My Article: A Warning for Wine Investors

I read an interesting article in The Economist (February 18) about how “some hedge funds are throwing in the towel.” The story was essentially about how these funds can’t make their performance fees of 20 percent of the value of assets due to the volatility of the market, and they can’t survive on a meager two percent management fee. So they are closing.

“Running a hedge fund today is ‘three times as much work for a third of the fun,’ says one,” the story reads.

I have heard the same from a number of wine fund operators, and rumors are that some are selling wine stocks at distressed levels. Without performance fees in the equation, hedge funds, regardless if they are dealing in wine or stocks, have a hard time surviving. Plus, the total value of assets in wine funds is usually too small to keep them going on management fees.

Wine investment in general is very capricious at best at the moment, despite reports that wine indexes are slightly up or stable in 2012. Headline prices in wine auctions in Hong Kong, such as the recent Henri Jayer sales, are not increasing the prices of fine wine overnight. In fact, I know some merchants that sold the same Jayer labels for about half or one-third less to buyers after the sale.

They should also remember that a large part of the wines bought in auction in Hong Kong are sold to people who plan to drink the wines, and usually soon after they are delivered. Value of wine stocks shouldn’t be revalued after every sale. Moreover, none of this is regulated.

Wine investors take warning.