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INTERVIEW: Serving The Needs Of Fine Wine Collectors
Eliane Chavagnon
24 July 2013
Nick
Martin, who officially launched London-based Wine Owners last month,
talks about his new global venture and the high net worth fine wine
market generally. With a database of 150,000 wines, Wine Owners allows
clients to value their portfolio, compare wines and generate reports. Martin, a wine collector himself, has a background in marketing
and IT managing divisions of FTSE 100 and Fortune 500 companies. His
business partner, Wolter Visscher, leads Wine Owners' technical team. WealthBriefingAsia is carrying this interview as Asian buyers have played a big part in recent years in driving up the price of fine wines, such as the great Bordeaux and Burgundy houses, for example.
What prompted you to launch Wine Owners? The concept came about to solve the needs of fine
wine collectors. The starting point was the founder’s personal
experience as one of them. These were the three challenges he faced: 1. Keeping track of purchases, aggregate spend and current value,
often with wines stored in multiple locations as a consequence of
securing wines from different sources. 2. Identifying what needs to be consumed, what should be sold and what would realise most value at any given time. 3. Making trading fine wine easy. Selling via the secondary market
can be a long-winded process, the elapsed time between a purchase and
settlement traditionally taking weeks or months. Having researched the market he discovered that the majority of wine
collectors were experiencing exactly the same issues. So the solution
created was a portfolio management platform similar to Hargreaves
Lansdown (or E*TRADE in the US). This was integrated with a flexible
trading exchange that comprehensively met the information, analysis and
trading needs of private clients. Who are your clients? Wine Owners clients fall into three categories: 1. Private collectors who typically both appreciate fine wine and who
may additionally seek to make a return from it as an alternative, and
interesting, investment. 2. The wine trade. 3. Other market participants such as wine funds. Although it’s only been a month since release of the trading
exchange, its client base is global, from Eastern European billionaires
to Hong Kong Chinese, Europeans and Americans. Many store their wines in
the UK, which offers a favourable tax jurisdiction for keeping and
trading fine wine. Typically, clients are high net worth individuals,
many of whom have entrepreneurial backgrounds and are business owners.
They come from financial services, the legal profession and information
technology as well as many others. Fine wine is usually a relatively
modest proportion of their total wealth. Membership is building rapidly, and Wine Owners expect to have well
over 10,000 users managing their wine collections on the platform by the
start of 2014. Do you offer investments? All the information and tools are provided for anyone could want if
you are interested in building a portfolio of fine wine. Our information
database spans 150,000 fine wines and millions of market price points,
which will soon be filterable by currency and region. Wine Owners
members predominantly actively self-manage so do not sell investments in
wine. How do things work on the advice side? We provide transparency (via the information and tools we provide)
and facilitate clients to actively self-manage their portfolios. This
enables them to buy, sell (offer) and bid in a classic two-way market -
the Fine Wine Exchange. Current and historic reviews of wines, scores
and drinking advice serve the same purpose as analyst reports in equity
markets. We purely facilitate the activities of collectors and traders
and do not offer advice. Because of this, members trust our data. Where do investors’ portfolio holdings typically come from? Investor portfolios tend to come from wines bought from merchants and fine wine investment companies over a period of time. Where do you view yourself in the wealth management market? Wine is a passion. Generally if you’re interested in fine wine and
enjoy consuming it and perhaps reading about it, it’s a natural place to
put a modest proportion of your total wealth. High net worth investors
are increasingly interested in diversification - of asset classes as
well as jurisdictions - and are not scared off by unregulated markets as
long as the transparency, pricing tools and assured processes around
buying and selling are in place. What significant trends are you seeing in various regions of the world? Market performance is largely driven by scarcity and demand. The very
greatest wines from all regions of the world have largely appreciated
over the course of the last decade or so. It’s about following a
producer rather than buying in to regions of production generally, which
rarely works. We’ve seen the bursting of the First Growth Bordeaux bubble following
unprecedented demand from China in the years running up to 2011, due to
the vagaries of a large, wealthy but very immature market. The price of
first growth purchases have now fallen substantially and there is value
once again across the range of Bordeaux classed growths and right bank
wines from Pomerol and St Emillion. Bordeaux has historically accounted
for around 85-90 per cent of the fine wine market. Burgundies have been on a very strong run, which does not show signs
of running out of steam either. There may be consolidation over the next
couple of years but the long-term outlook is upwards, helped by extreme
scarcity. What would you say were the main challenges in setting up the business? The fine wine market is ridiculously complex for what is essentially a
product designed to be consumed. For every rule there are a number of
exceptions, so building a platform that is credible, genuinely helpful
and simplifies the way things have been done in the past has been a
massive undertaking. We took the long view, which is the idea that the needs of collectors
and investors are only properly addressed by building best in class
portfolio asset management and properly integrated trading. It wasn’t
the easiest path we could have picked: we spent almost two years
building without generating income. Now of course we’re starting to reap
the rewards of a patient approach to building value. In an industry where security is a huge topic/concern, what measures do you have in place? We have comprehensive measures in place for safe trading, for example
enabling buyers and sellers alike to easily request inspection reports
that include photographs and provenance incredibly seriously, either
before a trade, or post-trade and pre-settlement. Wine Owners runs a
free escrow service that holds the buyers money pending inspections.
Members get to choose the level of assured participation they feel
comfortable with. Security is reflected in our processes, for example with email and
SMS alerts acting as a burglar alarm every time a member logs in, so
that if a member’s password was ever compromised by them, there are
failsafe measures in place. A member’s total online activity is always
logged, which they can view at any time their own dashboard. Furthermore
we check the identity of members who wish to trade and run anti-money
laundering checks. Of course we use the same cryptographic methods as the banks to ensure technical security as well.