Alternative Investments: Icap Founder Invests In Wine Trader Bordeaux Index
With the eurozone crisis making stock markets volatile, and with safe haven assets, such as gold, already exorbitant, it is hardly surprising that investors are looking for alternative places to put their cash. It is probably a measure of the uncertainty in the markets that few eyebrows were raised at the news that Michael Spencer, the City grandee and billionaire had bought a minority stake in Bordeaux Index, a wine trading and investment company that has ridden a wave of interest in fine wine as an investable commodity.
Gary Boom, Bordeaux Index's founder, describes the company as "the Goldman Sachs of the wine market".
"Wine as investment is a pretty resilient little vehicle," he said, speaking from Hong Kong. "If you take wine from when we started measuring in 1983 it has outperformed all the stock exchanges out there. Not by masses, but by one or two per cent a year. The only commodity that has stood up to that is gold."
Driving the demand is surging interest in China for fine wine, as well as a more relaxed tariff structure in Hong Kong. Boom said that the removal of 40% duty on wine by authorities in the city-state in 2008 caused an explosion of interest. "At a stroke it literally created a world centre for fine wine," he said.
In 2010, the international wine department at Christies, the auction house, reported sales worth nearly £46m, as sales in Hong Kong drove prices and volumes. While big auctions, such as the November 2010 £192,000 sale of a bottle of 1947 Cheval-Blanc, or the £345,00 paid - in Hong Kong - for a collection of Chateau Lafite Rothschild in September of this year, make headlines, there is a solid market for large volumes of more "accessible" bottles sold for a few hundred pounds.
The growth of individual wealth in China and other Asian markets has seen consumers develop a taste for wine, then trade up to finer, more expensive varieties as their incomes grow. It is the same trend that has seen luxury goods companies, from Burberry to Louis Vuitton Moet Hennessey, to gradually reorient their businesses eastwards.
Wine, even fine wine, is a more affordable luxury, Boom said.
"It's slightly different trying to sell Ferraris at £200,000 a go and trying to sell a bottle of Pichon Baron at £130 a bottle. Even at the top level you're talking the Mouton Rothschild and the Chateau Haut-Brion, you can still pick up vintages at £200 a bottle."
Boom, a former colleague of Spencer at the latter's brokerage firm, Icap, founded Bordeaux Index 15 years ago. With offices in London, Hong Kong, Singapore, Beijing and Shanghai, the company allows its 13,000 registered traders to trade wine in real time. Its annual sales are now more than £100m, Boom said.
Its scale is part of the reason for its success, according to Boom, allowing it, like a large investment bank in the financial markets, to see the flows of money and assets around the world.
"In the wine market it's similar [to the stock market], but it's an easier market to stock pick because that information is harder to come by. It does depend who you know. We think we are very good. We are the Goldman Sachs of the wine market. We tend to trade and have a lot better information than anyone else out there."
Spencer, a known wine aficionado, paid a "decent figure" for his stake in Bordeaux Index, according to Boom. But will he, and other traders, actually drink their investments?
"Well, I do, and I can't be the only person out there drinking it," Boom said. Mouton Rothschild 2001 you can now pick up for £250 a bottle. This is cheaper than most handbags. The last I looked in London there were a lot of very smart handbags around. It's the same as it will cost your to get your car out of the pound when you get clamped in London. So it's not excessive. You can drink some of the greatest wines. You can drink Pichon Baron or Montrose 2003 for £100 a bottle. It's a lot, but it's not top of the market."
"Our average price for a bottle of wine that we sell is about £130, and we sell well in excess of £100m. I would say 75-80% of that is drunk at some point."
CORRECTION: An earlier version of this report referred to Chateau Haut-Brion as Chateau Briand,