Fine wine investing has been a trend of recent years and a recent venture involving crowdfunding and an IPO offers another route to play this market.

Eye-watering prices charged for some of the world’s finest wines continue to attract investors even though amounts fetched don’t always live up to the hype. And in this market, ways of tapping into the riches that the noble grape can generate continue to proliferate.

The world of listed and unlisted equity finance is coming into the fine wine space, broadening entry into the market for investors who might otherwise not have been able to take part in the market, say organisers of a venture that recently caused a stir of publicity.

UK-based crowdfunding platform Seedrs recently hosted a campaign for the initial public offering on London’s AIM market by Domaine Chanzy, the vineyard in the Burgundy region of France, home to some of the world’s greatest wines. Seedrs says this was the first case of a wine-related business carrying out an IPO using crowdfunding, the only case of a French firm to be listed on this market and the only French wine specialist to be listed in the UK capital. That’s a lot of impressive “firsts”. The float has raised more than €2.5 million ($2.66 million) from over 300 investors.

The approach is appealing because the investor gets to own a direct capital stake in a working vineyard for a relatively rare producer of wine, and by the transparent route of a proven stock market, Philippe Der Megreditchian, chief executive of Domaine Chanzy, told this publication.

“We are getting a bit closer to the classical private equity type of fund raising,” he said. In the past, there was a gap between funding for small start-ups and private equity funding for larger deals and that gap is starting to close, he said.

“Crowdfunding is a new industry and there have been a lot of articles about it, but in reality, it has only been really active in the last few years. Crowdfunding has been focusing a lot on start-ups. You have more private equity-type deals in the £5-to-£10 million and above range that mostly involve institutions. Crowdfunders are now raising more money and have higher average tickets,” he continued.

The IPO sought to raise at least £1.9 million at a share price of 120 pence; investors of all sizes were able to take part, investing as little as £10 using the Seedrs platform. Seedrs described the move as a significant step in European crowdfunding. Amusingly, the ticker for the listed entity on the AIM market is “WINE”. Among other features, shares in Domaine Chanzy will be eligible for tax relief via Enterprise Investment Scheme structures.

Another sweetener for investors was the offer of substantial discounts in Domaine Chanzy’s wines. Investors who bought at least 1,000 shares were able to get discounts of up to 55 per cent on wines ranging from Domaine Chanzy’s entry-level offerings to its premier Grand Cru.

New routes
Until this venture came along, the main way to play the fine wine market was to be a professional wine dealer (this obviously isn’t ideal for the interested amateur), to hold wines in a bonded warehouse and via a specialist such as Berry Brothers & Rudd, or through a wine fund, of which there are a handful of examples. Professional investing requires capital and expertise, and in many cases can be regarded as an expensive, if enjoyable and hopefully profitable, hobby for the rich.

The fine wine market has boomed in recent years, to some extent fuelled by demand from the growing and affluent middle class of Asia and other parts of the world. There has been some slippage in the past year or so, however, suggesting some speculative froth has gone.

London’s Liv-ex auction market, which provides regular data on price trends, shows that, for its Liv-ex 100 benchmark of fine wines (most of which are French), the index has fallen by 4.43 per cent over the past five years, having peaked in June 2011 at a time of fear about the eurozone when “real assets” such as wine looked very appealing. Since the start of 2015, that index has risen 1.51 per cent. Investing in vineyards – such as hobby vineyards operated as much for lifestyle as for producing seriously good wine – has been popular, although price variations in some parts of the world are large. According to Knight Frank, the price of a lifestyle (or hobby) vineyard rose on average by 4.5 per cent in the year to June 2014, slipping a bit from the 6.3 per cent rate of growth logged a year earlier.

Such lifestyle vineyards usually comprise 2 to 15 hectares of vines with a detached family residence on the state and, occasionally, some outbuildings including a winery or bottling plant. However, such places must earn an annual return.

The Seedrs collaboration with the Burgundy vineyard, then, is an interesting twist of how to get exposure to the market. Der Megreditchian has said he wants Domaine Chanzy to be one of the “top wine producers in Burgundy”. To reach that target costs money so the source of capital from the IPO could lead to imitators if it proves to be successful.

“Feedback has been very positive and we know we have a unique asset,” he said, adding that the appeal of the investment is that it is in the real economy, involving a strong management team and a proven product.

Owning shares in a single vineyard is, of course, a highly concentrated investment – contrasting with a pool of different vintages and types of fine wine. As an addition to a portfolio, shares in this particular Burgundy venture could be an attractive way to help navigate the market.