Single malt Scotch whisky, the centuries old Scottish liquor, has emerged as an attractive investment over the last four years, analysts and industry experts say, with high demand for rare luxury bottles driving record-high auction prices.
The recent opening of a lavish, Manhattan-based whisky club, and the $460,000 world auction record sale of the Macallan ‘Cire Perdue’ in 2010 are just a few signs of the trending single malt market.
Whisky Highland’s figures suggest that a 2008 investment in one of the top ten performing whiskies it tracks would have achieved a gain of more than 400 percent if sold at auction in late 2011. A four-year investment in one of the top 100 bottles would have returned an average 245 percent profit, and an investment in one of the top 500 bottles would have returned an average 126 percent profit. In comparison, according to gold futures settlement prices at COMEX, gold rose 82.7 percent between Q1 2008 and Q4 2011.
Andy Simpson, a Scotsman and founder of Whisky Highland, adds that the average auction price of the bottles the Whisky Highland Index monitors is £205.
Marcin Kacperczyk, an Assistant Professor of Finance at NYU’s Stern School of Business, is not particularly surprised by the increased interest and investments in single malt Scotch whisky considering the timing.
“The economic climate of the past four years has caused people to seek alternative investments,” says Kacperczyk. “2007 to 2010 were not good years for the markets in general, so it isn’t really surprising that these smaller markets are growing.”
Patrick FitzGerald, Professor of Entrepreneurship at the Wharton School of the University of Pennsylvania, agrees. He says the whisky market gives investors a stronger sense of control.
“Owning your investment, owning a bottle that is yours, that’s a pretty tight connection. And most folks aren’t having to put up their life savings for this kind of investment,” says FitzGerald.
On the other hand, expensive whisky has turned into a status symbol amongst affluent liquor drinkers in and from Asia, according to Simpson.
In its 2010 whisky auctions in New York, Bonhams sold 75 percent by lot with 10 percent of buyers coming from Japan and China. The numbers changed drastically one year later; Bonhams’ 2011 auctions sold 88 percent by lot with Chinese buyers accounting for 38 percent of all buyers.
In September 2011, a Chinese businessman set a retail record when he purchased a bottle of Dalmore 62 at Singapore Airport for $194,000. In March, Indian businessman Mahesh Patel, bought 2012’s most expensive auction bottle so far: a Glennfidich Jane Sheed Reserve for $94,000.
Simpson notes that whisky prices are driven by two simple factors: supply and demand. When a new whisky hits the market, the age of the spirit and the quantity of bottles help auction houses determine prices. The Dalmore 62 sold for $194,000 at Singapore’s airport in 2011, for example, was one of only 12 bottles of its kind.
Keeping a bottle in proper conditions and secure is essential to retaining its value, according to Patel, CEO of Universal Whiskey Experience, a company that organizes whisky tasting and education events around the country.
David Clelland is a Scottish whisky aficionado and the founder of 1494, a New York club designed to offer expert consultations, obtain, store and insure rare bottles for its members, as well as create an environment to learn about and enjoy whisky. With a lavish city clubhouse set to open this fall, and luxury car and jet privileges for its members, 1494 is New York’s premiere, but exclusive whisky club.
“During my years working in the whisky industry, I became aware of the growing need for a service to foster connections and initiate communication between the distilleries producing the rare, limited release bottles and the potential collector or investor looking to acquire them,” says Clelland.
Experts say single malt Scotch whisky is accessible and affordable to most people.
“What you need to look for are investment and collectible grade bottles. These are bottles that have a limited quantity, or whiskies from distilleries that no longer exist but have a stockpile of bottles,” says Patel.
Any investment carries risk, and whisky is no different, according to Simpson. He thinks that hasty spending and the expectation of fast returns are dangerous. Patience is key.
“It is possible to turn a profit in a short amount of time, but it doesn’t happen often,” Simpson says. “Most of the bottles we follow have shown price increases in the last four years, and I even recommend that people look for investments over ten to twenty years.”
As the whisky market grows and demand increases, Simpson expects to see many counterfeit bottles produced around the world. He also says that auctioneer’s fees can sometimes minimize investors’ overall profits. Simpson and Clelland conclude, however, that a whisky investment should never be made by someone who doesn’t love the liquid inside the bottle.
“Long term, if an investment doesn’t work out the way a collector thought it would, at least you’ve got a great bottle of whisky to crack open and enjoy.”