Whisky: A dram good investment?

To connoisseurs and avid collectors?uisge beatha?may be the ‘water of life', but for savvy investors single malt whisky is simply becoming an essential part of any diversified portfolio.

With booming demand and a shortage of aged malt whisky on the market, whisky has become a valuable asset class all of its own, joining the likes of watches, art, and vintage vehicles as categories worth your cash.

And the numbers don’t lie.

In the wine and spirits auction hosted by Sotheby’s in 2021, the hammer fell on record sales of $ 132 million, with spirits – mostly rare Scotch whiskies – accounting for a hefty $ 21 million of the total.

According to the Knight Frank Luxury Index (KFLI), which tracks the prices of everything from art to collectible coins, rare whisky saw a nine percent jump in value through 2021.

Knight Frank’s Andrew Shirley, commented: “The Covid-19 pandemic certainly hasn’t dented the enthusiasm of collectors who have continued to pay significant amounts of money for an increasingly eclectic mix of assets.”

For rare whisky the KFLI relies on data from Rare Whisky 101, a respected consultancy in brokerage, collecting, and whisky market insights. They maintain the Rare Whisky Icon 100 index, which tracks the market for 100 highly desirable and regularly traded bottles of single malt Scotch whisky. That index has grown more than 400% over the past decade.

But how can you get some skin in the game?

The easiest, if the least romantic, option is to look for funds in the sector, which allow for investors to dabble in investing in drams. With a minimum investment of €1000, the?Single Malt Fund?claimed to be the world’s first regulated whisky fund, with?Christian Svantesson, co-founder and CEO, explaining: “It’s essentially a commodity fund, but instead of gold we buy liquid gold.”

Perhaps the most famous though is the Platinum Whisky Investment Fund, established in 2014 by Rickesh Kishnani. With an initial stake of $ 12 million raised from 50 high-net-worth investors in Asia, it was the world’s first private equity fund focused on investing in rare single malt whisky.

Their portfolio included a 60-year-old 1926 Macallan: bought for $200 000 and sold to a private buyer just three years later for $1.32-million. The fund’s most profitable trade was 300 bottles of 1981 Karuizawa Founders Cask 30-year-old, which tripled in price in the three years between being bought and sold.

When the Platinum fund was liquidated in 2021, as intended, it generated $ 26 million and a gross annual return of 17%.

Possibly the most accessible, and entertaining, way to invest in whisky is to purchase individual bottles (or cases) of single malt whisky. The likes of?Whisky Auctioneer,?Whisky Hammer,?Master of Malt,?and?Scotch Whisky Auctions?all offer easy access to rare and collectible whiskies. Within South Africa,?Whisky Brother?is the leading retailer of investment-grade malts.

Buy, hold and sell for a profit. Simple, right?

“But, like any investment, information is key,” cautions Alex de Ujfalussy, a private collector and founder of spirits distributor?Navigate World Whisky. “There’s a massive world of whisky out there, and before committing the bank to any bottles you have to get to know the whisky world.”

The first question to ask yourself is: why whisky? What’s your objective in the space? Do you want to build a personal collection? Are you taken by the romance of owning a cask??Or do you want to simply buy and flip for a profit? Those answers can guide your whisky investment strategy. Knowledge, research, and investment savvy can help you make an educated bet on what distilleries and styles of whisky will be sought-after in the future.

But the simple logistics involved in buying and selling bottles are worth considering too.

With much of the market concentrated in the northern hemisphere, shipping fees and insurance can quickly escalate the purchase price and eventual return. It’s not insurmountable of course, and whisky auction houses are often happy to cellar your malt until you’re ready to ship or re-sell them. But, that comes at a cost, with some auction houses charging up to 8% of the hammer price, per year, for storage.

Or you could just keep it in the cupboard.

Unlike wine, investment-grade whisky doesn’t require professional storage to safeguard its value. Thanks to the high alcohol levels, the spirit changes little once it’s corked inside a bottle and there is no danger of oxidation or cork contamination. What’s important is ensuring the packaging remains in good condition.

“You want to keep your whisky somewhere relatively dark,” says de Ujfalussy. “Keep your bottles clean, dust them off. When it comes to selling, the label is one way of confirming the bottle is authentic.”

Your next question is simply: what should you buy to turn a profit? Rarity value is an easy route to a good return, but getting your hands on a cult bottling is far from easy.

Unless you have connections in the right places, or fancy flying to Scotland to queue for a rare Macallan release, there are easier ways to get your hands on a sought-after bottle. To start, sign up for loyalty schemes and members’ clubs. The likes of Ardbeg and Springbank offer limited releases and special bottlings for members, which often quickly increase in value.

Another category is to buy bottles from the so-called ‘silent stills’: distilleries that have been mothballed or shut down entirely. The Islay distillery of Port Ellen is spoken of in hushed tones, and rare bottlings from this shuttered distillery are highly sought-after. In a bid to capitalise on that interest, drinks giant Diageo is investing some ￡ 35 million in a bid to reopen the iconic distillery.

But, not all silent stills have the golden touch. While Rosebank, Port Ellen, and Brora enjoy a cult following amongst enthusiasts and have benefitted from plans to reopen the distilleries, others such as Glenesk, Glen Flagler, and Littlemill are perhaps less likely to show a return.

Buying an entire cask of spirit.

The key benefit here is that the whisky will continue to improve.

While a 12-year-old malt in the bottle will forever remain a 12-year-old malt, spirit still in the embrace of oak will continue to mature, develop and – hopefully – increase in value.

For this, you’ll need patience. Casks typically see an increase in value upon reaching specific landmark ages: mostly 12 years, 18 years, 25 years, and older.

You’ll need deeper pockets too.

In 2022 a cask from the Ardbeg distillery in Scotland, filled in 1975, sold to an Asian collector for ￡ 16 million. Whisky Hammer also has a hogshead cask of Macallan 1990 up for auction. It’s a distillery that shows consistently good returns, but you’ll need to beat the current bid of ￡140 000 to have your name on the barrel.

But don’t worry if your pockets aren’t that deep: through the likes of CaskTrade you can get your hands on a cask for a fraction of that price. At their recent summer auction, the best bargain was a barrel of 2010 Girvan Grain Whisky, which sold for ￡1400 (R28 400). The hammer also fell on barrels of 2014 Glenrothes Hogshead (for R132 000) and a 2012 Benriach Hogshead (R140 000).

“We advise our clients to invest in an eight- to 12-year-old cask and hold it for a minimum of three to five years, but it can also be longer,” said Kishnani in?a recent interview. “We found that the higher returns are generally on the cask versus the bottles.”

In an?interview with Forbes, Kishnani also shared that across the Platinum Whisky Investment Fund, casks averaged a 150% gross return while bottles lagged at 85%.

But casks bring their own complications, from paying for storage in a bonded warehouse to selling the barrel to a bottler or distributor. Whether you choose to invest in bottles or barrels, you have to consider your exit strategy.

It may sound daunting, but the world of investing in whisky comes with a silver – or should that be golden – lining.

“The wonderful thing about whisky,” says de Ujfalussy, “is that if you make a mistake you can always just drink the bottle.”

Now you can’t say that for Bitcoin, can you?

This article is part of a series by Altvest, exploring different alternative investment classes.