Brian Mota didn’t find it easy to give up the familiar turf of private equity for wine investing.
Mota, 38, had been evaluating more conventional investment opportunities at WallerSutton Capital in Greenwich, Connecticut, after leaving JPMorgan Chase & Co. (JPM)’s investment-banking unit. Then he saw a way to treat wine in a similar fashion.
He hooked up with former investment banker Timothy Clew, 40, an active collector of wine, and after sending out feelers, they began The Wine Trust in earnest in 2010.
Their firm TWT Investment Partners LP, which is based in Ridgefield, Connecticut, is in the process of raising as much as $50 million for the trust, the only private-equity-structured wine-investment fund in the U.S. with a targeted amount of more than $20 million.
“This was an opportunity to take Wall Street-type disciplines and apply them to an asset class that was largely devoid of that type of thinking,” Clew said.
The fund buys both physical wine and futures -- wine that is made and in casks but not yet bottled -- directly from negociants to lock-in lower prices and secure significant quantities for investment of the most sought-after producers. It seeks wines with strong appreciation prospects after release, including first-growth Bordeaux.
Mota says his first stab at managing wine like other investments involved gathering a pool of $2 million to $3 million, with four friends, buying a lot of liquid assets and monitoring the potential return. His own collection has about 500 bottles, and he’s partial to white Burgundy and white Bordeaux.
While at Credit Suisse (CSGN), Clew helped start the bank’s advisory for wineries on mergers and acquisitions. He was already a wine enthusiast, and now has 600 to 700 bottles of his own. He says his cellar is “about drinking.”
Unlike many wine funds that are structured as hedge funds, The Wine Trust is more like a private-equity fund. The money invested is basically locked up for as long as eight years, which helps managers ride out a decline.
“It allows us to be more patient with the market,” Clew said. “We don’t have to worry about selling into a falling market.” Yet because of the structure and the timing of their initial foray in 2009, it wasn’t easy luring investors “during the downturn because people didn’t want to lock up their money for eight years,” Mota said.
‘New Asset Class’
“We went to market as first-time managers with a new asset class in the worst economic downturn since the Great Depression,” Mota said. “We were competing with the mattress as much as other asset classes.”
In 2010, investors started showing more receptivity to hard assets, Mota said. “That’s the case we’ve been making all along; it’s a real asset investment much like an allocation to gold, commodities, metals, and other things that have tangible underlying value,” he said.
Management of the fund includes taking advantages of market inefficiencies, such as the price variations of desirable wines in different locations.
“The sought-after wines are sought after whether you’re sitting in New York, London or Hong Kong,” Clew said. “If you know the logistics network and know how to move wine across markets, you can take wine from lower-priced markets and sell into higher-priced markets.”
The fund stores its bottles primarily in Europe and sells mainly to retailers and restaurants with which the managers have established relationships or buyers that are listed on the London International Vintners Exchange, an electronic trading and information platform for wine merchants. In that way the fund avoids the 20 percent premium auction houses generally charge.
The Liv-ex Fine Wine 100 index, the industry benchmark, has produced a return of 195 percent during the past seven years. The index, calculated monthly, represents price movement of 100 of the most sought-after wines.
“Returns from wine investment have consistently outperformed other asset classes,” said Miles Davis, a partner at London-based Wine Asset Managers LLP, in a telephone interview.
Wine Asset Managers, with about $25 million under management from two funds, has returned about 10 percent during the past five years.
“At the end of the day, all of these investments are 750 milliliters of grape juice,” Mota said. “So at $1,500 a bottle, is Lafite 10 times better than Lynch Bages at $150 a bottle?”
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