 years of experience. They offer the widest range of Wine Tours available, including their famous and original Champagne Weekends, a range of Wine Tours in the major vineyard regions of Europe, plus superb wine touring in the New World (destinations for 2010 are California, South Africa, New Zealand and South America for Chile, Argentina and Uruguay). All guided by some of the world’s wine experts

In sharp contrast to the gloom that prevailed in May (mainly brought about by hailstorms that caused extensive damage) many Bordeaux wine producers are actually excited about the 2009 vintage. They expect it to match, if not better, the 2005 vintage, till now trumpeted as the vintage of the century.

The excellent weather the region experienced in July and August has ensured that there would be a larger yield and healthier grapes with around 13% higher alcohol potential. However, whether the vintage will be truly exceptional or not, will depend on September’s weather.

While the French agricultural ministry believes the harvest will be at least one-third more than that of 2008, the average yield is expected to be around 35 to 40 hectolitres per hectare, in spite of the losses sustained in the hailstorm damage. At the moment it does look like Bordeaux will have a very good harvest.

Wine investors and oenophiles alike will be eagerly watching the harvest, hoping the hype that surrounds the vintage is no exaggeration.

With the Liv-ex 100 Fine Wine Index in September 2009 showing year to date increase of 12.2%, a good harvest could see the value of the index continue to rise. There are already rumours circulating that the recession may be over, so there could also be a return to the dramatic pricing that was seen with the 2005 en primeur. There is even hope that an excellent 2009 vintage will boost the prices of the 2008 vintage, which have already been rated very highly by American wine critic Robert Parker, who feels that the best of Bordeaux is yet to come.

According to the Liv-ex fine wine index, the Liv-ex 100 saw an appreciation of 4.6 per cent and the Liv-ex Claret Chip increased by 5.9 per cent in August 2009, the biggest monthly increase since 2008. Overall, prices increased between 10-13 per cent from January to August. According to Liv-ex director Andrew della Casa, “This return has been achieved with very little volatility – seven of the eight months have seen positive returns.”

The escalating price trend is being led by Lafite Rothschild, with heavy demand in the lucrative Far East markets, particularly Hong Kong and China. The 1982 vintage was selling at a staggering £24,000 a case and the 2000 vintage for £12,500 a case. This in spite of the fact that August usually sees a slowdown in the fine wine trade. The combination of rising prices and robust trading on the Liv-ex Fine Wine Exchange is an encouraging sign for the market.

It is not just Lafite that was pulling in buyers, many of its Bordeaux peers were also in heavy demand. If the trend seen so far continues, there’s no doubt that the second half of 2009 could be an encouraging one for fine wine and fine wine investments.

What is remarkable is that the index is now only 14% short of its all time record high, set in June 2008. The collapse of Lehman Brothers saw prices slump by over 25%, but have since partially recovered. The past five years has seen the index increase 133%, a performance unmatched by any other asset indices, not even by gold, normally the perennial favourite.

Establishing a central registrar to record the transfer of title

As of now, the end buyer of en primeur Bordeaux wines has no legal title until they are physically delivered. This is a totally unnecessary risk for both the buyer and the seller. What happens if a supplier in the chain goes bust?
In the current economic scenario, asking both groups to pay in advance merely on a promise of delivery two years later is unacceptable. It would be better for all concerned if a central registrar is established so that the title for each case of wine could be transferred prior to actual physical delivery. Such a registrar could be located anywhere, even in Bordeaux. The registrar would remove the risk of loss to the buyer if the supplier does go out of business. At the same time, it would increase the depth and scope of the market for the producer/supplier.

Greater transparency with regard to the production figures and volumes that are offered for sale at the en primeur stage.

Today, a customer has no assurance as to the accuracy of a chateau’s information regarding its latest harvest and the breakdown between the first and second wines. There is also the question of how much of the total production is being offered to the market in the en primeur stage. It is not uncommon for chateaux to hold back a large portion of their production, thereby creating an artificial market for their wines. These figures should be published and be available for independent auditing so that the customer could make a truly informed decision about the relative merits (or otherwise) of each chateau’s offerings.

The tasting samples should be independently verified

The difference between 90 and 95 points or 95 and 100 may be a mere 5 points but in monetary terms it could be worth millions of pounds! So it makes sense to have an independent verification of the tasting samples offered by the chateaux. This will assure the consumers that the samples offered at the en primeur stage are genuinely representative of the overall production. In fact, such a system has been advocated by the Bordeaux chateaux themselves.

In conclusion

There are many arguments that suggest that the current system is working quite well and that the proposed changes are both complicated as well as expensive to implement. Considering that this year’s en primeur campaign was a lot more successful than was expected, there is naturally a reluctance to change. Nevertheless, in their own interests, the Bordeaux chateaux should push for reforms. The current worldwide economic crisis tells us that the impossible does happen and, in the worst-case scenario, the cost of doing nothing could be very, very high. The failure of just one major player in the supply chain could cause unimaginable damage to Bordeaux’s money spinner. There is absolutely no doubt that the benefits of the suggested reforms would reach everyone, whether producer or buyer.

Financial markets, which are generally reliable indicators of economic health, are showing encouraging signs of recovery in Asia. The Dow Jones Industrial Average may have risen 11.3 per cent in the second quarter of 2009, but Japan’s Nikkei 225 did better with a 23 percent increase. Of the other major equity markets, China’s rose 25 per cent and India’s shot up 53 per cent! What this means is that buyers in Asia, especially the growing number of rich people, have more money to spend. And they are spending some of it on fine wines, whose market is experiencing an unexpected revival.

As reported in The Times, at a Christie’s auction in New York, the highest bids went to Asian buyers. Similarly, at the Sotheby’s auction in New York, an Asian buyer paid more than $48,000 for a case of 1990 Le Pin, which was more than double the pre-auction estimate. In fact, each of Sotheby’s nine wine sales during the first half of 2009 exceeded the estimates, clocking up an impressive $19.2 million against the anticipated $14.8 million. Similarly, in Hong Kong, Sotheby’s did business worth $6.4 million, more than double what was pre-auction expectations.
In increasing numbers, Asian buyers are bidding at international auctions. In terms of numbers, they make up a mere 15 percent of the UK market, but in terms of value, they make up over 32 percent of the market.
Liv-ex, the London-based fine wines exchange, saw its index of fine wines from the top Bordeaux chateaux increase by 5 per cent during the first five months of 2009 in contrast to the fall of over 13 per cent in the index during 2008.

Justin Gibbs, a Liv-ex director, stated, “As far as we can tell, Asian buying has been sustained throughout the first half, and especially strong in the second quarter. Confidence levels in Asia seem pretty firm.”
Because of the recession, UK wine sellers were reluctant to take risks. While the distress sales in the wake of the global financial crises have tapered off, market rebuilding is still slow.

On the other hand, Japan, the richest Asian nation, has developed a taste for fine wines. During the 1980s and 1990s, while the Japanese conglomerates were taking over marquee American and European entities, their top executives were acquiring impressive wine collections. It is a matter of pride for many Japanese that, each year, the first year’s crop of Beaujolais Nouveau goes to Japan. And there is a huge market for other wines too. In fact, to reach out to a larger downmarket, some wines are available in plastic bottles!

The economic boom in China, while it has cooled off a bit, still has created a significant demand for fine wines among the newly rich entrepreneurs. Hong Kong’s zero wine tax, scrapping of duty and the weak sterling has had the effect of releasing huge pent-up demand.

Since their inception at the turn of the century, Liv-ex have consistently championed an enhanced level of transparency across the fine wine industry. assisting both consumers and those more focused on fine wine investment.

Their analysis of the 2008 Bordeaux en primeur season earlier this year provided an informed, independent commentary on the traditional annual between the major Bordeaux Chateaux, negociants and Europe’s leading fine wine merchants.

Even if the desire for increased transparency has not yet been mirrored entirely in the actions of the major Chateaux, it can only be a matter of time – which ultimately will only benefit consumers of fine wine.

As the first and the most successful of its kind, the London International Vintners Exchange is now arguably the world’s most important marketplace for the buying and selling of fine wine.

As one of 250 members in 22 countries across 4 continents, membership of Liv-ex gives Provenance (and therefore our clients) access to the best available prices globally for the fine wines we offer. It also enables us to provide the opportunity to sell wines back onto the secondary market almost immediately should any client wish to capitalise.

In order to join Liv-ex, Provenance had to be approved by a membership committee consisting of some of the most respected merchants in the industry, so in itself it’s a good indication that as a company we’re going about things in the right way.

“It has long been suspected that wine was a good investment, but because it’s been an opaque market, investors have been unable to quantify that, but we’ve been able to demonstrate that it performs strongly. Against that very big change in the demand dynamic for wine, you’ve also got a situation where supplies are shrinking.

Traditionally, it’s been northern Europe and Anglo Saxon markets who have been the main customers for Bordeaux/claret.

But that’s changed. The Far East has become particularly important, China and the newly rich in Asia. Top Bordeaux chateaux are becoming quality conscious, so if anything, they are making less wine. So prices are likely to go up.

I don’t think anyone is suggesting that wine should make up the bulk of your pension, but there is a case for having a small amount of your investment in wine.”*

*James Miles, Managing Director of Liv-ex, quoted in The Herald, July 8 2009: “Wine lovers pop their corks as rare vintages beat the recession”.

“In the last quarter of 2008 we saw a 20 per cent fall in the value of the index,” says Jack Hibberd from Liv-ex.com (London International Vintners Exchange), a platform that acts as an electronic marketplace for merchants trading fine wine. “Since then, we’ve seen an increase of about 4 per cent, and the market has stabilised.” This is encouraging news indeed when we observe that investing in fine wine can yield high returns over a relatively short period of time. For example, a case of 2000 Chateau Lynch-Bages Pauillac released at £450 in 2001 is currently priced at £1,200.

Even if you have a keen passion for fine wine and consider yourself a connoisseur, it is still advisable to make your investments through a wine merchant as the wine investment market is not regulated. As with any investment, it is important to use reputable wine brokers – you will want to ensure that the company or individual you are using will be trading in several years time. The right choice of broker should also ensure that the fine wine you invest in is stored appropriately (in a bonded warehouse with the correct atmospheric conditions for example) and is insured at replacement value, not the selling price.

It is vital to do your research and rest assured that you have made an informed decision. Here at Provenance Fine Wines we specialise in managing portfolios of superb quality wines, produced by some of the most highly regarded vineyards in the world. Our main aim is to assist our private clients in achieving their fine wine investment goals, mainly by offering the right wines at the right price at the right time.