Investing in wine has traditionally been something limited to those with privilege and access, like wine experts or the ultra-wealthy. But it’s a super compelling investment, as wine has outperformed the S&P for the past 30 years, including during downturns. In this episode of The Agent of Wealth Podcast, host Marc Bautis is joined by Anthony Zhang, CEO and Co-Founder of Vinovest, a platform for investing in a managed portfolio of fine wines. The technology Vinovest provides creates a smarter way for all people to access wine investing opportunities, enabling greater participation and wealth creation.
In this episode, you will learn:
- The barriers traditional wine investing has created for incoming investors.
- The unique advantages of investing in wine.
- How the Vinovest platform works, including how wines are priced and how an investor’s portfolio on the platform is calculated based on their risk tolerance.
- The effects of inflation and climate change on the initial cost of wine, and the cost of fine wine.
- And more!
Disclosure: The transcript below has been lightly edited for clarity and content. It is not a direct transcription of the full conversation, which can be listened to above.
Welcome back to The Agent of Wealth Podcast, this is your host Marc Bautis. On today’s show, I brought on special guest Anthony Zhang. Anthony is the co-founder and CEO of Vinovest, an innovative platform aimed at facilitating the process of investing in fine wines. Anthony, welcome to the show.
Marc, it’s a pleasure to be on.
I’m really looking forward to today’s episode. We get to talk about two things I like: wine and investing. How did you decide to start Vinovest?
Wine As An Alternative Investment
So the origin story for Vinovest was almost five years ago. I had just sold my first company and was interested in learning more about the world of investing, but not just traditional equities and bonds. I was more interested in alternatives, because to me it seemed a lot more fun. I remember one day reading an article about what the world’s ultra-wealthy invest in – what asset classes – and to no surprise, at the top of the list was art, wine, whiskey and antique cars. Wine really caught my attention.
I wouldn’t consider myself a wine expert by any means, but that was the impetus for me to start exploring into the investing side of wine. After I did some research and looked at the historical track record of the asset, it solidified my interest and made me want to dive in.
Can you give us a quick high level overview of how the platform works?
How to Invest in Wine Through Vinovest
Vinovest makes it easy for anybody to invest in fine wines. We handle the portfolio construction, sourcing, custody and storage of the wine as well as liquidity for when people want to buy and sell out of positions. So it’s an all in one online platform. We actually custody these wines, insure them and make sure that they’re stored properly. We’re able to facilitate a more efficient and transparent market around an asset that’s typically only available at auctions, which are typically not entirely transparent.
So let’s say I’m an investor and I’m interested in fine wine. I go to Vinovest and create an account. Do I then see a marketplace of available wines that are ready to purchase?
Right now, the user experience is closer to a robo advisor. We don’t really put it on the investor to choose a list of wines. What we want to do is learn about your financial goals. How long are you looking to invest? What’s your risk appetite? Are you more on the conservative side or are you more on the aggressive/speculative side? What’s your investment amount? Where do you want to get to?
Based on those factors, our algorithm will actually be able to construct a portfolio of recommended wines for you. Then we deploy that capital on your behalf.
How to Select Wines Based on Your Risk Tolerance
Are there different risk profiles to wines, meaning one wine may appreciate quicker or depreciate quicker?
Absolutely. Just like global equities, wines have an equivalent of large clap blue chip stocks, like the Amazon or Apple of the world. In the wine world, those would be wines from regions like Bordeaux, Burgundy and Napa. Those places have a long track record of producing price appreciating wines.
On the more so speculative side, there’s the equivalent of emerging markets, which would be emerging wine regions – newer winemakers or wineries that have less of a track record, but have the potential to outpace the industry.
Makes sense. So let’s go back to Vinovest portfolio construction. So let’s say I go through the exercise of determining what my risk profile looks like. Vinovest then comes back with a recommended portfolio, and my money gets deployed. On the business side, are you actually going out and buying physical wine? Or is it basically a security that’s tied to wine?
The investor get the direct benefit and ownership over the wines. So every single investor portfolio is individually constructed, it’s personalized. We could tell you, “Hey Marc, these are your 10 cases of wine. Here’s exactly what they are and where they are.” You can even choose to redeem that wine if you wanted to. So it’s direct and simple ownership, and not any sort of derivative or security product.
How Wines Are Priced
Okay. So now I have a portfolio of wine. Am I able to track it, in terms of pricing? How is pricing determined?
Through the BMS platform, investors have access to the largest database of secondary market transaction data in the world. That’s how we aim to build live quotes and mark to market for your assets. So whenever someone in the world transacts that wine, we put that data point in as your last mark to market. The goal is to have pricing be as transparent as stocks, but 24/7. Investing in wine is a global market, and doesn’t have an opening or closing hour.
I know you mentioned the risk profile, but I imagine a component of that is an investor’s hold time. Because I would imagine different wines mature at different times. How does that go into the construction of the portfolio?
Hold time is extremely important. In general, wine is a long-term asset class, because the things that drive price appreciation are:
Supply and Demand/Scarcity
Say we produce a bunch of wine in 2021. 10 years later, there’s going to be less of that wine from this year, right? That’s because of consumption.
Depending on which wine, region and wine maker, there are different peak maturity time windows in which wine is believed to have aged to its top potential. For some wines in Bordeaux and Burgundy, it could be 25-30 years. For others, it could be 10-15 years. That time horizon is really important to set and agree upon with each of our customers, because it determines the age of the wine that we’re going to buy as well as the type of wine that we’re going to buy.
So fine wine has to hit it’s peak maturity for an investor to take the most profitable exit.
Is the asset liquid, or are there certain points when it makes sense to sell?
You can absolutely sell at any time, but when wines get close to that peak maturity period, an investor will see more liquidity, price action and more demand. That’s not to say that you couldn’t buy wine and sell it tomorrow. We’ve seen that before, but most of our investors have a long-term outlook to investing in wine.
Finding a Buyer
And if an investor decides to sell, are they selling back to Vinovest? Or are they selling to Vinovest, who then sells the wine to other investors? Or is there an actual secondary marketplace where wine is sold?
Vinovest is creating a secondary marketplace where you can interact with tens of thousands of investors. We also have external partners that are more on the consumption and distribution side – actual wine retailers or auction houses. We essentially match an investor with the best price. We don’t care if it’s Joe from Oklahoma, or a professional wine storage facility in Bordeaux. We just care about finding the fairest price for our investor.
What percentage of investors do you see physically redeem the wine, having them shipped to themselves versus either selling to a buyer?
Right now it’s about 1-2% of our users. I think we may see more of that as time goes on.
The primary reason that people are on Vinovest is to diversify their portfolios and make returns down the road, not to buy wine to drink.
That makes sense. Are most of your users wine experts, or investors looking to get into a different asset class?
The vast majority are the latter. They’re people who’re looking for great investment opportunity. A lot of them don’t drink wine at all. We’ve really designed the platform for the masses.
There’s definitely a niche for the existing wine collector, but if you’re familiar with anyone into collecting, they usually enjoy spending time doing the labor intensive process themself. Vinovest is more for the mass market of folks who don’t have that expertise, or time, or desire.
I know you mentioned supply and demand. Is there anything else that dictates the price of wine?
Supply and demand and age are the biggest factors that we see. Of course there are other external factors, like critic scores, which are similar to an analyst issuing a rating on a stock. Other factors that matter are brand equity, global consumption demands and taxes and tariffs.
For example, earlier this year, President Biden lifted a 25% tariff on European goods. When that happened, Bordeaux and Burgundy wine prices shot through the roof, since they were suppressed for quite some time given that tariff. Sometimes there are market factors at play.
Does Wine Ever Lose It’s Value?
Before we started recording, we talked about some of the similarities with investing in art and wine. Now, I know art can go on in perpetuity. With wine, there’s a maturity date, right? So is that the point where the asset looses it’s value?
At some point, wine is not good to drink anymore. Thenm it turns from an actual asset to more of a collectible or piece of memorabilia. If you look into the realm of really old bottles – maybe 40-50 years old – you’ll find they still go up at auction and sell for hundreds of thousands of dollars. It’s because, at that point, it’s a piece of history.
This year, wine from 1945 sold for $250,000. I bet you that wine does not taste good, but it’s probably so rare, or from an iconic year, or the last from a specific vineyard, etc. So people still want old bottles of wine for other purposes. That’s the point when wine actually shares more characteristics with art, because it’s value is really in the eye of the beholder.
At that stage, all you need is one buyer. So it definitely becomes less of an efficient market, but still has price appreciation and potential, even though the logical utility of the asset is diminishing.
It probably depends on the investor and the wine, but is there a typical hold time for portfolios on Vinovest?
Great question. Most of our investors are settling on a 5-10 year time window. That’ll give them enough flexibility with planning for a long-term asset in their portfolio, and it gives us more assets to choose from that’ll appreciate within that timeframe.
The Effects of Inflation and Climate Change on The Cost of Fine Wine
How does the price of wine react to inflation?
Over the course of the last 30 years, wine has outpaced inflation. It has a bit over 10% in annualized returns. This year, we’ve certainly seen prices accelerate because of inflation and supply chain issues. Things like labor shortages, material costs and an increase in supply chain expenses all drive into the initial price of new bottles of wine.
It’s tangentially related, but climate change has also played a big factor into the rising cost of wine. When the weather is more volatile, yields become lower and the wineries need to sell at higher prices to be able to keep up. So a lot of consumers are seeing less and less new wine released into the market. These consumers then start to target older wines – maybe 5-10 years old – buying up existing supply in the market. All of that has led to double digit annual returns for the average price of a bottle of wine on Vinovest.
I know you mentioned that you’re creating a secondary marketplace on Vinovest, so I get that works for the initial investor on Vinovest, whose selling their portfolio. But what about the investor that wants to purchase from a secondary marketplace. Can they actually pick specific bottles and cases?
Right now, the secondary marketplace is open to certain subsets of our users.
We do plan on rolling it out to the public, but to your point, the eventual version will be managed kind of like a robo advisor platform, and then a self-directed trading platform. Users who know what they want to purchase could actually take specific positions, instead of having a portfolio that’s more hands-off.
What are the ranges of prices of bottles?
We’ve sold bottles under $100, and we’ve sold bottles that over $50,000. It really does range. Just like the stock market, there are so many large cap, midcap and low cap stocks that you can customize your portfolio based on. It’s the same thing in the wine world, there are price points.
Does Vinovest charge a commission each time a portfolio is constructed? What does it look like on the company’s profit side?
Vinovest makes money by charging an annual fee. It ranges from 2.25%-2.85%, above the management, access to the platform… things like that. The most important thing we’re de-risking is the storage, custody and insurance. Unlike a hedge fund manager, we have real costs to keeping bottles of wine correctly stored. We also charge on a commission basis on the secondary market. So on a per-trade basis.
How Vinovest Wines Are Stored and Insured
You mentioned storage and insurance, I guess that’s one of the concerns investors will have. Is the insurance adequate to cover whatever size portfolio someone has?
We’re able to offer very robust insurance coverage on all the wines on our platform. Not only are they inspected at the point of delivery, but they also go through regular reappraisals as well as spot checks for damage and authenticity. If something does happen to the bottle, we have a replacement value (included in the insurance) so the investor doesn’t lose out.
So before Vinovest, if I wanted to invest in fine wine, would I have to figure out what to buy, where to buy it from, how to store it, how to make sure that it’s insured, and so on? Was that the only way to do it?
For most people, that was the only way. You’d need to be a wine seller yourself, or you’d need to be able to qualify to participate in an auction. Thenm you’d need to be able to do your own due diligence on which wines you think will go up in value. And then you’d have to coordinate your own shipping, which is extremely complicated given that it is alcohol from foreign countries.
When I started in the space, those were my options. The other options are investing in wine funds, but oftentimes you need to pay a lot of money to even meet the minimum check size. At Vinovest, we believe that it’s a 10x better experience for users.
Wine As a Hedge Against Inflation
I know you mentioned the average return over time for wine. How is it correlated with some of the traditional assets? Was there a big drop in wine prices in 2008 and 2009?
The correlation between wine and traditional assets has been very low for the last 10 years. I believe it’s, on average, less than 5% between wine and the S&P. For example, in ’08 and ’09, equities plunged around 50%, while the fine wine market only went down by 9%. If you look back even further to the .com crash, wine went down 12%, stocks went down 40-50%. So wine has proven to be a strong head during these recessional periods.
And what’s your favorite wine to either invest in?
From an investment standpoint, I’m really bullish on champagnes. They have the highest correlation between price return and age, so it’s an extremely steady and predictable asset. From just a supply standpoint, it’s really hard to create more of it because it’s such a labor intensive process.
Even the youngest Dom Perignon you see on the market is from 2011. It’s 10 years old because that’s their youngest vintage. So it’s a 10 year process to create this wine, and people 10 years ago did not know what global demand looks like today. That’s why champagne doesn’t stand still on the shelves – it’s just flys off. And, we’ve seen huge price increases – some are even triple digit – within the last year for some of these high-end, rare champagnes.
That brings up a good point. How often do you update the Vinovest models, based on what’s going on in the industry and the wine market?
We meet on a quarterly basis. That in includes our internal team members on the data science investment and wine side, as well as external advisors who helped to provide a more macro view, both in the wine industry and within global markets.
Cool. Alright, we’re just about out of time. Anthony, I want to thank you for being on the show. You provided some really great information on how wine can fit into an investor’s portfolio, and how Vinovest makes it easy. How can someone find out more about you, and your business?
Well, first of all, it’s a pleasure getting to know you. Thanks for the insightful questions. The best way to contact me is through my email, [email protected], and you can check out our website Vinovest. There, we have a great team that can walk you through the process and see if wine is right for you. It may be a great way to kickstart your 2022 portfolio!
Awesome. Thank you. We’ll link to all that in the show notes, and thank you to everyone who tuned into today’s episode. Don’t forget to follow The Agent of Wealth on the platform you listen from and leave us a review of the show. We are currently accepting new clients, if you’d like to schedule a 1-on-1 consultation with our advisors, please do so below.