Play your cards right and the water of life will do more than just lubricate awkward social gatherings or provide you and your buddies with a memorable evening.
Alternative investments have been picking up steam in recent years, as people either seek to diversify their portfolio or leverage on their expertise for a particular asset class.
According to the Knight Frank Luxury Investment Index, art appreciates in value by 10% across a year and 146% over the course of ten. Coins are deceptively good investments too, with a 12% increase in a year and close to 200% over a decade.
However, neither comes close to topping whisky. Rare whisky can generate 23% in a year and a whopping 540% across a decade.
Case in point: Bonhams Hong Kong auctioned off a 55-year-old bottle of single malt whisky from Japanese distillery Yamazaki for a cool HK$6.2 million (S$1.09 million) in August. Its retail price? Just 3.3 million Japanese yen (S$42,855). In other words, the profit margin was approximately 2000%.
Should you decide to invest in the golden elixir, there are many more ways than just getting lucky with a single bottle. Read on to find out how.
#1: Buying and selling whisky bottles
Whisky is essentially a consumer good. Investment-grade bottles are no exception, being opened eventually for momentous occasions. Therefore, you can purchase a bottle and ‘flip’ it immediately or you could sell it after its value has appreciated over time.
This tried and true tactic has been used for other consumer goods like luxury timepieces and more recently, sneakers.
The problem is knowing what bottles to buy and how you can get them for the lowest price possible. For the former, keep in mind that your buyers will be either collectors or whisky enthusiasts. Whisky from the supermarket won’t pass any muster here.
And just because a whisky’s taste is superb doesn’t mean it’ll do well as an investment. There has to be a level of scarcity involved.
Although there isn’t a distillery that’s a sure winner, there are three factors that will increase a bottle’s value:
- The whisky’s age: The amount of whisky left in a cask decreases by 2 to 5 per cent annually due to evaporation. This leaves brands with a lower amount of older whisky to bottle, increasing both exclusivity and value. ‘Older’ in this case refers to whisky that is at least 18 to 20 years old.
- Whether the whisky is ‘cask strength’: This means that the whisky is bottled without any dilution. It’s normal for brands to dilute whisky before bottling it to increase the volume they can sell and lower the proof to a level that’s palatable for everyone. There’s less whisky to bottle if water isn’t added, making it pricier and more exclusive.
- Whether the whisky is ‘single cask’: As you can guess, this translates into bottles that contain whisky drawn from a single barrel. Only several hundred bottles can be filled and often, they will be individually numbered. That definitely makes it more valuable.
As for how highly sought after a bottle is, the factors above might not come into play at all. Japanese brand Hibiki had to discontinue its entry-level 12-year-old whisky because demand for it was far too great. Currently, it is being circulated by resellers for anywhere between S$480 and S$970.
Japanese whisky has been extremely popular for the past decade, but keep your ears to the ground and you might just discover which style will be in the spotlight next.
Buying whisky at a discount is an easier task, especially if you maintain a relationship with retailers, distributors, and wholesalers. Even if you can’t snag a lower price, you are always first in line for limited edition bottlings or exclusive releases. You are also guaranteed that the bottles are authentic.
Alternatively, sift through listings on platforms like Facebook or Carousell and you might just find a hidden gem. However, do your due diligence and determine whether these bottles are genuine articles.
#2: Purchasing whisky casks
You can take a step further and invest in whole casks of whisky ranging from 200 to 500 litres. Whisky distilleries are businesses after all and they allocate casks for sale to generate additional revenue. However, this will set you back at least S$5,000, depending on the cask type and age that you choose.
Unfortunately or otherwise, this investment method requires the highest level of expertise as you are essentially your own brand.
You’ll need to draw samples from the cask occasionally to determine whether it has reached an optimal age. If you decide against selling the cask in its entirety, you can always take the plunge and bottle the whisky. Although the potential return on your investment is higher, the effort required is much greater as well.
On the bright side, there are retailers in Singapore who offer a cask ownership program. They act as the middleman, guiding you from cask selection to offering a platform where you can sell your very own bottles of whisky.
Although they take a cut of your profits, all costs and taxes involved are clearly laid out and most administrative matters are handled for you. Do the math before you decide whether to participate in a retailer’s cask ownership program.
This route is tailor-made for diehard whisky fans out there. You can decide which distillery to purchase from, what cask type and size to select, and when to stop the maturation process. If you decide to bottle the whisky instead of selling the cask off, do remember that you are selling a single cask whisky.
This lets you increase the price because of how limited it is and how desirable this type of whisky is among collectors and enthusiasts. If you decide to sell it at cask strength to boot, that’s another reason to increase the price.
And if you’re well-connected with whisky enthusiasts across the globe, expect your bottles to go quickly. Otherwise, you’ll need to start building up your network and more importantly, trust.
#3 Investing in whisky funds
Finally, there are whisky funds out there which allow you to invest in the amber nectar without requiring as much expertise. However, this method requires the highest level of financial commitment, especially if the fund’s makeup largely consists of whiskies that are old and rare.
Furthermore, you need to do your research because each whisky fund has a different set of mechanics to boot.
On one end of the spectrum, Rare Finds Worldwide’s Rare Single Malts fund aims to acquire rare whisky casks between 15 and 40 years old along with bottles and collections that are approximately 18 to 30 years old. Growth will be achieved via market appreciation, and maturing and bottling the casks. A minimum initial investment of S$180,700 is required here.
Then there’s Wave Financial’s Wave Kentucky Whiskey 2020 fund. An internal rate of return is generated via fund managers acquiring and selling up to 25,000 barrels of bourbon whiskey from the Wilderness Trail Distillery in Kentucky, USA. The fund has a six-year investment horizon and aims to generate a 20% IRR across this period of time.
Finally, The Single Malt Fund’s mechanics are a lot more familiar for investors out there. You can either trade its shares in the Nordic Growth Market in Sweden or purchase the whisky that the fund acquires.
The fund is actively managed and aims to continuously buy and sell limited edition bottles of whisky on a global scale. A minimum subscription of 1,000 euros (S$1,600) is required here.
Whisky is enjoying its moment in the sun, both as a libation of choice at the bar and as an investment vehicle. However, it’s not exempt from the risks that other investments bear.
You are still subject to market fluctuations and more importantly, changing consumer preferences. The whisky industry has suffered from downturns before, just like any other sector out there.
And akin to other conventional or alternative asset classes, you need a level of expertise before putting your money down. But if you’re already a whisky fan, why not make your hobby work for you?
If things do end up going south, at least you’ll have a nice dram in hand.