Investing in whisky
Signature magazine (South Africa) 2009
Ever considered investing in whisky. Now you can…
It’s something investment guru Warren Buffett certainly advocates. Patience. And if you’re ‘investing’ in barrels of whisky you’re going to need plenty of it. So… deep breath, because this is how it works: first you choose the country you want your whisky to be made in (take your pick from Scotland to America to Australia), hand over your money, see your whisky get put into a barrel and stowed in a warehouse, and then you wait… And you wait. Five, ten, 12, even more years if you are the really patient type before you get your whisky.
So, quite clearly, if you’re after a quick buck then this whisky ‘investing’ is not really your thing. Look, I’m going to drop these quotation marks around ‘investing’ now if it’s okay with you? I think you might have gathered this is an alternative investment. Whisky is not the first, and certainly not the only thing you should put your money into. That said, once you’ve got your RA, stocks, dollars and property in your portfolio what’s wrong with having a fun investment or two? It’s certainly not impossible to make money out of whisky but you shouldn’t bank on it. But you should bank on some great fun and great whisky.
David Cox, who runs the The Macallan En Primeur cask programme (www.themacallan.com), explains what a buyer can expect.
“Those who sign up are invited to the filling day sometime in July or August where they can watch their new spirit being filled, then stowed in one of the warehouses. They will be our guests for the day, joining us for lunch and depending on numbers might be able to stay on site, and finishing off the day with a dinner together. When they leave each owner will take away an oak box with a logbook inside which charts the history of their cask, including the photos of the people who have been involved in the making of their whisky, from those who grew the barley to the team involved in the malting, the mashing, filling, and then stowing of the spirit. In the box will be a small sample of the spirit. Then, 12 years later, the owner will be given another sample so he can compare the effect the ageing and the wood has had on the spirit.
“Periodically the whisky will be checked and nosed by the whisky-maker and the notes relating to the nose and colour will be sent to the owner, which they can put into their logbook.”
It’s not exactly the type of love and attention you receive when you buy some mining shares now, is it? But whisky, through time and good marketing, is a product that has risen above being viewed purely as a commodity. A trend I identified in the South African Whisky Handbook 2008 (SchreiberFord Publications), is that people are looking for VIP experiences when it comes to their whisky: they want to feel special and have something to brag about when among friends. It’s this same reason that will lead you to decide to put you money into a cask of whisky and not more unit trusts, where your only interaction with your money is looking up the latest value in the Sunday Times over breakfast each week.
“Oh that’s good darling, up another two points this week. Another slice of toast and cup of coffee?”
Not quite the same as…
“Oh, I’ve booked our tickets for your business trip to Europe for next month. I left a couple of days free so we could pop up to Scotland and have lunch with our whisky-maker.”
Macallan has been selling casks to individuals for three years and at the time of writing have 25 people signed up. They will only ever accept 20-25 a year.
“At those numbers this is clearly not a big money-making scheme,” admits Cox. “We are looking to build a tight and exclusive club of Macallan lovers, who want to work with us in choosing the cask and getting to know the people who work here.”
It all goes back to having something special and fun as an investment. A big part of this, as Cox mentioned, is choosing the cask your whisky is aged in. It is the wood, its characteristics and what it was used for before, of course, which play a major part in creating the whisky you will end up with in your bottles.
Macallan offers a choice of wood in which to age with Spanish oak offering flavours of dried fruit, citrus orange and spices, while the American oak which gives coconut, floral and vanilla.
You also choose the size of cask you want. So, are you paying attention at the back? Whisky Casks Lesson 101: a butt and puncheon holds 500 litres, a hogshead 250 litres, and a barrel 200 litres (see costs in box).
An important thing to remember is something called the Angels’ Share. This is the rather cute term the whisky industry uses for evaporation. You can expect to lose approximately two per cent of your spirit every year. Now you know why a 21 Year Old Whisky costs so much.
But a humourous warning when the wait for your whisky is over. Whisky writer and broadcaster Tom Morton recalls being invited to the 21st birthday of his friend’s son. The star attraction at the party was a cask of whisky that the friend had bought proudly on the birth of his son all those years before. Now, 21 years later, it was here, ready to be enjoyed by everyone on the day his son became a man. Where was his son? In the corner with his friends drinking alcopops.
Ah, but what do youngsters know? And, as Tom told me during his story-telling, “Let them drink alcopops. More good whisky for the rest of rest.”
So, just how patient do you have to be with your whisky? If you buy a cask from Macallan you must wait a minimum of 12 years to taste the fruits of your patience. At 12 years you can decide to leave the whisky to age longer if you prefer (like the 21st birthday alcopop man) but extra strorage costs will be incurred on top of your initial fee.
Other distilleries such as Bruichladdich (www.bruichladdich.com) simply state that the ageing period is up to you. Bear in mind the spirit has to be in the cask a minimum of three years to be called Scotch so don’t go getting thirsty a couple of weeks into this venture. Bruichladdich’s initial fee covers insurance and storage for the first ten years after which you will be paying extra.
Michael Thompson from the Bruichladdich distillery supplied the following information:
“After ten years your whisky can be either bottled, sold, part exchanged or
further matured. Whisky evaporates from the cask and the alcohol level falls from the filling strength of 70 per cent to 40 per cent after 40 years; the longer it is kept for, the less there is – but the better it gets.”
On the subjecy of selling your whisky he adds: “In accepting this order, the company expects the purchaser to offer the distillery the opportunity to reacquire your cask if it becomes surplus to your requirements on a ‘first refusal’ basis, at the market rate prevailing at that time. The cask will need to be regauged to confirm it’s current contents [following evaporation]. Once the contents are verified, a price per Regauged Litre of Alcohol (RLA) is employed to work out the offer value for the cask and its contents. The price offered will depend on the actual regauge figure, the type of single malt, the cask type age and market value prevailing at that time. No taxes are due [in the UK] if sold under bond.”
There is also an option to sell back part of your whisky to cover bottling, labeling and duties, so what you receive will cost you no extra, albeit this being a smaller amount of whisky than you initially purchased.
What you might have noticed is that the costs do not stop once you have bought the whisky. There are storage costs if you age your whisky beyond the original offer (when these kick in and how much varies from distillery to distillery), there will be bottling and labeling costs, delivery, and importantly, duties and taxes. There can also be some sundry costs such as change of ownership and regauging the barrel.
Tullibardine (www.tullibardine.com) the distillery in Perthshire, also offers a chance to buy a cask in the barrel, hogshead and butt sizes together with a certificate, photograph of their cask and their name stenciled onto it.
Glengoyne (www.glengoyne.com) near Glasgow is another distillery to offer casks for sale. Here, you have a mind-boggling 11 choices of wood in which to age your spirit, from fresh bourbon, fresh American sherry and fresh Madeira to second-fill Spanish sherry, a cask that has previously been filled with dry oloroso sherry then Glengoyne whisky. Choices, choices, mmmm.
Scotch not your thing? The iconic Jack Daniel’s (www.jackdaniels.com) also offers a chance to buy a cask. Not the classic No. 7 mind (that of Jack and Coke fame), so make sure taste some Single Barrel and like it, because this is what is on offer from the famous Tennessee distillery. For Jack fans what could be better than a trip to Lyncburg where the whiskey is made, a meeting with master distiller Jeff Arnett and choosing a barrel that will eventually yield about 240 bottles for you?
And for something completely different how about a Tasmanian whisky? The Australia whisky-makers Nant (www.nantdistillery.com.au) promote the same buy-a-cask offer with the smaller 100-litre variety and a maturation period of between four and five years.
So there are certainly some choices and fun to be had but is there really money to be made? Scottish Master of Malt John Lamond warns people to keep their eyes open for ‘get-rich-slowly schemes’ that involve whisky.
“There were a lot of rogue brokers around in the 1990s and this gave the selling of casks a bad name. But things have improved and if you deal through an established distillery you should be fine. But certainly be aware of the size of the barrel you are buying and evaporation rates. Promises of riches are to be avoided.”
Bladnoch (www.bladnoch.co.uk) another distillery offering the chance to buy a cask even gives this warning on its website: “If the only reason you are purchasing a cask is for ‘Investment purposes’ Don’t.”
Macallan’s David Cox repeats the warning. “Some 15-20 years ago the selling of casks was a common thing and a few rogues were involved. Brokers were offering sure-fire investments, and as we know there is no sure-fire investment in anything. This gave the practice a bad name but I think to a large extent that has gone now with people dealing directly with distilleries. We never sell these casks as an investment; this is something to be enjoyed.”
It’s pretty clear that buying whisky casks is no easy-riches scheme (or I wouldn’t be telling you about it) but neither is it rip-off (unless you get caught in a scam like any other venture). This is an investment that can be financially solid and also offers some enjoyment along the way.
“Typical financial assets such as RAs, units trusts and so on might bore you to death but you most probably will find enjoyment from your art and stamp collection. Such assets are typically referred to as “hard assets”. They can, however, be highly speculative and generally require specialist knowledge in a particular field,” says Charl Ten Oever, investment advisor and author of Beat the Crunch (Two Dogs).
“A more recent concept and trend for those investors who would like to expand their investment horizons, personal satisfaction and potential returns in “hard” or alternative assets, is by investing in whisky barrels.
“The benefits are exclusivity, personalised enjoyment, distinctive ‘One of a kind’ concept, possible hedge against future inflation and depreciation, and a fun investment still rendering a good return over a period of time
“The disadvantages? Buyer beware!, can the whisky go bad? In the continued economic crunch can you sell the bottles?
“As with all financial matters, and most things in life, the attitude you chose to adopt when considering investment decisions is vital. Don’t think of investing as a means to make a quick buck, rather learn the ground rules, do your homework and look at this type of investment as a long-term journey to personal satisfaction and enjoyment…”
What it will cost*
First payment: to cover the cost of the new make spirit, the cask, and forward charges for 12 years to cover warehouse rental, storage, insurance etc.
Butt/puncheon (500 litres) £9,000 (R112,500)
Hogshead (250 litres): £4,900 (R61,250)
Barrel (200 litres): £3,800 (R47,500)
Second payment: to cover bottling, label design and origination (a forecast).
Butt/puncheon (500 litres): £4,200. Approx outturn after 12 years at 40% abv is 784 bottles @ 75cl.
Hogshead (250 litres): £2,100 Approx outturn after 12 years at 40% abv is 410 bottles @ 75cl.
Barrel (200 litres): £1,700 Approx outturn after 12 years at 40% abv is 313 bottles @ 75cl.
Third payment: delivery and duties to SARS
* Costs are an example from Macallan. There are many other conditions and each distilleries terms vary.
The cheaper alternative
Investing in whisky without spending a fortune
If you’re not quite ready to plunge into the whisky futures market but still want to dip your toe into it there are some cheaper alternatives that will still leave you with a warm glow.
• On certain commemorative bottles of Jack Daniel’s you can register your bottle online and receive a certificate of registration (www.jackdaniels.com).
• How about a personalised bottle of whisky? You get to bottle the spirit from a pre-aged cash, cork it yourself and have your name written on the label and recorded in a logbook in the Visitors’ Centre. Benromach (www.benromach.com) offer this option but you have to be there to do it! £50 (R625)
• Johnne Walker, through the Whisky Exchange (http://www.whiskyexchange.com) offer you a bottle of their whiskyn with your name engraved on it. Choose your words online and preview it before buying. Go for a bottle of Blue at £135.70 (R1696)
• Don’t even care about the whisky? Buy a used barrel at Euros 150 ex delivery (R1500) and put some plants in it maybe? Or dare I suggest you just fill it with ice and Amstel lagers next time you have friends round (www.barrel-shop.com).