Why make investments in Whiskey?

Whiskey Investment

The most compelling reason for investing in whiskey at the moment is that so many people have invested, which is substantial because Whiskey as an investment asset for the larger retail investment class has emerged very recently. Whiskey is nearly an untapped niche for serious investors and, in a period when redundant capital has chased up the prices of nearly everything else, it is worth a look, on those grounds alone. The more you look the more meaningful it becomes.

Briefly – lets look at the investment fundamentals of the whiskey value chain

There are two principal ways to invest in whiskey, one of which is to invest in bottles. These can be old or new bottles, and the brand or distillery of bottle is important.

The other way is to invest and own whiskey in casks. In the case of casks, the distillery from which the whiskey comes is of minor significance. A good return, between 10-15%, can be made from whiskey casks from nearly any distillery, as the blended whiskey market always needs them.

Investing in bottles or casks of whiskey:

  • The challenge with bottles is that you need a lot of them to make a market, and that requires lot of investments. Sourcing the right bottles, through auctions or new releases, takes time, experience, and patience.
  • Casks are a different story. As blended whiskey, there's a stronger demand for casks. Scotch whiskey casks are a simple asset, held in bonded warehouses in Scotland and no duty is levied while it stays there. From a tax perspective, whiskey is considered a depreciating asset under the local laws, there's no ‘taxes on capital gains’ payable on its trade in the local market (where its stored).
  • How do you get to buy the right casks? As with any investment portfolio, diversification is important. Casks can be bought freshly- filled to well- aged. A cask at zero age is called a ‘new fill cask’. The liquid is called ‘new make spirit ‘and will legally become whiskey after three years. Casks can also be bought at any age beyond. The casks become more valuable with maturity and the rate of return grows exponentially with age.

Another consideration is the type of oak the cask is made of, in which the whiskey is stored in. Whiskey can be stored in what is known as a first fill, a refill or a rejuvenated cask. Think of the cask like a tea bag: the first fill is like an unused tea bag which gives out lots of flavour. The refill is less spunky, lower in intensity as it takes longer for it to impart flavour. Whiskey in a first fill cask may be very good for a return on a young whiskey, say up to twelve years old. When buying an older cask, a refill will be much better. An old, first fill cask may make the impact the taste of the Whiskey beyond those 10-12 years.

Even within the cask types, there are two types of Oak, European oak and American oak, providing the whiskey with different flavours. American oak gives vanilla and sweeter flavours while European oak gives spicy and nutty flavours. European oak casks are rarer and therefore, are more sought after. They are more expensive but can give a great rate of return. Around 90% of the global Scotch whiskey market uses American oak casks and 90% of Scotch sold around the world is blended whiskey. So, whiskey from a European oak cask (for example a Sherry cask) is a sound bet. If the whiskey is sold to an independent bottler rather than for blending, and perhaps further maturing before bottling, then a first fill European oak cask would be further more desirable.

There are blended whiskies that like to have a good percentage of content from rejuvenated casks as well. These are much-used casks whose surface wood has little flavour left, so a couple of millimetres are shaved off the inside to expose active wood, ready for reuse. They have a different flavour profile, impart flavour at a similar rate to a first fill cask, so blenders can use the whiskey earlier and they are less expensive.

The blending industry is enormous. The category counts for almost about 22% of British F&B exports on its own. That supports a substantial market for commodity whiskies which are traded for use as ingredients in the blends. Unlike the high premium malt brands these lesser-known spirits are similarly priced across many varieties and price discovery is similar to other commodities. For all whiskies sold, their age [time spent in a barrel and not a bottle] indicates quality, and older whiskey commands higher prices. This increasing value generates profits for stockholders who sell aged whiskey to brand-owners for direct sales or even for blends.

 “Too much of anything is bad, but too much good whiskey is barely enough.” - Mark Twain

Whiskey is not a ‘crowded trade’ and neither is it extremely volatile

Unlike equities, bonds, Cryptos and property, whiskey has attracted very small investments as an asset class for a long time.

In real terms the cost of newly distilled malt whiskey has continued falling steadily. Over a similar period, typical investment assets have at least doubled in real terms (equities +170%, houses +124%); as per global averages (which are much lower than emerging markets).

Adjusted for inflation both types (malt or grain) of whiskey currently cost less than half the 1972 price when bought new.

Source: WhiskeyInvestDirect.com

This represents a significant divergence from those major investment asset classes, while compared to the millions of people who own property, equities, bonds etc. there are probably few 1000’s of people who own, as part of their investment portfolio, a decent quantity of maturing whiskey.

Whiskey’s financial returns over the last decade have averaged around 8% to 9% per annum (after storage expenses) so clearly the above chart does not show the whole story. It only shows new whiskey steadily becoming cheaper to buy, which means entry prices are reducing, but not the returns. Unlike most stored goods, whiskey becomes a different and more valuable product as it gets older, and the resulting returns, earned by stockholders, have been notable through an era of very low interest rates. The risk to reward ratio, adjusting for inflation, volatility and currency hedges, appear to be unusually low when set against typical modern investments which generate that same sort of return (8-9% annualised).

The overall rate of return has remained high enough through the years to provide profit to both producers and to those who finance an average of nine years of stockholding.

Whiskey casks have consistently generated robust historical returns when evaluated as an investment.  Each asset included in an investment portfolio needs to be grounded in data that demonstrates its earning potential over time. While all the other benefits are important, the number one reason to invest in whiskey is quite simple, you can earn better returns with elapsed time. Over the past 5 years’ whiskey casks have generated an average return of 12.4% per annum, with popular distilleries delivering even greater returns. There are few physical assets that can boast such robust levels of growth under every economic cycle.

 “There is no such thing as a bad whiskey. Some whiskies just happen to be better than others.” - William Faulkner

 Whiskey Investments historical performance and future outlook

The market performed exceptionally last year but this is only one year in a persistent trend over the past five. The Apex 1000 index has appreciated by 162.91% since 2014, outstripping gold by over 150% and the FTSE by over 160%. As the interest in alternative investments continues to build, whiskey is unparalleled in its performance.

However, this comes with some challenges, as more investors are throwing their hat in the ring, the average bottle price has gone up by over £100 and the volume of whiskey on the second-hand market is up by more than 200% since 2014. Identifying the best bottles and ensuring that the right price is found is vital in this flooded market, especially for investments in bottles.

According to Knight Frank’s Wealth Report 2021, the value of rare whiskey has risen by 478% in the last 10 years. Whereas the value of classic cars rose by 193%, fine art by 71% and wine by 127%. Irish whiskey is an upcoming market, that has bounced backed over the last two decades and is currently growing in double digits. The market is projected to continue its strong growth for the next 20 years. As demand for whiskey grows and more brands enter the market, they will require mature stock to produce their own whiskey. This is where the investors come in. They can sell their mature casks to new brands to meet the global surge in popularity of Irish whiskey. In the next 10 years alone, it is expected that over 100 new brands will enter the market. The Scotch market is more established with a variety of providers sourcing whiskey. This provides a strong secondary market for investors. It is the single most traded spirit on the planet and value of the high-quality Scotch single malt market is set to grow from £394m in 2018 to £439 million in 2022.

Experts predict the growth of Irish whiskey to continue in double digits for at least another 20 years. The IWSR (International Wine and Spirits Record) which is the global benchmark for alcohol and beverage data, predicts Irish Whiskey to outgrow Scotch and Bourbon. The IWA (Irish Whiskey Association) anticipates the market to double in the next 10 years.

Scotch Single Malt sales are rising annually in what is the world’s most stable whiskey market. Therefore, it is another very safe play to be holding maturing Scottish Single Malt casks for the future. The emerging markets are witnessing unprecedented growth in imports of single malts and there is a rising trend of early adopters of whiskey, which is replacing beers as drink of choice for the young in the emerging markets. Due to this, whiskey presents excellent opportunities, even when the world is troubled due to the extended pandemic and its larger implications on various economies. The opportunity is not lost on sophisticated wealth managers and their clientele.

Scotch is by far the most successful type of whiskey available in the world. The established reputation of their distillers and its geographical identity as a heritage product of Scotland mean that Scotch is usually the first thing that comes to mind at the mention of ‘whiskey’. However, the Japanese market is currently also noting impressive growth. The Japanese Icon 100 Index has seen a 38% increase over the past 12 months and WhiskeyStats declared it the best-performing whiskey-producing region. Japan out-performed second-place region Campbeltown, Scotland; by 15%.

Though wine is typically considered the pinnacle of consumable investments, the performance of the Scotch market says differently. Last year, the average bottle price for wine was £165, a far cry from the £377 paid for whiskey. Both wine and whiskey saw the world record broken for the highest price paid at auction for a single bottle last year, but whereas the 73-year-old bottle of Burgundy sold for around £430,000, a 60-year-old Macallan fetched £1,000,000. This record has also since been broken in 2019 by a bottle from the same cask which sold for £1.5m.

Though alternative investment assets are generally close to the investor’s interests, the returns that can be found in whiskey investment are likely to make this market much more attractive to a more varied audience in the near future.

As a note of caution, as with any investment and its underlying asset class, do undertake your own research and due diligence, before you jump in to invest. Make sure you’re fully aware of just what you are purchasing and seek expert advice beforehand, not just for purchase, but also on the means to liquidate and exit, if you need to.

“The cash price for 8-year old Scotch whiskey bought new, and sold each year of the decade 2011-2020 shows average historical returns of 15.4% per annum. This number is net of our trading commission. However you would have paid storage fees of 15p per Litre of Pure Alcohol (LPA) per year, bringing the return down to 11.7% p.a”. - WhiskeyInvestDirect.com

 How to start your Whiskey Investment journey

Like any investment categories whiskey too has active and passive options. You could invest for the long haul by investing with bottles or casks or invest in funds and ETF’s in the passive mode.

There are whisky funds globally which allow you to invest without requiring much expertise. However, this method could require high investment by value, especially if the fund’s makeup largely consists of whiskies that are old and rare. For example, Rare Finds Worldwide has launched its Rare Single Malts fund targeting Asia-based family offices and high-net-worth investors. The fund aims to acquire rare whisky casks with bottles and collections between 15 and 40 years old, with minimum initial investment of $132,000 needed to join in.

Then there’s Wave Finacial's Wave Kentucky Whiskey 2020 fund which bases their rate of return on 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.

Alternately there is The Single Malt Fund, which you can invest on and then either trade its shares in the Nordic Growth Market in Sweden or mimic the investment and purchase the underlying 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 is required to join this.

There is no single industry benchmark for wholesale pricing of whisky. This can make it hard to assess the value of whisky and difficult to see how whisky is performing as an asset class. Once you have decided you would like to invest in whisky, the biggest question is the distillery whose whiskies to invest in. Like the scripts in the stock market, distilleries’ value and popularity go up and down in time. The popular ones are like Blue Chips, with limited downside risks, as almost everyone in the Whiskey world know them and they do attract premiums. These are mostly the Single Malts from Scotland and few ones from USA.

The Rare Whisky 101 Investors index shows the distilleries which are performing the best as an investment. The index is based on actual UK auction data and charts the percentage change in the value of all bottles from a distillery with a small weighting on the average price of all bottles and the highest single bottle from that distillery.

While the investment modes vary between passive investment in ETF’s and traded funds (like mutual funds) to direct and active investments like owning bottles and casks directly; the investor class also varies when it comes to whiskey. Investors could be divided into three categories, collectors focused on building a prized inventory; professional investors who are seeking with bigger buying power; and connoisseurs focused on consumption.

Investing in alcohol is by no means a new trend. People have been investing in wine for many hundreds of years; though whiskey is new, and as a structured investment product is a recent addition to the alternate asset landscape.

That’s is probably why many rookie and seasoned investors like to stick with well-known and high-valued Scotch whisky brands like Macallan, Highland Park, The Balvenie, Glenmorangie, Ardbeg, and Bowmore.

Rare whisky topped the Knight Frank Luxury Investment Index in 2019, surging in value by 40% over the previous 12 months from the last quarter of 2018. The same report also shows that, over the past decade, whisky values have gone up six-fold.

The Asian market has partially driven the rise in the value of Scotch whisky. According to the Scotch Whisky Association, single malts now account for almost one-third of total Scottish exports with the sales of whisky to India, China and Singapore rising by 44%, 35% and 24% respectively in the first half of 2018. Hong Kong remains the hub for whisky auctions, as it acts as a hub for mainland Chinese and other Asian countries to source and obtain the rarest whiskies in the world.

“Turning wholesale whiskey into an asset investable for individuals is a very unique idea… Whiskey's nature — that its value increases as it ages — is completely different from other commodities." Kazuhiko Saito, Chief Analyst, Fujimoto Co.

 What is Upcide.com doing

Upcide.com is a platform that curates various alternate assets and brings them as investment opportunities for its members. Whiskey is growing in stature as a sought after alternate asset option, and at www.upcide.com we are starting to build the ecosystem that our platform members can use to buy into global trades, whether its Bottles in bulk or Casks to be stored under Bond in Scotland.

The typical opportunity would be to invest in a special purpose vehicle, that will be held offshore from India, which will then invest and hold the Casks directly, through an exchange or an intermediary such that the SPV will have rights over the physical assets, while retaining the option to sell the casks in a structured trade in anyone or more exchanges.

If you are interested to know more, please feel free to reach us at

Deals@upcide.com




Sources:  Visuals.ons.gov.uk, Nationwide.co.uk, Scotch Whiskey Industry Review (Alan S Gray) and UK RPI from the Office for National Statistics, WhiskeyInvestDirect.com , braeburnwhiskey.com , www.essentialmagazine.com/how-to-invest-in-whiskey , businessindia.co/magazine/the-whiskey-exchange-brothers, Data source: IWSR, Scotch Whiskey Industry Review 2015 – Alan S Gray

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