Rare aged bottles of whisky that can sell for up to $30,000 a pop are increasingly being taregeted by investors.
Scarcity is a major driver of the economics of supply and demand, with investors having to battle against speculators eyeing a quick turn.
Old whisky laid down in barrels at Scottish distilleries decades ago loses around 3 per cent of its volume in evaporation each year - a loss often termed 'the angel's share' - and this compounds low levels of supply, experts say.
Dan Murphy’s whisky manager Hamish Fyfe says consumers buy $1.8 billion of Scotch each year at a retail level, and the overall market is growing at 2 per cent. But Dan Murphy’s whisky sales are growing at more than 10 per cent, although he declines to be specific.
Bottles at the very high end are sought after by investors who place the asset in their self-managed super fund.
“We do find that people are buying for investment,’’ he says.
Those investors are looking for an asset class that is a world away from traditional shares, bonds and deposits, similar to investing in classic cars or art.
Most collectors are based in the traditional whisky heartland of the United Kingdom, but the rise of online auctions has prompted a rapid globalisation of the secondary market in rare whisky.
Malt Whisky Society of Australia chairman Craig Daniels says collecting is rising in popularity, and the scarcity factor has triggered a rise in speculators entering the market.
“That’s also bringing along speculators. They’re buying and selling within the same day sometimes,’’ he says.
Daniels says it is not necessarily the case that older whiskies taste better than those made more recently.
Not that tasting is allowed for investors. Deloitte partner John Randall says those using self-managed super funds face strict conditions.
“You can’t store or display it at home, and must have a document why you have invested in that asset, and insure it,” he says. “You can’t have an existing bottle of whisky and bring that into your fund, it has to be brought from a third party into the fund.”
Collectible is bankable
Randall says self-managed funds typically follow wider investment trends, and expensive whisky in the $30,000 to $50,000 range is a collectible item. But there are big risks.
These investments need to be held over a long time to show capital growth.
“If you are in your mid 70s it’s probably not appropriate to have that as a new investment in your fund,” he says.
“All it does is transfer the bottle of whisky. It’s not good for paying pensions. It’s only good for a lump sum."
Conversely, someone in their 30s may reap the benefits of investing in a vintage whisky, as long as they know their whiskey and it is part of a diversified portfolio.
“When it comes to collectibles - whether it’s a car, art or whisky - there’s always a risk factor,” Randall says.
“Diversity or no cash flow are things investors need to think about when people are out there trying to convince them that this is the next big thing. Investors have to step back and think, 'I won’t have cash flow, what’s my risk?'
“He or she also needs to take some responsibility to know whether it is an appropriate investment for them, rather than get pushed into it. People can often get caught up in the tide.”
Not without risk
CPA Australia policy adviser Michael Davison also warns of risks.
“If you can find somewhere to store it, someone to insure it and it’s a sound investment you’re happy to sit on, it’s an option,” he says.
“But as with any investment, the most important thing is to ensure it is part of a properly formulated investment strategy taking into consideration risk, return, diversification, liquidity and members’ needs.”
He says self-managed super funds in particular need to know the rules.
“There can’t be any immediate benefit to members – you can’t drink it until you’ve retired, it can’t be stored in the private residence of a related party, it can’t be used by a related party and it has to be insured within seven days of buying it.”
Marin Accounts founder Bernard Marin says: “Trustees may not have the skills to know how to find a credible valuer. The market for this kind of collectible would be small, so there would not be many buyers around, and when required it may take a long time to sell at the expected value.”
Marin says funds purchasing whisky have to make sure it is not stored at home or a private residence.
He says if this is contravened, investors can be fined. “Breaches will also be considered by the ATO when determining the fund’s complying status,” he says.
This story originally appeared in the Australian Financial Review.