The Platinum Whisky Investment Fund is due to open to investors in June, giving the opportunity to capitalise on the strong demand for single malt Scotch whisky. Annual sales of the liquid gold have increased by 190 percent in the past 10 years, according to the Scotch Whisky Association.
The reason for the interest among investors is that whisky is steadily rising in value. Production of aged whisky takes time and current demand is outstripping supply, especially in Asia.
Wine investment has grown tremendously over the past decade, driven largely by the Chinese and Southeast Asian market. While this may have calmed down a little for the broader wine market, the demand for fine wines, whiskies and other spirits continues to see healthy growth. Most of this is related to the fact that the Asian market is becoming increasingly educated when it comes down to what they collect and drink. Sophisticated Asian consumers are constantly seeking interesting and rare products, particularly from the West.
The private equity fund will buy large quantities of premium whiskies to secure a discount and then at a later date sell it direct to auction houses and privately to whisky buyers.
Purely as an investment, premium whisky has significantly outperformed other alternative assets including art, rare stamps, rare coins and fine wine. It is non-perishable and does not age in the bottle, therefore its price remains relatively stable and it is also easier to store than wine.
Single malt whisky is produced only at one distillery, is made exclusively from malted barley and is aged a minimum of three years in oak casks. It can only be made in Scotland.
A bottle of whisky from the Port Ellen distillery on the Isle of Islay 20 years ago would have set you back around £30. Each bottle is now worth about £1,500 as it is so rare. However, some fear investors could be in for a hangover if the bottom eventually falls out of the market. Like all investments, they can come down a lot quicker than they go up.
But for now prices continue to climb to record highs. “At the moment, rare bottle auctions account for just over £3m in sales,” said David Robertson, rare whiskies director at White & Mackay, which owns The Dalmore brand. But sales are growing at a rate of 20 percent a year and, by 2020, will be worth nearer £17m. “Only real aficionados used to buy whisky at auction,” he added. But recently, mainstream investment punters have been piling in too.
Singapore-based Kevin Cheng is director of Wine & Whisky Pte Ltd, which invests in whisky for its affluent clients. He said: “Most of the whiskies that we would invest in fall into what we call ‘investment grade’. This represents a small proportion of all the whiskies in the world and they are generally of excellent quality, limited production and are typically of the single malt variety, although there are some unique blended whiskies that fetch a decent amount at auction.”
As there are costs associated with transacting, bottling, distribution and storage of the whiskies, it makes sense for investors to consider investment amounts in excess of US$50,000. Whisky could make up part of an alternative asset portion of a balanced portfolio. It also acts as a good hedge to inflation, rising wealth and changing consumer demands. But make sure you already have property, equities, bonds and spare cash before investing in such a speculative, and surprisingly illiquid, asset.
Cheng added: “Given that the market for whisky funds is minute, most investors still prefer to buy the physical product to invest in, rather than a paper product. This will obviously mean that it is possible to own the whisky and drink it, if you decide you’d rather enjoy the liquid gold yourself.”
If you have developed a taste for investing in a dram or two, what are the best tips? First, pick single malts from renowned distilleries. While there are a number of good investment-grade whisky blends available, it’s the history and heritage of single malts that most investors look for. To track recent trends, check out the Whisky Highland Index, where recent top performers have included: The Macallan, The Dalmore, Port Ellen, Glenfiddich and The Balvenie.
Secondly, look for single cask releases and very limited
volumes. Perhaps the easiest way to hunt down rarity is to look for distilleries that have closed down, guaranteeing a finite supply in the market. Names like Port Ellen and Brora have achieved cult status among connoisseurs because of their rarity.
But probably the best advice would to be buy what you enjoy drinking. So if the bottom does fall out of the market, you’ll at least have the pleasure of swallowing your losses.