Now’s The Time To Invest in Wine: Tiburon

Advisors seemingly enjoy wine more as a beverage and less as an investment. But they ought to think about the drink of the gods as an asset too. Or least so says Tiburon Strategic Advisors.

“In the market for alternative investments, none can be much more fun than investing in the wine industry,” Tiburon says in its report, “Wine Investments: Opportunities for Investing in Collections & Futures; Private Equity & Real Estate Investment Trusts; and Wineries & Vineyards.”

In its report, Tiburon predicts renewed growth of high-end wines; the emergence of sauvignon blanc and pinot noir; the emergence of new-world wineries; the streamlining of wine distribution; the emergence of the Chinese market; and the expected rapid industry consolidation.

Tiburon also says there are three ways to invest in the wine industry: first, collections and futures; second, private equity and real estate investment trusts; and third, wineries and vineyards. Here’s a snippet of Tiburon’s case for investing in wine:

Collections and Futures

• The US Auction Index is at 165, up 65% from 2006 but off its peak of 170 in 2008.
• Expensive rare Burgundy wines have become the star of the sales room at recent auctions conducted by the major commercial auction houses. The Wine Spectator Burgundy Index, up 40% from 2009. Tiburon says there’s robust demand for the very best burgundies in both Hong Kong and New York.
• For the record, Chateau Lafite Rothschild won the world’s hottest label in 2011 but it now appears that Domaine de la Romanée-Conti may hold that title.

Private Equity and Real Estate Investment Trusts

• Individual investors can partake through private equity opportunities or through public markets via real estate investment trusts. Wine Real Estate Investment Trusts typically consist of sale-lease backs that allow wineries to take their capital intensive vineyards off of the books.
• Other than Silverado Wine Growers and Silverado Promise Properties, which operates 10,000 California acres, these trusts have not done well. For instance, Tiburon says Vintage Wine Trust got into trouble. And VIN Real Estate Investment Trusts is now part of Entertainment Properties Trust (NYSE:EPR).

Wineries and Vineyards

• Institutional investors, including CalPERS, TIAA-CREF, Prudential, and John Hancock are investors in vineyards.
• Several well-known television, movie, or sport figures have entered the business of growing grapes and/or making wines, including Francis Ford Coppola, Joe Montana, Donald Trump, and Vanna White.
• Some believe that by transferring a crop from grapes to wine, revenues can increase tenfold.
• About 2,000 of the 2,100 United States wineries are small family-owned operations that account for less than 5% of U.S. wine product.

Despite those opportunities, few advisors are dipping their toes in these waters. “Sorry, I don't know the first thing about investing in wine,” says one advisor, who jokingly added the following. “I would most certainly drink all of my profits. Here in my state there are about 15 wineries within 20 miles of me, but I don't think many of them actually make any money. It seems more of a hobby business for most.”

To be fair, even Tiburon jokes about investing in wine, or at least investing in vineyards. In its report, the company asks this question: “How do you make a small fortune from a vineyar? Start with a large fortune.”

Says another who was asked to comment about investing in the wine industry: “Ouch I wish I could help. That is a commodity I don't track.”

So, it would appear that even though investing in wine might be an opportunity, most advisors are unlikely to imbibe, at least just yet.

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