The coronavirus pandemic has significantly impacted the global economy. This has resulted in a volatile financial market. Consequently, we have seen investors turn to alternative investments to hedge against market volatility.
Recently, Whiskey & Wealth Club produced the 2020 Cask Whiskey Buyer Report, which showed that four in 10 investors were looking to alternative investments to secure their wealth and spread risk amidst the pandemic, while 30% feared losses from market volatility brought on Covid-19.
Popularity of alternative investments
Portfolio diversification allows investors to spread the risk of their investment. As many investors found when the pandemic hit, not having all your eggs in one basket is critical. The financial markets are highly sensitive to market pressures. Therefore, having investments in assets that aren’t as dependent on financial markets, helps to diversify your portfolio whilst enhancing returns.
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The 2020 Cask Whiskey Buyer Report showed that 89% of investors are turning to alternatives to spread risk. Elsewhere, 64% are currently seeking the reassurance of something asset-backed, while 61% take pride in physical investments. Art (31%), is currently the most appealing prospect for investors looking to alternatives, followed by antiques (28%), wine and watches (both 24%). All of which can be capital-intensive, come with high fees and the prevalence of counterfeits, which increase the risks.
The proliferation of cask whiskey investment
Cask whiskey as an investment is becoming increasingly appealing. At Whiskey & Wealth Club, we purchase casks of whiskey from our distillery partners at a negotiated wholesale rate. We then offer the casks to investors at a reduced rate. Once matured, investors can then sell the casks for a profit or bottle them for personal use. Our model allows us to purchase a percentage of the distillery’s new make production, giving them the necessary working capital for the year. It is a mutually beneficial relationship.
Furthermore, the 2020 Cask Whiskey Buyer Report showed that 32% of investors are willing to invest in casks of premium Irish whiskey or Scotch whisky. Yet, when presented with further information on potential returns, market state and exit strategies, this rises to 55%.
The value of whiskey as an investment has risen significantly over the last decade. In fact, whiskey has fast become one of the most popular alternative investment opportunities, with rare whiskey topping the Knight Frank Luxury Investment Index.
According to the 2020 index, the value of whiskey has risen by 564% in the last 10 years alone. By comparison, classic cars rose in value by 194%, fine art by 141% and wine by 120%. Unlike rare whiskey, the value of cask whiskey is tied to its age rather than the markets, making it appealing to investors in the current climate, with value increasing with age.
Security in alternative investments
Investors want security in their investments. When it comes to cask whiskey investment, this comes down to ownership. It is crucial that investors receive a certificate of ownership and in some cases, (depending on the bonded warehouse) they also receive a bonded warehouse storage certificate relating to each cask number. Often when dealing with cask investment, there are lots of brokers involved and the ownership is not transparent.
To ensure security for our clients, Whiskey & Wealth Club has obtained a WOWGR license. This means casks are safe a secured under the Revenue Commissioners in Ireland, and under HMRC in the UK. When working with a wholesaler or broker, investors must make sure to check they have the required license in the country you are purchasing from.
The ease of entry depends on the alternative investment asset in question. Key to our business model at Whiskey & Wealth club is opening up the cask whiskey market to private investors, that were not already in the what was once a highly exclusive industry.
We pair new investors with one of our wealth advisors who guide them through the whole process. Outside of lockdown clients are able to attend distillery tours to see where their casks are produced and stored. They also get an opportunity to taste the whiskey while on site. This is a big part of the experience for whiskey lovers.