Scotch comes of age as an investment
SCOTCH WHISKY must, by UK and European law, be distilled and then matured in Scotland for at least three years. It then commands the largest premium of any liquor, selling four per cent of global spirits by volume but 12 per cent by value. Worth £4 billion in 2016, Scotch whisky generates one-quarter of UK food and drink exports.
Over the past 30 years, global sales have grown
1.5 per cent per annum by volume and more than twice that by value.
The unsung workhorse of this remarkable industry is blended Scotch. Mixing up to 40 different single malts with 60 to 70 per cent of grain whisky, this smoother drink accounts for nine bottles in every 10 sold worldwide. The simplest route to access Scotch’s long-term success is to own the whisky itself.
One could build a collection of rare bottles. UK auction sales of single-malt bottles increased in 2016 but totalled only 59,000 bottles with a value of £14.2 million, making this avenue to whisky investment very small and illiquid. An alternative is to invest in maturing Scotch whisky while it slowly improves within oak barrels, becoming tastier and more valuable to blenders as it ages.
To date, maturing Scotch has been uninvestable. Several smaller distillers run cask-purchase schemes, where whole barrels are paid for upfront including storage fees with lock-in periods of 10-years or longer and at prices set close to final trade-sale valuations. WhiskyInvestDirect changes this, reducing investment costs by about 70 per cent. Launched in 2015 it employs the trading platform and storage and insurance technology of BullionVault, the world’s largest online precious metals exchange, now caring for £1.5 billion of client assets. This offers potential benefit not only to private investors but also to the Scotch industry itself, because until now the trade has lacked an electronic broking platform for sourcing mature whisky, needed to create those world-beating blends.
Traded inside bonded warehouses, with no VAT or duty to pay, maturing Scotch whisky grows in value the longer it ages, according to industry data. After accounting for all costs, you would pay to use WhiskyInvestDirect, an equal holding of typical malt and grain whiskies would have doubled in value on average over the past decade on selling at eight years old and trebled at 12 years old.
Past performance is no guarantee of future returns of course and storage and insurance costs can look steep at around five per cent per year on newmake spirit, before it reaches maturity.
WhiskyInvestDirect customers already own maturing whisky from top Scotch distillers including Diageo, Beam Suntory and Whyte & Mackay. Users have so far bought over 4.2 million litres of pure alcohol (LPA, the industry’s standard accounting unit), a drop in the barrel compared with around 3 billion LPA now gaining flavour and value in Scottish warehouses.
Rupert Patrick is a 25-year veteran of the whisky industry and co-founder and CEO of WhiskyInvestDirect, 020 8600 0135, rupert@whiskyinvestdirect. com,whiskyinvestdirect.com/TJC Always seek independent advice if unsure of the suitability of an investment
As Scotch matures, it grows in taste and value’