Appreciation of Alternative Assets

Text: Ajay Shamdasani—Benchmark Magazine  September 2010
Photo: Galerie Ora-Ora

For those seeking a literally more liquid investment, and one offering as much of a rush as seeing the Hang Seng Index breach 21,000, perhaps libations are in order, says Benjamin Curtis, vice president of Premium Wine Investments (PWI). There are a number of reasons why HNW individuals seek investment grade wines.

Vintage Primo
“At the moment it is capital preservation in the tough economic climate, coupled with safer returns”, says Curtis. However, some also regard investment grade wine as a way to diversify and some just look at it as an enjoyable investment, one that can be a talking point with the bonus of great returns.

Moreover, fine wine investments are tax free because wine being stored in bond is free from VAT and duty. Plus, when investing in the physical asset one is always retaining value even in tough times, “wine is very resistant to the market downturns”, according to Curtis.

“Due to the very low supply and high demand, the fine wine market tends to recover very quickly from any market down turns,” he says. However, investors should deal with established businesses, because when buying especially En Primeur (wine futures), the system “is quite easy for unscrupulous companies to exploit as the wine is in the barrel and will not be delivered for 18 months to two years, thus giving time for the crooks to cash in and get out before the client even suspects wrong doing”.

Furthermore, some companies make huge mark ups on boutique wines, selling them as investment-grade. “Such wines often have no track record and very little following, so they will be difficult to sell in the secondary market,” says Curtis.

The most popular investment wines are from Bordeaux such as Chateau Lafite, Chateau Mouton Rothschild, Chateau Latour, Chateaux Margaux and Chateau Haut Brion. “With 80% of the world investment grade wines coming from Bordeaux, we stick to a tried and tested formula: buy the best you can afford, stick to the world’s most traded wines, and buy vintages that are in high demand,” he says.

However, there are some outstanding recent vintages such as 2000, 2005, and 2009. “2009 is being pegged as the best vintage for 40 years by some! Others to watch out for this decade would be 2003, 2006, and to a lesser extent 2004,” says Curtis.

As for the coming year, there has been strong interest in back vintages of 2000, 2003, 2004, 2005, 2006 and 2008, mainly due to the high release prices of 2009, making them seem like bargains. “My tip would be look for back vintages that are coming up to their drinking window or maturity time [the best time for drinking], as only one thing will happen – the supply with start to go down and down fast; this always pushes the prices up,” he says.

Virtuosic Gain
However, for the aesthetically inclined, artwork provides great investment and beautifying value. Former banker Henrietta Tsui founded Galerie Ora-Ora and resolutely believes that art is a sound long-term investment, for those with an active knowledge of it, and an appreciation of its quality,

“There’s no one set of criteria to judge art. Currently Asian art is very popular, as is American western contemporary art,” she says.

As an Asian, Tsui is optimistic on Asian art’s prospects. “Hong Kong, India and Japan are great sources of art and inspiration.”

Though buoyant, the former banker is cognizant of market conditions because art goes hand in hand with other economic sectors. “Asian art is on the rise because of regional economic growth. There was a Southeast Asian bubble, and the bubble of Chinese contemporary art burst in 2008, because of the financial crisis, but in generally, Asian art market has recovered much quicker than elsewhere,” she says.

Investments in tangible assets such as wine and collectible art are surprisingly robust and can provide favorable outcome in the long term.  Yet unlike equity assets these alternatives are far more pleasurable way of enjoying your investment.