British pensions to soak up French wine?

29th August 2005, Comments 0 comments

Bordeaux accounts for the most of the world's 'investment wines', approximately 20,000 cases per year; cash-rich British pensions funds will soon, for the first time, be able to add wine to their portfolios. Sophie Kevany reports on the arrival of a new class of shopper in the market for grand cru Bordeaux.

Cash-rich British pension funds could snap up tens of millions of pounds worth of top Bordeaux wines as investments in coming years thanks to a change in Britain's pension laws, French and British wine merchants say.

The new regulation, which goes into effect April 6, 2006, will for the first time allow individuals and major funds to add wine to their pension investments. They will also benefit from 40 percent tax breaks.

"We have not seen the guidelines yet, but we've already had inquiries worth about a hundred million pounds (EUR 150 million) from pension institutions in the last few months," said Simon Staples of Berry Brothers and Rudd, one of the major British buyers of Bordeaux wines.

*sidebar1*"The pension industry has hundreds of millions of pounds to spend," said Chadwick Delaney of Justerini and Brooks, a major UK wine merchant. "The obvious worry is whether there is enough good investment wine to satisfy the scale of this opportunity."

Delaney says there are only about 20 top châteaux wines worth buying for investment, so potential pension-fund buyers will be brutally restricted by supply.

Market movement

Not all wine merchants see the same looming opportunity. "If it was going to be a scramble, it should already be happening," said Steven Browett of Farr Vintners in the UK, which has been known to set the market for Bordeaux wines.

"It isn't something we think is going to be major," Browett added. "It would be a very dangerous message to send that the Brits are going to buy, no matter what, due to tax changes."

But most British wine merchants and investors are predicting a significant impact.

"The changes to the law will drive prices quite high in a short space of time, though maybe not until 2007 because it will take time to develop investment products for this market," said Peter Lunzer of the Wine Investment Project. "Then prices could move quite rapidly if everyone focuses on the same blue chip stock."

Decreasing supply -- the simple fact that the wine gets drunk over time -- also adds to the value of remaining bottles, Lunzer pointed out. "Fine and rare wine is the only asset class that exhibits an inverse supply curve," said Lunzer.

The Wine Investment Project advises individuals and pensions institutions on wine investments, and claims to be more independent than merchants because it holds no wine stocks.

'Investment wines'

Britain has long been one of the top importers, by value, of Bordeaux wines. Lunzer estimates the "blue chip" wine industry in Britain to be worth 135 million pounds (EUR 200 million) a year, about 25 percent of global trade.

*quote1*The British pension industry is valued at close to 900 billion pounds (EUR 1.3 trillion) according to the United Kingdom Treasury website, while the value of the fine wine industry worldwide is estimated at a comparatively modest 600 million pounds (EUR 900 million) a year, according to a leading British wine magazine.

Bordeaux accounts for the vast majority of the world's 'investment wines', approximately 20,000 cases per year from each of the 50 top châteaux, said Laurent Ehrmann, director of one of the major merchants in Bordeaux.

"That amounts to about a million cases," he said. "It is a finite resource. If demand increases, what do you think Bordeaux producers are going to do?"

Local producers say a jump in demand for investment-quality wines will not automatically resolve the current Bordeaux wine crisis -- brought on by competition from 'new world' wines, uncertain quality and global overproduction.

"The demand for cru classe (i.e. top wines) is always higher than the supply. It can have no impact on the current crisis -- we are talking about two totally different markets here," said Florence Raffard, spokewoman for the Bordeaux Wine Board.

Sales of top name Bordeaux wines came to over EUR 300 million last year, about 10 percent of total Bordeaux sales.

The changes to the pension regulations were passed by the British government in the 2004 Finance Bill. The official guidelines are expected to be published this autumn.

August 2005

Copyright AFP

Subject: French news, wine, Bordeaux, British pensions

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