And most of those costs are met by the investment vehicle individually, not paid by the manager out of their 2% fees.
If it’s DRC or Roumier, the storage factor is insignificant. But it does make it far more difficult to invest in a super second with a lower value, where say $2 a bottle per year spent on storage would eat into potential profits significantly.
Also insurance. Usually somewhere around 0.3% annually, and over ten years that really does add up if the portfolio is a small number of high value wines such as DRC, Roumier etc.
Let me put it this way; I would never recommend investing in a wine fund generally, and in the current market, I would consider going short if I could.
I ran a very quick and dirty calculation, and under the fund terms mentioned above, and assuming 1% of NAV per year in running costs, a 15% compound increase in the value of the wines (assuming arms length sale valuations) gets the investor a net 2% return.
That 7.5% upfront kills it.
Why on Earth would anyone who knows anything about wine hire someone else to buy wine for them - and pay them a ton of money for the privilege?
As for the fees, buying wine is not like running a hedge fund. Not even close. So those fees are laughable…
Yeah, it is crazy to have full freight HF fees for this product which really requires little overhead and personnel. It can not be in a mutual fund or more liquid vehicles so this is the space it ends up in. That does not mean the fees need to be so high. But it sure smells like a classic vehicle designed to largely extract fees/income for the manager and selling agents with little promise significant upside to the investor. “We” as knowledgeable wine buyers are not the target audience here.
Russell, what time horizon did you use above as that will matter. I think the net returns are better than 2% but am too lazy to do Math today. Loads are bad for exactly the reason you note.
John, five years. But I probably got it wrong.
I can’t remember where I read it, but apparently these wine funds, often run by people with more skill in financial promotion than high end wine knowledge, are the dumping grounds for a lot of the fake high end wine that proliferated in the last decade or so.
They’re probably the best kind of muppet a fraudster could find.