Transcript | Investing in fine wine

Episode 33 – Investing in fine wine with Atul Tiwari


Sarah Widmeyer  0:16 

Welcome to Conversations on Wealth hosted by Richardson Wealth, a podcast dedicated to helping Canadians navigate the complexities of your wealth with a multi-dimensional approach to planning and wealth management. I'm Sarah Widmeyer, Senior Vice President and Head of Wealth Strategies at Richardson Wealth. So, for many people investing means buying stocks, bonds and mutual funds, but if you're looking to further diversify your portfolio, you may want to consider alternative investments. And one that is particularly interesting is wine. It's an asset class that has really increased in popularity since the pandemic began. Some people see it as a hedge against volatile equity markets. Or, they may just have the mentality that life is too short, so why not invest in something they're passionate about? Today, we're talking about wine as an asset class, and how investing in this alternative class can be as effortless as drinking it. Joining me today is someone who knows a thing or two about wine, Atul Tiwari is Chief Executive Officer of Cult Wines Americas, a London-based wine Investment Company. Atul has extensive investment experience, which he's combined with his passion for wine to introduce this unique asset class to the North American market. Welcome, and thank you for joining me today, Atul.


Atul Tiwari  1:43 

Thank you for having me.


Sarah Widmeyer  1:45 

This is gonna be great. Wine investing is still relatively new in North America, but it started to attract more attention recently. It's also been a great investment compared to traditional markets in the last year. Can you start by talking a little bit about why this asset class is growing in popularity?


Atul Tiwari  2:08 

Certainly, yes. As you mentioned, fine wine has been a recognized asset class in Europe, and Asia for many years. It's a class that had not really been tackled in a, ugh, great way in North America, and so it's very exciting to be able to build an asset class like fine wine across North America. There are many investment merits to fine wine, and an obvious one is it's a great portfolio diversifier. The investment attributes are very low correlations to stocks and bonds, very low volatility. And the people listening who are investment geeks would know the term, low downside capture. What that means is when the equity markets, crash, wine performs very well, and so all of those things plus being a commodity, it's a great hedge against inflation. So when you look at what's going on in the markets and the world today, wine is a great place to be.


Sarah Widmeyer  3:16 

Yeah, wow. So tell me about the story of the company Cult Wines. Why and how was it founded? And what is the company's investment approach?


Atul Tiwari  3:28 

Right, so Cult Wines is headquartered in London, UK. And it started there in 2007. Our global CEO Tom Gearing, and his father started the company back then. And, since then, the company has grown to be the largest fine wine asset manager in the world. We have about $400 million worth of fine wine assets that we manage on behalf of clients, uhm, and as you pointed out, to CAGR over the last four to five years is about 27%, so good growth rates.


Sarah Widmeyer  4:02 

Wow.


Atul Tiwari  4:02 

And we have six offices globally, including Hong Kong, Shanghai, Singapore, New York and Toronto, we have about 90 people around the world. So a nice global team. And in terms of investment approach, it's just like any other investment, we will onboard our clients doing KYC, understanding their objectives, their time horizons, their risk tolerance, and then we'll match a portfolio of fine wine to those objectives. And so, what you're getting essentially, is a separately managed portfolio of fine wine, and you own the wine, and so ugh you can -


Sarah Widmeyer  4:46 

So you can drink the wine! (Laughs)


Atul Tiwari  4:48 

You absolutely can, ugh, and historically, about 80% of the wine that we manage, we sell and about 20% clients will say, oh gosh, you know that, that case of 2000 Lafite that's been in my portfolio, well, maybe I won't sell it, maybe I'll take possession of it and enjoy it. So -


Sarah Widmeyer  5:06 

Wow


Atul Tiwari  5:06 

It's a, it's a great asset class for that. And as you pointed out, people tend to be very engaged with their portfolio because it's fun.


Sarah Widmeyer  5:14 

Well, yeah, totally. That's so fascinating. We know that portfolio diversification is a key advantage of investing in wine. This is what you're saying. What are some other advantages for investors?


Atul Tiwari  5:27 

Right? Yes, I think we covered a number of the advantages. The other thing that I should point out is you do have an opportunity for some very good returns. And historically, at Cult Wines, we've averaged a, on an annualized basis about a 12% return. So in addition to the portfolio diversification benefits, you also have, as I mentioned, an opportunity for decent returns. And just to kind of underline the point, if you look at how the fine wine index has performed, and yes, there are fine wine indexes, run by a, essentially a wine exchange in London called Liv-ex, how it's performed in these times year to date, at the end of April, it was up about 8.65%,


Sarah Widmeyer  6:12 

Wow


Atul Tiwari  6:12 

ugh whereas the S&P was down about 16, or 17%, so all of the things that we're talking about are actually proving themselves during these more volatile times.


Sarah Widmeyer  6:25 

Wow. So how does it work? How does an investor begin?


Atul Tiwari  6:30 

So as I mentioned, we do on board with KYC. Okay, and uhm,


Sarah Widmeyer  6:35 

then for those listening, that is, maybe you can tell us what a KYC is, right?


Atul Tiwari  6:39 

So that's know your client that's getting to know your client, their financial situation and their objectives over time.


Sarah Widmeyer  6:46 

Okay. Okay.


Atul Tiwari  6:46 

So we do on our website at the first level, you can onboard at $12,500. And it's purely digital. So it's essentially like a robo where you would come on board, complete the Know Your Client questionnaires, and then our algorithm will match you to a fine wine portfolio and then rebalance that. When you get up to the $45,000 level, you do the same thing, only the difference is you get a dedicated Portfolio Manager, so now you get to talk with a real person, as well as have regular reviews of your portfolio, and someone is always there to answer your questions or discuss what's going on in the markets.


Sarah Widmeyer  7:29 

Wow. Okay. That sounds simple enough. Earlier, I referenced that last year, wine was a better investment than several traditional markets, including the Dow Jones, gold, the uhm FTSE 100, how has wine performed over volatile periods,  like the recent downturn, you were mentioning really quite well. But what does the historical long term performance look like?


Atul Tiwari  7:57 

It's proven to be quite resilient. And when you look at the Liv-ex 1000, which is the fine wine index, and its performance over the last 15 years, on a calendar basis, the year with the biggest drawdown was only negative 4%. And the year with the highest return was 30%. So a lot of the cushion that you get by being an investor in fine wine is driven by simple economics, it's supply and demand, we estimate, you know, in any given year, they're probably producing about seven or $8 billion worth of new investment grade fine wine. And of course, it's a commodity so it gets consumed. As the fine wine gets consumed, obviously, with demand staying where it is, and growing, prices go up. And so it's ugh, it comes down to, again, sort of simple economics. Ugh, and beyond that, as I mentioned, we're the largest asset manager in the business, and at only 400 million dollars, you can see, therefore, the market is quite fragmented. And many of the collectors and investors tend to be people who, if they need to access cash, fine wine probably isn't going to be the first thing that they liquidate uhm, to, to access cash, but many of them will be able to ri-, withstand and ride through volatile times like we're seeing now.


Sarah Widmeyer  9:25 

Interesting. Sadly, we're all aware of the impact that climate change, higher temperatures, more extreme temperatures, drier conditions, colder temperatures, everything is going into extremes. And my husband and I were watching something on television the other night, and it was a show talking about how it really is having an impact on where wine is grown. And the traditional areas that have been very bountiful and produced wonderful wines, I would suppose are still producing wonderful wines, but it's opening up new areas for wine growing. Have you seen this? And maybe you could expand a little bit on how climate change has impacted the wine growing regions. And what does that mean for the wine industry as a whole?


Atul Tiwari  10:14 

Right, climate change is definitely a factor in the wine world. And as investors in wine, we need to be on top of those issues as they happen or are predicted to happen. And I think a good case in point is last year, as you've mentioned, colder temperatures, we're tending to see more in France, harvests where the buds will break early. And then unfortunately, the vineyards get hit with frost later after the buds have broken. And so what that does is it essentially kills the buds and the grape won't grow. We saw that last year, in late April with a severe frost that damaged 50 to 60% of the wines in Champagne, and burgundy and Bordeaux. So naturally, when you're already dealing with a commodity, that's, it has a finite supply, when things like that happen, it reduces supply, therefore, drives up prices, because the demand is still there for these great wines around the world. But the supply isn't there. And, so, not just in France, but we're seeing obviously in California, more wildfires, more drought, there's been vintages where the producers couldn't make wine because their grapes were too smoky. And also last year, unfortunately, we saw floods in Germany, that impacted uhm, impacted grapes there too. So those are some of the negatives, obviously uhm, from a wine consumer standpoint. But uhm, on the positive side, as you've mentioned, some regions that previously were not great places for growing grapes for wine are becoming so. Uhm, and an interesting place to watch right now is Southern England (laughs in anticipation).


Sarah Widmeyer  12:07 

Yes, that's the show that we saw.


Atul Tiwari  12:08 

Oh, was it? Okay.


Sarah Widmeyer  12:09 

Wine in England,


Atul Tiwari  12:10 

Right. The soils in the rock are somewhat similar to what you'd see in Champagne. So for years, they've been making sparkling wine out of the region. But as things warm up more, that wine's actually getting better.


Sarah Widmeyer  12:25 

Wow.


Atul Tiwari  12:25 

And last year was the first time we saw on the exchange, bottles of English sparkling wine being traded globally. So-


Sarah Widmeyer  12:33 

Interesting.


Atul Tiwari  12:34 

Yeah, it is. So you know, we were interested to see just where some regions develop as a result of climate change. One of the other interesting developments was in Bordeaux, for those who are listening who are wine knowledgeable, uhm, for hundreds of years, Bordeaux had mandated that only five types of grapes could go into a bottle of Bordeaux. You were only allowed to grow those and put them in the wine. Recognizing climate change, the council that governs wine in the area, increased that to 10 by adding varieties of grapes that do well in humid and hot and dry conditions. So that was ugh, quite a big move by a very traditional region.


Sarah Widmeyer  13:19 

Right.


Atul Tiwari  13:19 

And so as we look at it and think about it, our grandchildren probably will enjoy Bordeaux, but it may taste very different from what ugh, what we're drinking today.


Sarah Widmeyer  13:29 

And what it's been for hundreds of years


Atul Tiwari  13:31 

That's, right? Yes.


Sarah Widmeyer  13:32 

Wow. Wow. It's fascinating. At the same time, it's deeply disturbing what we're doing to our planet.


Atul Tiwari  13:39 

Absolutely.


Sarah Widmeyer  13:41 

It's a topic for another podcast. (Extro music begins playing)


Sarah Widmeyer  13:55

It's such a fascinating topic. I'm so glad you were able to join us today. Do you have any other closing thoughts that you'd like to share?


Atul Tiwari  14:03 

I would just add that uhm, our mission has been to make fine wine, a more accessible asset class. And in the past, the whole world of fine wine has been shrouded in mystery and, and certain descriptions that you know critics will write and when you actually smell the wine, you kind of go "how are they getting those ugh, those ugh, scents from that wine." And I think unfortunately, it's been intimidating, uhm, and it's kept people out of the ecosystem, and out of all of the joy that wine can bring in sharing a great bottle with friends or your spouse or your kids if they're old enough to enjoy it. It's a very social thing. So at Cult Wines, we also find it it is important to provide education, so for people who are new and learning, it's not just about the investment, it's about learning about wine and enjoying it and sharing it. And again, that's sort of one of the things that we're passionate about and bringing greater inclusivity. Again, in the past, a certain demographic was prominent in the wine collection world or wine enjoyment world, but uhm, we're definitely seeing more women taking quite an interest in not just the investing side of wine, but the enjoyment of learning about wine. And, of course, also BIPOC (Black, Indigenous,) People of Color and, and others who we're encouraging to get into this space get into wine, because again, for a long time, it had been a place where it wasn't very inclusive.


Sarah Widmeyer  15:39 

Right, right. Well, I'd like to thank you very much for joining us today. We've learned so much from your insight about (the) fine wine market, and opportunities and benefits of investing in this niche asset class. If you'd like to learn more about diversifying your portfolio through alternative asset classes like fine wine, please reach out to your advisor or visit www.cultwines.com. And be sure to follow Richardson Wealth on LinkedIn or Facebook for a broad range of information on many planning topics. Thank you all for listening today, and be sure to tune in for future episodes and more great advice.