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10-03-2012, 11:23 PM
Business Times - 10 Mar 2012
Investing in wines: caveat emptor
It's best to deal with regulated entities and to be clear about exit procedures
By GENEVIEVE CUA
PERSONAL FINANCE EDITOR
INVESTING in wine would seem to be an attractive proposition: an alternative investment that supposedly zigs when the market zags. What's more, price appreciation of the finest French wines has been stratospheric, thanks to voracious buying by the Chinese.
But many investors here who have invested anywhere between tens of thousands of dollars to well over $100,000 in wine have found themselves in a pickle. Notably, there have been three failures of so-called wine investment firms - Premium Liquid Assets, Universal Assets Group and Asset Wine Investments - with police investigations reportedly underway on a couple of them.
Over the last 12 months, grumblings have also intensified in the blogosphere over Australian Wine Index (AWI), a firm set up in 2003 to advise and help clients invest in Australian wines, dubbed 'New World' wines. AWI procures wine on clients' behalf. The wines are stored locally in clients' names and the firm is supposed to help clients 'exit' or sell the portfolios, hopefully at an attractive rate of return.
But clients complain of hard-sell tactics by AWI brokers and of the inability to sell their wines. Clients are apparently told by some brokers that a 'proper' wine portfolio must have at least three lines. Clients are then reportedly pressured to buy more at the risk of not being able to exit at all.
Along with alternative investments such as offshore land banking - where clients have come to grief - wine investment is a murky, unregulated area.
This means that while you take advice from a broker who propositions you with so-called investment-grade wine that supposedly has appreciation potential, such brokers are not licensed and do not have to comply with any disclosure requirements. This is unlike regulated financial investments such as unit trusts, where advisers are subject to strict licensing and education requirements, and all marketing materials must comply with strict rules, ranging from restrictions on performance forecasts to the size of any fine-print details.
Says Wine Exchange Asia's Lou Ghirardello: 'We've seen some spectacular failures such as Premium Liquid Assets . . . There is almost a blind trust that the government or regulator will protect local investors here . . . Unfortunately, it's predatory behaviour on the part of brokers. They have the knowledge, they know the market - and they prey on the gullible.' Wine Exchange Asia conducts Internet auctions and sales of fine wine, and also offers a managed cellar service.
Mr Ghirardello adds: 'What's disturbing is that when you make a phone call with a view that you expect to sell the wine on the basis of some huge investment value, there is - if not a legal responsibility - then a moral responsibility for the seller to inform the buyer what the true market is for the wine. That's where I believe there is a fundamental breakdown. People are buying wine based on pricing which is either not easy to discover or totally subjective insofar as they may be paying retail price for the wine.'
AWI managing director Alvin Lim concedes that the exit strategy hadn't been thought through in the past. 'We are trying to help clients exit their wines.' Last year, the firm partnered an auction house in China and two auctions were held. He says the firm has helped clients to sell $6-8 million worth of wines at auctions.
But the China auctions are halted for now. Response to the second auction was poor, and Chinese buyers who have the option of buying in Hong Kong baulked at duties of 48 per cent should they want to consume the wine. Most China buyers, he says, buy for consumption.
While he is negotiating with AWI's China auction partner for better terms and with other Hong Kong auction houses such as Christie's, he is also planning to set up a 'New World' wine exchange platform to provide another avenue for clients to sell their holdings. The platform, which is expected to launch in May, is likely to be open to clients who have invested for at least 3-5 years. It will be open to buyers globally.
Based on ACRA filings, AWI reported revenues of $10.7 million in 2010 and a pretax loss of $851,000. It has total assets of $4.3 million and total liabilities of $5.08 million. Its paid-up capital is $130. This writer asked Mr Lim to explain the assets and liabilities as the company appeared to be technically insolvent.
He said: 'Australian Wine Index is a fully audited business which operates legally and is above board. As a privately owned company, we do not comment on internal matters like our paid-up capital or our balance sheet.' However, the financial strength of the company is arguably an important issue for investors to ascertain.
Mr Lim, who first joined AWI as a broker in 2005, became a director in 2010. 'I made it my goal to help clients trade their wine successfully with a reasonable profit.'
On hard-sell tactics, he says turnover among brokers has been high. 'Trading wine is done by our team of traders, not the brokers, and there is no restriction which says a client must have more than one wine or a certain specific minimum quantity invested with us. Neither is it in our stated terms and conditions. However, certain collectors do prefer to buy collections of wines rather than individual vintages - hence, we try to sell clients wine for them both individually and as collectors.
'Having said this, based on the investor feedback you've brought to us, we will review the practices and sales techniques of all brokers and traders working at AWI to ensure they comply with company policy on this.'
Exiting or selling wine is a costly exercise as well. Investors have to pay AWI a brokerage of about 5 per cent and the auction house may take a commission of about 12 per cent. There are also moving and storage costs.
The rub, however, is the purchase price: are investors buying at retail or wholesale prices? In answer to this, Mr Lim points to the sale of Hewitson 2009 Private Cellar Barossa Valley Shiraz en primeur at S$158 per magnum (1.5 litre) bottle, including refrigerated shipping, three years' storage and insurance. The same Private Cellar 2009 is quoted by Hewitson Cellar Door at A$70 (S$93) per 750ml bottle, he says.
This appears to be an Australian retail price. If exported to Singapore, it must be discounted by a 10 per cent Australian GST and 29 per cent wine equalisation tax.
But based on a search on www.wine-searcher.com, the price of the 2009 vintage is reflected as at about S$39 a bottle by a merchant in Finland. The price includes sales tax.
Clients who want to find alternative ways to sell through merchants here are also caught between a rock and a hard place. This is because while some wines are reportedly of good quality, the rush to exit causes a surge in supply which then predictably dampens prices.
Meanwhile, on the question of possible regulation of alternative investments such as wine, the Monetary Authority of Singapore (MAS) says it 'strongly encourages' consumers to deal only with regulated entities. 'If consumers choose to deal with persons who are not regulated by MAS, they forgo the protection afforded under laws administered by MAS. We have also provided resources to enable consumers to conduct some checks on parties they intend to deal with.'
These resources include a register of representatives and a consumer alert on the dangers of dealing with unregulated persons which can be accessed at www.moneysense.gov.sg.
Investing in wines: caveat emptor
It's best to deal with regulated entities and to be clear about exit procedures
By GENEVIEVE CUA
PERSONAL FINANCE EDITOR
INVESTING in wine would seem to be an attractive proposition: an alternative investment that supposedly zigs when the market zags. What's more, price appreciation of the finest French wines has been stratospheric, thanks to voracious buying by the Chinese.
But many investors here who have invested anywhere between tens of thousands of dollars to well over $100,000 in wine have found themselves in a pickle. Notably, there have been three failures of so-called wine investment firms - Premium Liquid Assets, Universal Assets Group and Asset Wine Investments - with police investigations reportedly underway on a couple of them.
Over the last 12 months, grumblings have also intensified in the blogosphere over Australian Wine Index (AWI), a firm set up in 2003 to advise and help clients invest in Australian wines, dubbed 'New World' wines. AWI procures wine on clients' behalf. The wines are stored locally in clients' names and the firm is supposed to help clients 'exit' or sell the portfolios, hopefully at an attractive rate of return.
But clients complain of hard-sell tactics by AWI brokers and of the inability to sell their wines. Clients are apparently told by some brokers that a 'proper' wine portfolio must have at least three lines. Clients are then reportedly pressured to buy more at the risk of not being able to exit at all.
Along with alternative investments such as offshore land banking - where clients have come to grief - wine investment is a murky, unregulated area.
This means that while you take advice from a broker who propositions you with so-called investment-grade wine that supposedly has appreciation potential, such brokers are not licensed and do not have to comply with any disclosure requirements. This is unlike regulated financial investments such as unit trusts, where advisers are subject to strict licensing and education requirements, and all marketing materials must comply with strict rules, ranging from restrictions on performance forecasts to the size of any fine-print details.
Says Wine Exchange Asia's Lou Ghirardello: 'We've seen some spectacular failures such as Premium Liquid Assets . . . There is almost a blind trust that the government or regulator will protect local investors here . . . Unfortunately, it's predatory behaviour on the part of brokers. They have the knowledge, they know the market - and they prey on the gullible.' Wine Exchange Asia conducts Internet auctions and sales of fine wine, and also offers a managed cellar service.
Mr Ghirardello adds: 'What's disturbing is that when you make a phone call with a view that you expect to sell the wine on the basis of some huge investment value, there is - if not a legal responsibility - then a moral responsibility for the seller to inform the buyer what the true market is for the wine. That's where I believe there is a fundamental breakdown. People are buying wine based on pricing which is either not easy to discover or totally subjective insofar as they may be paying retail price for the wine.'
AWI managing director Alvin Lim concedes that the exit strategy hadn't been thought through in the past. 'We are trying to help clients exit their wines.' Last year, the firm partnered an auction house in China and two auctions were held. He says the firm has helped clients to sell $6-8 million worth of wines at auctions.
But the China auctions are halted for now. Response to the second auction was poor, and Chinese buyers who have the option of buying in Hong Kong baulked at duties of 48 per cent should they want to consume the wine. Most China buyers, he says, buy for consumption.
While he is negotiating with AWI's China auction partner for better terms and with other Hong Kong auction houses such as Christie's, he is also planning to set up a 'New World' wine exchange platform to provide another avenue for clients to sell their holdings. The platform, which is expected to launch in May, is likely to be open to clients who have invested for at least 3-5 years. It will be open to buyers globally.
Based on ACRA filings, AWI reported revenues of $10.7 million in 2010 and a pretax loss of $851,000. It has total assets of $4.3 million and total liabilities of $5.08 million. Its paid-up capital is $130. This writer asked Mr Lim to explain the assets and liabilities as the company appeared to be technically insolvent.
He said: 'Australian Wine Index is a fully audited business which operates legally and is above board. As a privately owned company, we do not comment on internal matters like our paid-up capital or our balance sheet.' However, the financial strength of the company is arguably an important issue for investors to ascertain.
Mr Lim, who first joined AWI as a broker in 2005, became a director in 2010. 'I made it my goal to help clients trade their wine successfully with a reasonable profit.'
On hard-sell tactics, he says turnover among brokers has been high. 'Trading wine is done by our team of traders, not the brokers, and there is no restriction which says a client must have more than one wine or a certain specific minimum quantity invested with us. Neither is it in our stated terms and conditions. However, certain collectors do prefer to buy collections of wines rather than individual vintages - hence, we try to sell clients wine for them both individually and as collectors.
'Having said this, based on the investor feedback you've brought to us, we will review the practices and sales techniques of all brokers and traders working at AWI to ensure they comply with company policy on this.'
Exiting or selling wine is a costly exercise as well. Investors have to pay AWI a brokerage of about 5 per cent and the auction house may take a commission of about 12 per cent. There are also moving and storage costs.
The rub, however, is the purchase price: are investors buying at retail or wholesale prices? In answer to this, Mr Lim points to the sale of Hewitson 2009 Private Cellar Barossa Valley Shiraz en primeur at S$158 per magnum (1.5 litre) bottle, including refrigerated shipping, three years' storage and insurance. The same Private Cellar 2009 is quoted by Hewitson Cellar Door at A$70 (S$93) per 750ml bottle, he says.
This appears to be an Australian retail price. If exported to Singapore, it must be discounted by a 10 per cent Australian GST and 29 per cent wine equalisation tax.
But based on a search on www.wine-searcher.com, the price of the 2009 vintage is reflected as at about S$39 a bottle by a merchant in Finland. The price includes sales tax.
Clients who want to find alternative ways to sell through merchants here are also caught between a rock and a hard place. This is because while some wines are reportedly of good quality, the rush to exit causes a surge in supply which then predictably dampens prices.
Meanwhile, on the question of possible regulation of alternative investments such as wine, the Monetary Authority of Singapore (MAS) says it 'strongly encourages' consumers to deal only with regulated entities. 'If consumers choose to deal with persons who are not regulated by MAS, they forgo the protection afforded under laws administered by MAS. We have also provided resources to enable consumers to conduct some checks on parties they intend to deal with.'
These resources include a register of representatives and a consumer alert on the dangers of dealing with unregulated persons which can be accessed at www.moneysense.gov.sg.
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