Whisky as an investment: a dram or a dream?
Whisky might be a safe bet as part of your investment strategy
Collectors and investors in certain circles will no doubt have heard about the sudden and profitable allure of rare whiskies as an alternative asset. So profitable, in fact, that the 2019 edition of the Knight Frank Luxury Investment Index estimates that a return of 580% over 10 years was realised in an index covering 100 rare whiskies.
The Knight Frank Luxury Investment Index is part of the firm’s annual Wealth Report that sheds light on trends and preferences among the wealthy globally.
The Rare Whisky 100 Index, which tracks 100 bottles of the world’s most desirable rare scotch whisky, was introduced for the first time in this year’s publication. The prices of these bottles at auctions in the UK are then used to compile the index values.
Last year, this index shot up by 40%. And while the highlight of the year was a hand-painted bottle of 1926 Macallan selling for a record £1.5m (R27.9m), the report does highlight the wildly fluctuating value of the whiskies in this index.
The bottom 10, for instance, lost 27% of their value between 2017 and 2018. So, whisky is anything but a sure bet.
Which raises the question: does this have any place in your investment strategy?
Local whisky afficionado Marc Pendlebury recognises that certain rare whiskies do appreciate in value. However, he believes whisky appreciation is equally important.
“There are pure investors out there who know that if they get the right product, they can make money on it. I don’t like the idea,” he says. “Whisky wasn’t made for that intention.
“If you’re a drinker and you end up having a collection that ends up appreciating, that’s great. But if you’re not really consuming it and you have no interest and it’s just a cold, calculated decision to make returns, that‘s not what we advocate. But that’s just our opinion.”
Pendlebury runs the WhiskyBrother retail store in Hyde Park, as well as the WhiskyBrother Bar in Morningside where he has a stock of more than 1,200 whiskies on offer. The business is an expression of his love for whisky and the growing consumer base in SA.
“In terms of collectors in SA, I think people would be stunned by how many people have formidable whisky collections,” he says.
“I know dozens of people with several thousand bottles in their collections. But all the collectors we know are drinkers first and foremost, so they inevitably buy more than they drink or buy for future drinking.”
In certain cases, these whiskies appreciate in value depending on market conditions and demand.
“The auction houses don’t set the price of the whisky. It’s based on demand,” Pendlebury says. “There are literally thousands of whiskies going on auction every month, and the hammer price is based on the demand for that bottle.
“It’s a very insightful and accurate assessment of what the market believes that bottle is worth, not what the brands believe it’s worth when they’re pricing it for retail.”
Sibu Shangase, head of marketing: whisky portfolio at Pernod Ricard SA, says there has been a rise in global demand for super and ultra-premium whiskies. Premium single-malt scotch whiskies that have been barrel-aged for long periods are in particular demand.
Among these is The Glenlivet, renowned as Scotland’s first licensed distillery and for producing the world’s favourite style of single-malt whisky. It’s also the single malt that inspired a whole region, today called Speyside.
“Every year, demand increases and every year we continue to see renewed interest in rare whiskies, but our quantities don’t increase. The scarcity of some of these rare whiskies is what makes them so sought after and unique. Imagine if there were 200,000 Mona Lisa paintings: would it really still hold its value?
“The Glenlivet Distillery simply cannot make some extra The Glenlivet 25-year-old whisky today to bottle tomorrow – in the same manner that a 50-year-old The Glenlivet Winchester Edition literally takes 50 years to produce,” says Shangase.
This scarcity is at the heart of the value that rare bottles acquire. So, if the laws of supply and demand continue to apply, what is the impact on these liquid investment portfolios if new brands and other, more exclusive distilleries appear on the scene?
Fear not, says Pendlebury. They are more likely to achieve an appeal of their own than usurp the more established producers. Producing a 25- or 50-year-old whisky takes 25 or 50 years, after all. There’s no way around it.
“The smaller producers are blips on the radar,” he says. “The big malt names still have a long, bright future.”
While it’s unlikely whisky bottles will start carrying disclaimers about “past performance being no indication of future returns”, that is a good warning to heed.
The long-term results show that selected whiskies of rare distinction can accumulate value in the millions. But planning an expansive retirement on a cellar full of rare single malts takes a degree of restraint that most whisky lovers probably can’t muster.
This article was paid for by The Glenlivet.