The Rundown – Your weekly SPAC Deep Dive (10/24/21)
Hello Again Friends,
With the recent success of the SPAC Vintage Wine Estates, I thought I would dig in to the wine investing market a little bit. What I found was incredible. I talked to my friends at Vint who walked me through the entire industry – and just how profitable and steady the market was. In fact, it was even growing through the dot com bubble, the great financial crisis and the recession. With the introduction of fractional investing into the Wine market, this is a trend I’m paying attention to in an industry that has no signs of stopping.
An Introduction to Wine Investing
The influx of money in the economy has resulted in a unique opportunity for retail investors to explore alternative investments opportunities, which were once exclusive to Accredited Investors, Hedge Funds, and Other Institutional investors. While the space is highly fragmented and includes everything from stamps to coins and retro video games, wine (and art) are alternative investments that are class-leading.
In the past 20 years, not only have investments in Wine delivered comparable annual returns to that of the S&P 500, but has done so without any of the volatility seen in stocks. This is because Wine has a low positive correlation with major stock indices and risk assets. Wine Investing helps individuals to mitigate the downside during turbulent times. When Stocks and Cryptocurrencies dropped in March last year (around 20-25%), Wine held its value.
More importantly, unlike stocks, alternative assets like Wine tend to be inflation-proof, ensuring that prices rise in conjunction with the current inflation. Given that inflation is currently around 5% and is likely to persist (‘Not Transitory’), Wine would be a good addition to every investor’s portfolio. High Net Worth Individuals routinely balance their riskier investments with stable assets like Fine Wine which is both finite and has had a relatively limited market.
A study conducted in 2012 showed that about one-quarter of high-net-worth individuals around the world own a wine collection, which on average represents 2% of their wealth. Wine goes a step further compared to other investments as it remains first and foremost a passion for many collectors. While some buy wine (less than 30%) specifically as an investment, it more commonly occupies a place of prestige and is often at the heart of formal occasions, business occasions, and makes for very appealing gifts.
The Economics of Fine Wine
The primary investment appeal of Fine Wine is that it is both tangible and seen as a stable store of value during uncertain times. Businesses can shut down, stock markets can close (like back in the 1940s) or worse take a nosedive and take years to recover. Fine Wine, on the other hand, stays resilient even when the economy is unstable. In that sense, investing in wine can be compared with a real estate investment portfolio, but without the downsides that come with it (maintenance costs, high inefficiencies, and large sums of capital required).
While Wine appreciates consistently, the quality and supply drive up prices over time. The quality of Fine Wine appreciates over time, making it highly desirable and sought after, resulting in more bottles being opened up each year, thereby decreasing supply consistently as the years go by. This unique supply & demand dynamic drives capital appreciation that is simply not possible in other alternative investments like Coins or Stamps, which are both non-perishable and less liquid.
Over the past few decades, auctions for prestigious bottles of Wine have broken records previously unheard of. Take for instance the 1945 bottle of Romanee-Conti, which sold for $558,000 in an auction in 2018 (only 600 cases in the world at the time of production), or the 1992 Screaming Eagle Cabernet Sauvignon, which sold for $500,000 back in 2000 (only 500 cases made each year).
So, if Fine Wine consistently appreciates over time, remains stable during economic downturns, and has a finite supply, why aren’t more collectors/investors looking at the market? The primary reason Wine Investing is routinely overshadowed by Art and other Alternative Investments is due to the fact that till now the market has displayed plenty of inefficiencies. These include Friction from regulations, high transaction costs, information asymmetry, and outdated investment styles. With the $400 billion wine and spirits market being largely opaque and inefficient, the whole industry is ripe for disruption.
Until recently, Wine investing involved a convoluted process requiring substantial capital (Starting over $1,000 per bottle) and the necessary connections to bid at an auction. But there have been several breakthroughs in Wine investing over the last few years that have now created an inflection point for the industry. Regulatory Advances have improved transparency, the Increase in Capital Inflows has improved liquidity and the Creation of Equity and Futures capital market for Wine and Spirits has created a platform for investors to access what was once a space exclusive to institutional investors.
Vint is one such platform that is looking to democratize wine investing while removing the common pitfalls that routinely come along with it. The platform offers opportunities for investors to buy shares in the collection of fine wine and other spirits. While most wine investment platforms have minimum investment requirements starting at $1,000, Vint enables anyone to invest in a collection with only $100. When a customer buys a share of a wine collection through Vint, they invest in an LLC that has ownership of every bottle in the collection. The investor will be able to hold shares in the Collection over the long term or sell their stake in a secondary market should the need for liquidity arise.
Vint also differs from its peers by being the only SEC-qualified Wine and Spirits platform, thereby increasing both investment transparency and encouraging sound investing. In addition, the team at Vint includes experts across financial services & wine investing and notably includes 2 of the 57 masters of wines in the US. The platform is off to a great start, having sold 10 collections with over $700,000 invested. Vint’s recent Spanish Collection, which was valued at $84,000 sold out in just 23 minutes, indicating that there is plenty of interest around the platform.
Vint is now planning to source a new collection offering every two weeks with offerings that also include Whiskey and Champagne. The current macroeconomic environment seems perfect for Vint as the current premium in valuations and subsequent low yields have led to investors searching for stability through alternative assets. By creating a platform for the Wine and Spirits market, Vint has not only provided a way for investors to transparently access the space but has also solved the cash flow problems that often plague the producers in the industry.
Amidst a low-interest-rate environment, high-risk assets continue to be volatile. Alternative Investments like Fine Wine, which has a low correlation with other assets, can help bring stability to the portfolio while delivering the same consistent returns that are seen in Stocks. With higher transparency, higher capital inflows, and an easy-to-use platform, wine investing is now easier to get into than ever before.