05 Nov Cask whiskey — a new breed of investor sees opportunity in an age-old market
The world we left in March is very different to the one we find today. In some ways, however, the pandemic has simply accelerated existing trends. Look at remote working: the technologies to allow companies to operate remotely have been around for a long time — we just didn’t choose to take advantage of it. The companies that have thrived saw the existing opportunity and seized it.
The key to surviving our new reality is the ability to rapidly asses and evolve. It is an approach with parallels in the investment world, with a new focus on long established, proven, alternative markets. Here, risk is mitigated by asset backed investments — and a thorough understanding of the real value of these assets — while reward comes from the early identification of opportunities to move first and fastest.
The appeal of alternative investments accelerates
Despite global instability, this new breed of investor is not risk averse, but rather risk aware. Whiskey & Wealth Club’s own research into investor attitudes, as part of its annual Cask Whiskey Buyer Report 2020, shows that diversification — not withdrawal — is a defining driver.
Over 40% of people surveyed with £100,000 or more to invest look to alternative investment markets as a way to spread risk. In addition, well over half seek returns in excess of 10%, which is a ballsy ambition given the current economic environment and the fact that annual FTSE 100 returns over the past decade have averaged around 8%.
The alternatives market has grown impressively and, as results from our Report suggest, ongoing uncertainty is likely to accelerate its emergence into the mainstream. Even before lockdown, FT Adviser reported that alternative assets under management doubled between 2008 and 2017 and were projected to hit $14 trillion by 2023.
Cask whiskey performance vs other alternative investments
Unsurprisingly, our data also shows that it’s the ‘less alternative’ alternatives that prove the most popular. The report shows that potential investors seem more comfortable in exploring well known sectors such as art, antiques and wine — while interest in whiskey buying featured lower down their wish lists. This is particularly interesting when you compare and contrast with the returns. Cask whiskey is seen as a ‘new’ market by investors despite being around for centuries. This is because the market is being opened up to private investors and not just a select few.
It’s important not to confuse rare whiskey with premium whiskey, or indeed cask with bottle, but indicators show that whiskey outperforms all its alternative rivals. Knight Frank’s 2019 Luxury Investment Index shows that rare bottled whiskey grew by 40% between 2018 and 2019 and the company’s 2020 Wealth Report shows that rare whiskey grew by over 500% over the past decade. While not widely known, whiskey significantly outperforms the art, antiques and wine sectors favoured by investors seeking alternatives for diversification in both cask and bottle.
Invest in quality, rarity and age
As with all investments, however, investors need to do their due diligence. Not all whiskey is created equal. Quality alone is not a guarantee of returns (though it is a necessary prerequisite) – its age, the amount of it available and the brand behind it will all determine its value.
A bottle of 12 year old from the highly respected Macallan brand, while undeniably good, is mass produced and unlikely to generate much in the way of profit. The distillery’s Queen’s Diamond Jubilee release however was limited to just 2012 bottles – originally sold for around £350 it will now set you back £8,000.
The same rules apply when it comes to casks and returns here can be eye-watering. In 2018 a cask of 1989 Macallan sold for £242,000 — astonishing considering the original owners paid just £2,700 for it in 1994. In 2019 a cask of 30 year old Macallan set a new record, selling for $572,000. In mainstream whiskeys too, brand remains dominant: a cask of 23 year old Laphroaig, sells for around £89,000, while a cask of 30 year old from an unbranded commercial factory is unlikely to go above £18,000.
We are witnessing a move towards quality in the Scottish market, where once dominant cheaper blended whiskies are being reeled in by premium single malts. It’s estimated that the value of Scotch single malts will grow by more than 11% between 2018 and 2022, while blends will fall by well over 3%. The smaller but even faster growing Irish market (up 300% in the past decade) is set to mirror the trend — with Irish Distillers reporting that its premium Redbreast single pot still whiskey is growing at 25% and selling close to 100,000 cases a year.
A new perspective on cask whiskey as an asset
It’s clear then that there’s some disparity between perception and reality when it comes to the relative merits of alternative investment options. A working theory is that this is because some potential buyers don’t yet know enough about the cask whiskey market to make an informed decision.
Whiskey & Wealth Club tested that theory in the Cask Whiskey Buyer Report. It provided respondents with a brief summary of the cask whiskey market and then asked if this had any impact on their intentions. The answer was unequivocal: more than half stated that, with additional insight, they were more interested in cask whiskey investment. Results get even more interesting when you slice and dice the data by age — so I suggest you read the Report for yourself.
A more accessible cask whiskey market – left to its own devices – may have taken years to mature. The increasing desire to diversify and invest in a physical asset that improves with age, however, will see it become far more familiar, far more popular, far more quickly.
As with so many other things in our new world, those who adapt first and fastest are those most likely to thrive. In the alternative investment market, cask whiskey’s timing couldn’t be better.