Great article on how Cru Wine does things differently, by the Financial Times

Daniele Marano knows that making money by trading wine is not always easy. The former Tullett Prebon credit broker has made big gains on Burgundies in recent years, but bought some of the sought-after 2010 Lafite Rothschild earlier this decade — right before the market tanked.

Still, he and many other investors are trying to find ways to turn a profit from a fine-wine sector that has often left them with severe hangovers. A brutal four-year sell-off to 2015 cleaned out many funds and private investors from the market. Now, investors are once more trying to crack open the sector, attracted in part by soaring prices for Italy’s “Super Tuscans.”

Assets with no yield, but offering the potential for capital growth, have become more compelling in a world of low or negative interest rates on cash and major government bonds. This is particularly the case in less crowded sectors overlooked by other investors, which has spurred interest in esoteric assets ranging from fine art and classic cars to cryptocurrencies.

And even if wine trades do badly, there are consolations.

“If you get it wrong you can always drink it,” shrugged Mr Marano, who has backed a chain of wine bars called Bottles.

Justin Gibbs, co-founder of Liv-ex, an online exchange for wine set up by former BNP Paribas bankers, estimates that investment funds currently manage about £65m in assets, up from a low of around £40m a few years ago. This is still just a fraction of the size of the sector around the start of the decade.

Fine wine is a niche, inefficient market where prices for the same case can vary markedly between sellers. Contacts, local knowledge and old-fashioned research can give investors an edge.

But the market has been tough going. After a 2011 anti-corruption clampdown in China — which had emerged as a major wine buyer — prices slumped by 36 per cent from their peak to their trough three years later, as measured by the Liv-ex 100 index.

Among those trying to squeeze a profit is Gregory Swartberg, Managing director of Cru Wine Limited, a 31-year-old Dutchman based on London’s Regent Street, who trades fine wine for clients such as wealthy families. The assets he manages have grown strongly in recent years to more than £10m.

Unlike most investment funds, which have tended to adopt a buy-and-hold approach — accumulating cases of wine and hoping they eventually rise in price — Mr Swartberg tries to cash in on short-term discrepancies in the market.

Many buyers rely on their judgment of the wine’s taste or insights into the “terroir”: factors including the climate and soil in which the vines grow. But Mr Swartberg takes a different approach, using computers to crunch reams of data on the latest prices from so-called négociants — trading houses who buy direct from the wineries — as well as scores from a range of critics.

One particularly successful trade came late last year, when his systems flagged an unusually large gap between the price of newly-released Tuscan wines and older vintages. He quickly spent £70,000 to snap up tens of cases, before offloading them to a US buyer at a profit of around 35 per cent. His portfolios have gained 9 per cent on average per year.

“I’ve learned the hard way that trying to treat wine as an asset class to invest in can be painful,” said Mr Marano.

Link to article: here