(May. 01, 2024) by Alys Key

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THERE IS A SLIGHT BREEZE, but blue skies prevail in Bordeaux as Tom Gearing, the co-founder and CEO of Cult Wines, addresses the camera. Behind him is the facade of the Château Ducru-Beaucaillou, wisteria hanging from its cream-coloured stones.

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He launches into an analysis of the wines produced from each bank of the Garonne river and describes the most recent crop as “a sort of yesteryear vintage of Bordeaux, but still very, very, very classic.” While you might not get to taste the wine yourself, you get a crash course in how to talk seriously about wine from the videos, posted to LinkedIn. They lift the veil on the all-important en primeur week, when critics, merchants and collectors descend on the area of southwestern France to evaluate the previous year’s harvest.

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It is all part of an approach that online wine investment manager Cult, alongside its peers, has taken to sell wine not just as an asset but an experience. Lifting the lid on the often opaque world of wineries is allowing them to win over investors who are more adventurous with their portfolios than they were in the past.

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“The types of things they’re putting their money into are really interesting, and much more esoteric versus the type of portfolio breakdown you would expect to find 10-to-15 years ago,” Gearing tells Digital Frontier.

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That leaves an opening for businesses to win over those investors, and whether it’s through apps and websites, social media, better data or up-to-the-minute AI innovations, they are using tech to do so.

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A surprisingly illiquid investment

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The case for investing in wine rests on diversification. Its price movements are generally disconnected from the factors that might hit your stock portfolio. So, while the peaks and troughs of the cost of a bottle of Château Haut-Brion 2020 may be difficult for an outsider to penetrate, they also offer a hedge against the movements of the stock and bond markets.

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In addition to adding diversification to a portfolio, wine’s price will react much slower than stocks or bonds to changes in sentiment – because fine wine trades less frequently. Like selling a painting, you need someone with the right funds to be willing to buy at the right time in order to dispose of the asset. So, unlike highly developed markets surrounding stocks, the wine market has less so-called liquidity.  

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“It’s a great diversifier,” explains Callum Woodcock, the co-founder of investment platform WineFi. “It’s very stable for the simple reason that it is, ironically, quite illiquid.”

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This has the handy side-effect of giving wine some stability. Price fluctuations do not happen in the same way they can for a share price during quarterly results day.

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But it also limits what wine makes sense to buy as an investment. Only products of the finest wine regions – Bordeaux, Champagne and Napa, to name a few – have enough of a secondary market to be investible at all.

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While the list of suitable regions may seem short, it has developed substantially in recent years, having previously been heavily focused on Bordeaux.

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Martin Pruszynski, a wine investment specialist at investment manager WineCap who has a background in economics, says the market has evolved in recent times.  

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Bringing clarity to Claret

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Despite the expansion, wine markets still seem impenetrable to many outsiders, not least because much of the pricing of the world’s investible wines remains unpublished, taking place in private deals. To attract fresh customers into the space, companies that offer wine investment products and advice are pushing to make it more transparent. For Gearing, the challenges are in two areas: liquidity and data.

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“A few years ago, we needed access to more data to be able to better inform our customers, but also help better identify opportunities and trends within the marketplace,” he says.

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This led to a partnership between Cult and pricing platform Wine-Searcher, an industry staple that has been operating since 1998. Using millions of data points from the platform’s retail listings database, Cult tracks the rising popularity of certain varieties and identifies possible investment opportunities for clients.

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“You can talk about it at a dinner party in the way that you couldn’t talk about your S&P 500 index fund“ - CALLUM WOODCOCK, WINEFI

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Data itself is just as valuable as a prime vintage in this industry. While sources like Wine-Searcher, as well as Liv-Ex, Bordeaux Index and WineCap’s Wine Track, have improved access to information in recent years, there are still gaps where a savvy investment manager can spot possible returns.

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“You have this asymmetric market where you have wine merchants that know everything about wine and what’s going on in the market, and you have individuals that basically know nothing, they just like drinking it,” says WineFi’s Woodcock. “So there are so many opportunities for mispricing.”

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Wine market inefficiencies

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His company, which recently secured a strategic investment from fine wine group Coterie Holdings, is developing a suite of tools that will aim to spot these inefficiencies in the market, and capitalise on them.

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“The real power of technology, I think, comes from taking an ancient asset class and applying modern technology to it in a way that no one has really done at scale before.”

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A tricky problem for the sector lies in those cases where there is insufficient data. Gearing’s team has taken it upon themselves to solve this problem, building a pricing model that uses collaborative filtering, the same kind of tech that underlies your Netflix recommendations. Comparing similar products, the model is trained to guess what the price might be.

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This kind of innovation is not just helpful, Gearing explains, but necessary if the business is to continue growing.

“We’re now getting to a size where we need to start thinking about how we try and solve these issues, because we need the wine market to evolve,” he says. “We need there to be better pricing and data, we need that to then result in more liquidity, and we need that liquidity to enable a freer, more efficient marketplace. And from our perspective, it's going to limit our growth and how much we can scale.”

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Education and outreach

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Getting the new generation of passion investors on board requires reaching them where they are: online. Both Cult and WineFi have a big focus on marketing their services through online content. WineFi has its own podcast and Cult just launched one in collaboration with fintech firm Privat3 Money.

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“We made the decision very early on that we wanted to be everywhere where a traditional wine business wouldn't be,” says Woodcock. “So we’ve leaned into LinkedIn as our channel. We appear on podcasts, we produce our own content.”

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The new generation of wine investor wants something a little more interesting than can be offered by traditional investments. In many social circles, buying fine wine offers more status than buying shares in Goldman Sachs.

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“You can talk about it at a dinner party in the way that you couldn’t talk about your S&P 500 index fund,” observes Woodcock.

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That’s where the idea of creating their own content becomes important, because the investors want to feel like they understand the stories behind what they’re buying. Cult runs trips to Burgundy and Champagne for customers, allowing them to treat the investment process as an experience. Investments made through the platform start at £25,000 ($31,000), so customers are affluent and willing to invest heavily in their hobby.

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The long finish

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The next challenge for wine investing platforms is to attract a new generation of potential investors, including health-conscious youngsters who may not even drink alcohol.

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Having launched only last year, WineFi is looking to broaden the appeal of the sector by partnering with everyone from family offices and wealth managers to fractional investing apps WineFi’s products are integrated with existing platforms such as Splint, Wealt and NBRHD, where they can be discovered even by investors who have not experienced fine wine in the way your classic customer may have done.

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Overwhelmingly, Woodcock says, the platform’s customers are first-time investors, or even people who don't drink wine. “It’s predominantly people that are interested in it as an asset class. That’s a radical departure from the typical wine investor.”

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Gearing, though, is less sure about the value of investors who don’t have that personal taste for fine wine.

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“The person who has zero interest in wine and it hasn’t delivered maybe on their expectations, is going to be less likely to stay a customer for the long term.”

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But he is hopeful that Gen Z will eventually be interested in wine, pointing out that many people don’t discover the good stuff until they are older.

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“I don’t think you can write off the new generation yet, because I don't think they’ve even been given the chance or the opportunity to like wine yet.”

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Investment sommeliers

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As for the technology available to wine investors, the bar has risen exponentially in recent years. “Having a dedicated portal that you can log into and see your valuations is, it's a minimum requirement at this point,” says WineCap’s Pruszynski. “Ten years ago, that was very different.”

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The next step could include artificial intelligence advisers who, like a sommelier, might be able to recommend the best wine for your needs. WineFi is working on a product with these capabilities at the moment.

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“If we can see that one of our customers has 40% of their portfolio in Bordeaux and 60% in Tuscany, it might recommend some champagne or Barolo or some Napa as diversification,” says Woodcock.

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Meanwhile, the types of wine considered investible, which may seem monopolised by the most traditional regions right now, could always shift – whether because the market becomes more mature or because the growing conditions themselves are altered amid climate change.

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“The weather in Sussex is starting to look more like Champagne,” says Woodcock. “So who knows?”

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Source: Digital Frontier