Liquid assets: Why savvy investors are putting their money into rare whisky
The average price of investment grade rare whisky rose by 25 per cent during the lockdowns of 2020. Money Mind takes a closer look at the appeal of rare whisky as a long-term luxury investment.
SINGAPORE: During these uncertain COVID-19 pandemic times, having a diversified investment portfolio is more important than ever.
Some alternatives for savvy investors include luxury goods whose value has stayed steady – throughout the pandemic, and over the long term.
With its honeyed hues and aspirational pricing, it’s not hard to see why whisky is sometimes called liquid gold.
Just like gold, its price has been kept steady by investors looking for a safe haven during economic turmoil.
During the lockdowns of 2020, exports of Scotch whisky fell 13 per cent.
But the average price of investment grade rare whisky rose by 25 per cent.
This shows how investors are treating whisky as a risk haven, said whisky specialist Ho Chun Wing of Rare Finds Worldwide.
Part of the appeal is that whisky is something physical, that a collector or investor can actually hold on to - similar, Mr Ho said, to gold in being a tangible asset.
As assets go, rare whisky stacks up well against more conventional investments.
Since 2013, the S&P global has been on a steady upwards trend, rising about 200 per cent.
But rare whisky did even better, with the price of the top 100 collectors’ bottles increasing by more than 300 per cent, according to the Rare Whisky Icon 100 index.
Rare whisky is also the top performing item in the annual luxury investment index compiled by Knight Frank. This index tracks the value of about 100 bottles of the oldest and rarest Scottish whisky.
In the fourth quarter of last year, this index was up 478 per cent over the past 10 years.
That outperforms other luxury goods as an asset class. Cars came second on the list, followed by wine and luxury handbags.
“They’re what we call investments of passion. So people don’t generally just buy them for investment. They buy them because they love them. It is not like the traditional investment market that’s driven purely by economics," said Mr Andrew Shirley, editor of Knight Frank’s Wealth Report.
"So I think that takes out a lot of the volatility from these markets, which actually makes it quite an attractive asset class to be involved with.”
A CONSUMING HOBBY
The simplest way to invest in whisky is to buy a bottle.
A more recent trend is cask investments – or buying large quantities in barrels, which can later be bottled.
Either way, investors are advised to do their own research before buying.
For whisky fans, that sort of research can become a consuming hobby.
Mr Billy Tham has been collecting whisky for 16 years, and now owns more than 500 bottles.
But not all are for investment.
Mr Tham said he has three separate buckets, of which 60 per cent is for drinking, 30 per cent for collecting, and 10 per cent for investment.
Rare whisky vintages are limited in quantity. So as bottles are consumed, every remaining bottle becomes more valuable.
Unlike wine, whisky does not age in the bottle. So the perceived value of the product lies not in its age, but is driven by demand and supply.
Collectors can resell their whisky on auction sites, and Mr Tham said he has seen capital gains of anything from 50 per cent to ten times the price, depending on the bottle.
In the past, whisky was seen as the drink of older, affluent men.
But around the world, demand is being driven up by the evolving tastes of new customers.
“There are a lot of stereotypes attached to whisky," Mr Niall Brown, CEO of Braeburn Whisky, said.
"But what we are seeing now is a lot more millennials, a lot more females investing into whisky, and a lot more younger people are looking for alternative assets to invest into.”
Another key factor is the changing palates in the world’s biggest spirits market – China.
Though local baijiu liquor still makes up 98 per cent of the market, whisky sales are growing by double digits.
Euromonitor predicts that more than 23 billion litres of whisky will be sold in China by 2022.
Knight Frank’s Mr Shirley said: “What really kickstarted the value of rare whisky market is when wealthy Chinese people started to get really interested in that market and started collecting it. Some of these markets are quite small. There’s not millions of millions of rare bottles of whisky sold every year.
Mr Shirley added: "So once you get a new set of collectors coming into the market, that can really boost prices.”
Mr Ho, the whisky specialist, said: “When it comes to investment, you not only need to look at the value, you also need to be look at how easy it is for you to exit.
"The ease of exiting your investment is really proportional to how many people around the world are seeking that thing that you’re holding on to, that very physical asset in your hand. So the more people there are, not only will the price go up, but it’s also much easier to find a buyer.”
Other than supply and demand, reputation matters a lot too.
Mr Brown said: “The key things I look for are global demand and reputation. Do they know the distillery? And when you go to sell out bottle in 10 or 15 years, you want to make sure there’s a demand for that whisky.”
But as more investors enter the market, scouting out his next bottle of investment whisky is only going to get harder for Mr Tham.
“It is harder and harder to find value. Maybe five or six years ago, if I had the foresight, I would have bought more whisky for investment," he said.
"But right now, as an asset class, it’s at an all-time high and it’s still going to go up, or could be on the high end of it.”
As with all investments, along with the rewards there are risks.
Still – if things go sour, there is always the option to liquidate your investment.