Buzz has been strong about the surging Chinese wine market. We wrote about the growth of Bordeaux in our recent China’s Most Coveted Wine article. Interest appears to be extending beyond drinking and collecting wine.
China’s young rich have been inclined toward investments and specifically, investing in the wine market in recent years. Wine is perceived as a sign of luxury living and an increasing number of wealthy folks are drinking and collecting wine.
So it’s timely that French financial firm, Societe Generale will launch a Bordeaux wine fund in China targeting China’s fast-growing new rich. They are the first foreign group to issue this “alternative investment vehicle” in mainland China. Unlike traditional stock or bond investments, cash can be invested specifically in wine or the wine can be one component of investment portfolios. A wine fund generally matures in five to seven years.
“As a long-term investment instruction, it can diversify the current assets allocation in investment portfolios,” said Hsiao-yun Lee, the chief executive officer of China-based Societe Generale Private Banking Business.
The Bordeaux wine fund will be privately offered to high-end clients of the private banking business. Clients can choose when to invest and when to sell their wine at auction. “According to our previous wine fund management experience in Europe, sometimes the auction price may be 100 times higher than the original price,” Lee said.
Generally, the average annual rate of return for a Bordeaux wine fund is about 10 percent with higher quality wine returning an average of 8 to 12 percent per year. “Some years it can even reach 50 percent if investors purchase the en primeur (wine before it is bottled),” said Wang Baoting, vice-president of Chateau Junding, which is owned by Chinese wine producer Cofco Wine.
Investment quality wine consists of just 0.1 percent of total global wine production each year. Since better wines need to age, supply is limited and therefore, high quality wines provide “a relatively stable return” according to senior wine investor Lee Robertson.