A serial entrepreneur, Anthony Zhang, was pondering alternative investments and fell into wine. With superior returns to the S&P 500, less volatility, and low correlation with the stock market, wine investment seemed like a perfect category to democratize with technology. Anthony tells us why people should consider investing in wine, the Vinovest investment process, and how wine investment may impact the wine industry. All with a mission of lowering the cost and barriers for the average consumer to invest in wine.
Detailed Show Notes:
- Anthony’s background
- He grew up around the world, childhood in Beijing and Hong Kong
- Went to USC for college and founded EnvoyNow, a food delivery service for college campuses with investment from Mark Cuban and Peter Thiel
- Was considering alternative investments and was attracted to wine over others (e.g., art, cars)
- Wine investing challenges
- Hard to get access to the wines
- Fees for auctions, shipping, and storage
- Investment thesis - fine wine has outperformed the S&P 500 over the last 20 years, has half the volatility, and has a low correlation with the stock market (i.e., is a good hedge); wine also has a decreasing supply over time, which enables appreciation over time
- Vinovest investment process
- Choose how much to invest, how long to invest in (e.g., 5 vs. 20 years), and your risk appetite (e.g., blue-chip wines like 1st growths or Grand Cru Burgundy or “emerging markets” like newer winemakers, ownership changes, etc.…) => this helps determine which wines to invest in
- Invest in whole bottles or cases, not fractional bottles or fractions of a portfolio
- Acquire, store, and insure wines
- Vinovest can help sell wines as well
- Fees - all-inclusive 2.85% / year asset management fee
- Access/procurement of wines
- Shipping and wine storage
- Insurance
- Average bottle price ~$200-600/bottle
- Acquire wines below retail by buying direct from negociants or wineries
- Currently managing ~$50M (as of Sept 2021)
- Can take physical delivery of wines - but often stored in Europe, so can arrange for batch delivery with others to reduce shipping costs (from hundreds of dollars to <$100 for shipping)
- Valuing wine and liquidity
- Vinovest plugs into major wine exchanges (e.g., Liv-ex, Wine Owners, Cavex, Berry Bros, Bordeaux Index) to gather real-time sales data
- Selling wine - only invest in whole bottles and cases, so there are more places to sell to, including retailers and restaurants. Most deals are done offline
- Good liquidity for 5-15-year-old wines
- Need at least a 5 year time horizon to realize returns
- Investable wines
- Need scarcity (not available widely), track record of improving with age, and brand equity (a sought after, globally recognized brand)
- Regional mix - ~25-35% Bordeaux, #2 = Burgundy, #3 = Italy (Super Tuscans, Barolo), small amounts of select producers in California, Chile, Germany; vintage Champagne having a resurgence (e.g. - 1996, 2002 vintages)
- Algorithm for determining wines backtested back to the 1980s
- Fake/counterfeit wines
- Provenance/fraud are the most significant risk for newcomers => Vinovest’s insurance company inspects and authenticates the wines
- Vinovest only buys in-bond so can track the previous owners
- Key players in the wine investment space
- Mainly in Asia and Europe
- Private Banks have wine funds, UK (Vin-X, Wine-ex, Cult Wines)
- Vinovest differentiation - more technology-driven, collect more data and aggregate it to create automated investment strategies
- To address wine funds that fail - each investor owns their wines with an audit trail that shows the wine is theirs
- Wine investment impact on the wine industry
- Wine prices may increase as more players enter the investment market
- Climate change is increasing prices through lower yields
- It won’t impact commercial wines (e.g., $10-20 bottles), but fine wines
- Auction houses - the modern investor isn’t okay with paying 20-25% premiums
- Regulation
- US - wine is classified as a collectible, like art or rare coins, and is subject to capital gains tax when sold (self-reported)
- Int’l - some countries, like the UK, France, and parts of Asia, wine is classified as a “wasting asset” with an expiration date (often 50 years) and is capital gains tax-free
- Next for Vinovest - want to continue to educate consumers on the benefits of wine investing, intends to create a low entry point to make wine investing more accessible
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