Anwar: Well firstly, Callum, thank you so much for your time and joining us here on our recent change to our new series edition where we’re incorporating video conversations with our expert interviews. We’re pleased to have you here. For everyone who doesn’t know Callum, this is Callum Woodcock. He is the CEO of WineFi, which is a wine investing platform based in the UK. We’re happy to learn more from him about WineFi and what inspired him to get started. So, Callum, first question for you regarding WineFi is, what inspired you to start WineFi?
Callum: Yeah, it’s a great question. My background is in traditional asset management. I started my career at Fidelity, then moved on to JP Morgan Asset Management. At the same time, my father-in-law was very deep in the wine trade. He ran a major import-export business and was a wine collector himself. It didn’t take me too long to come across the concept of wine as an asset class. Just for your audience’s benefit, wine has some very fascinating characteristics as an investment. Historically, it’s offered better risk-adjusted returns than most mainstream equity, bond, and commodities indices, including the S&P 500. It’s also uncorrelated to those traditional asset classes, so it can be a very interesting portfolio diversifier. In the UK and certain other jurisdictions, but notably not the US, it is exempt from capital gains tax. In the US, if you hold it within an IRA, there are certain ways of getting around that, but in many jurisdictions, it’s a tax-efficient alternative. When I first had some money behind me to invest, I decided to go out and try to build a wine portfolio. It amazed me how different the experience of investing in wine was from investing in equities, for example. It was expensive, opaque, there were huge informational asymmetries between wine merchants and you as the buyer. I also noticed immediately that there was a slight conflict of interest. You as an investor are looking to seek out wines that have the highest likelihood of appreciating in value, whereas wine merchants, because they’re holding stock, are understandably incentivized to sell you that stock at a higher price than they paid for it. Because wine has an objective third-party market price, it’s not like art, for example, where you have to rely on point-in-time valuations from a broker. I just thought that was a really strange setup. So, I decided to leave the merchants to one side and started looking at wine investment businesses. The issue with these businesses is almost all of them are unregulated, which effectively allows anyone to set themselves up as a wine broker or a wine investment manager. It’s the same old story: high-pressure sales calls, the whole experience felt very different to dealing with a professional asset manager. So, I started to think, how can we solve this problem? How can we make it possible for investors like me to gain seamless and cost-effective exposure to wine as an asset class? That is what sparked the idea of WineFi. WineFi is effectively a next-generation investment platform that allows investors to invest in diversified, expertly curated portfolios of wine from as little as $4,000. So we have dramatically lowered the cost of entry you know typically it would cost 50, 60, 70 thousands dollars to build even a semblance of a diversified wine portfolio um and our approach is to combine quantitative analysis based on 22 years worth of data and 18 million plus data points with the expertise of our investment committee, who are all finance and wine trade veterans, to provide that qualitative overlay to the data that we’re providing.
Anwar: Awesome. That’s really interesting insight. It’s really special how it’s uncorrelated, giving investors a different chance to be diversified and stay safe in volatile or unconventional conditions in the market.
Callum: Yeah, it actually behaves quite a lot like gold on the downside as well when it comes to downside protection. Liquid gold, I suppose you could call it.
Anwar: Awesome. So, NOYACK here is all about creating educational content specifically on the wealth management side and financial freedom for Gen Z and Millennials, which we call them HENRYs (High Earners Not Rich Yet). Typically, these high-income earning individuals who are relatively young. I want to know how WineFi’s approach to wine investing differs from traditional methods and why do you believe it could be particularly appealing to Millennials and Gen Z?
Callum: I think that’s a really good question. Millennials and Gen Z differ from older generations in a few fundamental ways when it comes to both the way that they invest and specifically with the way that they approach wine. Back in the day, because the only way to access wine as an investment was through a wine merchant, it’s very easy to conflate collecting and investing. When you’re collecting wine, you’re doing so for pleasure. You might be planning on drinking it or gifting it or maybe even hoping that it will go up in value, but it is not the same as investing in wine where your priority is financial appreciation and portfolio diversification. I think that older generations are very willing, sometimes intentionally, to conflate the two. If you’re spending 10,000,10,000,20,000, 30,000,30,000,40,000, $50,000 on wine, it’s easy to tell yourself, “Oh, it’s an investment. I can always sell some of this down the line.” Actually, what we found is really the key to investing in wine is choosing wines that are likely to outperform. It’s not this blanket approach where you go out and buy a ton of cases of fine wine. If you had invested in Bordeaux 10 years ago, you’d have made about 4-5% a year. Compare that to Burgundy, which has outperformed the NASDAQ up until the market highs in October 2022 over that same time period. To give you an idea of how different regions and different wines perform. So, I think that’s the first thing. I think Millennials and Gen Z are much more intentional when it comes to the way that they draw a line between collecting and investing. The second thing, and this has been really noticeable with WineFi, is the expectation of ease of access. Investing in wine has traditionally involved ringing up your wine merchant or ringing up your broker and having them build a portfolio for you. That is an alien concept to Millennials and Gen Z. It’s as alien as the idea that I would ring up a stockbroker to ask them to invest in equities for me. That’s just simply not the way that they operate. So, I think that’s another major factor. Then, the final piece is around education. The informational asymmetries that I really noticed when I was starting out, there just isn’t sufficient content out there to allow investors to compare wine to other asset classes. Until they’re able to do that, wine will always remain a fringe investment. So, we’ve invested a lot of time to put together educational resources in the same way that an alternative asset fund would pull together information that allows people to judge performance versus a reference point like the S&P 500, for example. We’ve really found that Millennials lean into that. I think the reason that they’re leaning into that more than previous generations is because they are, in their own minds, separating investing from collecting. So, they expect to have the same information available to them that they do for other asset classes as well. I think that’s a really interesting factor. People are taking wine more seriously as an investment as a result.
Anwar: All along, I mean, I fit in the category. I’m Gen Z myself, and the occurrence of wine investing was something that I thought was extremely secret or hidden. But it’s great to see that now more doors have opened up, creating this whole new era of alternative investments. Now, I’m seeing trading card platforms and wine investing platforms as well. So, it’s great to see, especially a way to diversify and also invest in passions.
Callum: I think that’s a really good point. I always run the risk of this because I’m from a finance background of talking in financial terms when it comes to investing in wine, but I think that the passion point that you’ve hit on there is absolutely true for two reasons. Number one, because people always forget someone needs to want to drink the wine at the end of the holding period. So, the passion element is important to keep. But more than that, it’s also the fun bit of a portfolio. You’re obviously an investor yourself. You can talk about your wine investments or your art investments or your whiskey investments at a dinner party or cocktail party in a way that you couldn’t talk about your Vanguard S&P 500 index fund. It’s cool to be able to say, “Oh yeah, I’ve got $20K invested in this Burgundy syndicate,” or “Yeah, I’ve got a wine portfolio. I hold all these Domaine de la Romanée-Conti or whatever.” It’s an important factor. It’s not one that we lean on because it’s a weak investment argument, but it is definitely a valid argument for why people do choose to invest in alternatives.
Anwar: Now, who is your ideal target audience, and how long do you recommend an investor to hold a position on WineFi for optimal returns?
Callum: That’s a great question. In terms of our ideal target audience, we also use the term HENRYs (High Earners Not Rich Yet). Typically, they are bankers, asset managers, founders, salespeople, consultants, lawyers, so well-paid, younger individuals. The average age of an investor is 36, but interestingly, the average investment is the same as the wine investing average globally, and the average age of a wine investor globally is 58. So, it’s a really interesting demographic split that you have there. As we’ve started to produce greater levels of analysis and as our reputation in the market has continued to grow, we have had inbound interest from family offices and boutique wealth managers who are catering to a higher, older demographic. But those that come direct to the platform and who want to self-serve interestingly are typically younger investors but those who have an existing investment portfolio. So, they will be invested in equities or other assets. In terms of the holding period, wine is a medium to long-term hold. I think there are a couple of wine investing platforms that have run into trouble and will remain nameless as a result by trying to appeal to the crypto crowd and basically saying, “Oh yeah, you can buy wine for X amount and sell it in a couple of years and make some cash.” That’s true to an extent if you’re in a bull market, but typically, wine works based on this interesting supply-demand dynamic. You have to hold the wine over a period of time in order for the existing bottles from that vintage to be consumed or damaged or improperly stored, whatever it might be. It’s a vintage good. So, we would typically suggest three to seven years, and that’s the length that our investment syndicates run for. They come with a lock-in period, so you won’t be able to withdraw your cash during that whole period, which is also very important.
Anwar: Now, my other question is, WineFi obviously emphasizes the low volatility of fine wine compared to mainstream asset classes like investing in Tesla, for example, which has extreme returns but at the same time is just as volatile. How do you balance stability with the desire for potentially higher returns that many younger investors typically seek, as younger investors are more inclined towards taking higher risk for higher reward schemes?
Callum: You have to look at it on a risk-adjusted return basis. I mentioned at the beginning that wine displays a better Sharpe ratio than mainstream equity, bond, and commodities indices. When you combine this with the fact that wine is also uncorrelated, you have a very compelling investment case. I often see on my Instagram adverts from slightly shady wine companies, I’m sure you get all the same, it’s like whiskey as well, they do it all the time where they show you like 80% year-on-year returns. That is possible with wine, but not sustainably so. It really involves speculation. Sometimes you might get lucky and a wine might shoot the lights out, but that’s not really our job, and I don’t think that’s a sensible approach as an asset manager. It’s kind of the wine equivalent of going all-in on GameStop during the pandemic. So, our job is not to take punts that may or may not shoot the lights out but to invest in wines with great brand equity, with vintage data going back two decades or more that we can really analyze and build an investment case around. Interestingly, if you’re into wine, we will only touch wines from Bordeaux, Burgundy, Champagne, and the Rhône in France, Tuscany in Italy, and then California from Napa and Sonoma in the US. That’s our only New World region, and it’s because we’ve got the data that suggests those are the best regions to invest in. Also, when we look at secondary market liquidity, the ability to sell wine at the end of that holding period, those are the regions that really stand out. So, we would typically look to deliver anywhere between 8% and 15% on a compound annual growth rate basis, which is decent, but it’s not a Dogecoin-type return. I think it’s dangerous for investors to look at it in that way. It should be a small part of a well-diversified portfolio. You should look at it as being this attractive, stable diversifier within the context of that wider portfolio.
Anwar: Speaking on ethical investing and sustainability, a topic that’s been so popular in the recent past few years, Millennials and Gen Z are interested in sustainability and ethical investing. How does WineFi address these concerns in the context of fine wine investment?
Callum: It’s a really interesting question. I think the first thing to flag is that some investment funds, for example, would consider alcohol as being beyond the remit. You can’t, for example, hold wine directly within an IRA. You need it to be held within another structure. On the sustainability side, it’s something that’s very important to us. I’m a millennial myself, but more than that, my father runs a carbon accounting company, so he is extremely passionate about sustainable business in general, not just wine. So, I think there are a few things that we take to address the sustainability issue. On a producer level, so a vineyard level, our process naturally filters out wines that are made using unsustainable methods. This is less intentional than it sounds, as much as I would like to take credit for it, but it isn’t possible to produce investment-grade wines in unsustainable ways. Given these wines are produced on a finite parcel of land, that land would have been cultivated over many generations in some cases. You simply cannot use unsustainable methods in order to produce investment-grade wine because the brand equity is so important. The wines that we invest in are all stored in a UK government-approved bonded warehouse. They don’t move from that warehouse during the holding period, so the carbon footprint while they’re within our care is relatively low over that time period. However, there is much more that I think we could be doing as an ecosystem. It’s one of those things where every link in the chain contributes towards the carbon emissions of wine and wine investing. When you think about it, it’s easy for us to say, “Okay, well, the wine is stored in the warehouse, it doesn’t move, look at us, we’re doing this very sustainably.” But ultimately, the wine has had to be produced, it’s had to travel to that warehouse, and then when the wine is sold, obviously, it has to then travel somewhere else. There is a big initiative now across the wine trade to look at what each link in that chain could be doing better to reduce emissions. We are ultimately moving a physical object, so there are going to be emissions associated with it, but it’s all about using our buying power to help influence the conversation. I think especially as Millennials and Gen Z are increasingly in leadership roles within these industries, I would expect to see it become much more sustainable over time. In short, we’re doing what we can at present, but I think directionally more needs to be done just across the trade.
Anwar: Of course, I mean, things very, all the insight in terms and also just the blunt honesty.
Callum: Yeah, and I think it’s something that every sector is wrestling with right now. Unless you’re in reforestation or something like that, it is tricky. I think there’s a broader unsettling narrative that AI will solve this, and people are pouring more and more capital into AI and also turning a blind eye to the emissions that AI is producing because it paints this picture of a very exciting future. Really, I think what it comes down to is the way that we produce energy. That’s the core issue that needs solving. Anyway, we’re slightly getting sidetracked on that, but yeah, I’m very happy to be transparent. It’s of course close to my own heart.
Anwar: Going back to this question now, how do you position wine as a portfolio diversifier? How do you envision that to happen with the lack of data, for example, if you want to invest in typical index funds, the data is widely available like Vanguard S&P 500, but wine is typically much different.
Callum: Yes, it is. It’s a great question, and again, it’s a cause really close to our own hearts. I think the first thing, which is the obvious answer to your question, is we need to provide that data to allow them to make those comparisons. It’s something that we do very vocally across our social channels. We produce quarterly reports, we produce regular blog posts, so really we need to put as much information out there as possible. The second thing, and there is no getting away from this, is as much data as we can produce, ultimately wine is an esoteric alternative. A bank is not going to have a specialist. They might have a hobbyist who’s very into wine, but they’re not going to have a specialist wine investor. So, as a result, we have to, as a business, show our working. We have selected these wines based on this methodology, and this is why we think that they’re great picks at great prices. That’s the really critical thing to do. I think one thing that does make wine stand out versus other alternatives, I’ve touched on this already, is the existence of third-party pricing data. It’s very easy for you as an investor to understand whether or not you’re getting a good deal by going on to Wine-Searcher.com, for example, searching the name of a wine that is included within one of our syndicates, and you go, “Oh, okay, wow, WineFi has achieved a 5% discount to the lowest market price here that they’ve passed on to us.” That immediate kind of paper gain really helps build trust. It’s also why I mentioned at the beginning, I’m from a finance background rather than a wine background, and I first became interested in wine as an investment as opposed to as a consumer. The reason I became interested in it was because I could see that it had all of these characteristics, and the fact that pricing data existed. I thought, “Great, one, that means we can analyze this data and look for historic trends, but two, it means that we can hold this up as basically showing that we’re the good guys.” The second part of that question was just around alternative assets more generally. I think that’s a really interesting topic. When we were raising our pre-seed round, there was a study that I included which was a McKinsey study that basically found that global investment in alts is expected to double between 2024 and 2028 to about 30% of investments globally. So, 30% of investments globally will be alternative assets. Collectibles are one of four subcategories of alternative assets alongside real assets, private debt, private equity, and collectibles. So, that’s a really interesting place to be because there is more capital coming into the space. Just to put that in perspective, it took 20 years for ETFs to reach 15% of investments globally. So, there is more money coming into the space. Alternatives are increasingly becoming mainstream, and the more mainstream that they become, I think the more standard it would be to have alternatives within a portfolio. As I said at the beginning, it should be as part of a balanced investment portfolio. But something that really surprised me the other day, and this is more of an issue globally, is that Millennials and Gen Z were more likely to have invested in crypto. More Millennials and Gen Z hold cryptocurrency than they do traditional publicly traded equities. I think that’s a really interesting, slightly unnerving shift. But ultimately, it comes down to education. Whether we like it or hate it, it is much easier to get hold of information to understand what’s happening in the crypto markets as a millennial who’s vaguely interested in that topic. Whereas if you’re going through a traditional investment platform and you’re not from a finance background, you’re looking at the way that they position a certain investment opportunity, it can be very opaque, it can be very dense, it can actually be very boring. So, I think to draw more people into the alternative asset space, we have to make it accessible. That’s not saying turn it into a “to the moon” type asset class, but we do need to make sure that we meet our investors where they are and that we provide information for every level of specificity in order to allow investors to make informed decisions.
Anwar: What are some potential risks that investors should be aware of when it comes to wine investing?
Callum: Great question. I think the first thing is liquidity. Wine is ironically a relatively illiquid asset. When I look at wine in comparison to other investments, I think it has a lot in common with residential property. The fact that wine doesn’t pay yield, you have this kind of objective estimate of what the wine is worth at any one time, you can sell it relatively quickly, and when I say relatively quickly, I mean let’s say six months, 90 days to six months, but you can’t trade it immediately like you could equities without taking a haircut. So, I think that’s the first thing. People need to be aware that it can take a while to sell down your wine portfolio. It kind of sits between venture capital and private equity and then publicly traded equities and bonds in terms of that liquidity profile. The second thing is around forgeries. People are often surprised to learn that 30% of wine traded on the open market is fake. It’s the same with other luxury assets like watches and classic cars. There’s a great Netflix documentary called “Sour Grapes” that some of your viewers might have come across, which is basically about an American-Indonesian wine forger who made millions by doctoring bottles of Domaine de la Romanée-Conti, which is a super-premium Burgundy wine. The way that we mitigate that risk is, one, we will only buy wine that has been stored in bond or has come directly from the producer. That means there is basically an unbroken paper trail which shows where that wine’s been. We will never buy a wine from a private collection because once a wine has left bond, meaning a bonded warehouse, a government-approved bonded warehouse, it disappears from the view of the market. So, you don’t know how it’s been stored, but you also don’t know whether it’s the same wine that left the warehouse in the first place. Then, I think the final point is around that time horizon. You do need to accept that it is a medium to long-term hold. If you expect to need that cash back quickly, particularly if you’re investing in one of our syndicates because it comes with that lock-in period, it’s potentially not the right investment for you. But I think most people go into it without understanding. So, I would say that the key risk is liquidity risk. We’ve seen this, there’s been a bit of a market downturn over the past 24 months, it looks like we’re just out the other side of it now, but we’ve seen that wines where people thought they were worth X just weren’t trading at those prices. So, you could list them, and you just wouldn’t have a buyer in the same way that if property prices are falling, you could put your house up for sale, and you won’t find a buyer. So, I think that’s the key thing to consider. It’s not a sophisticated market like the equity markets are. It’s much less efficient than that, and that presents both opportunities to investors but also risks.
Anwar: One final question. We all know that Millennials and Gen Z are extremely interested in alts. Do you think wine investing can be the biggest of these three?
Callum: It’s a great question. So, the total size of the collectibles market is, I mean, it’s impossible to size, but an Amur study recently put it at $1.7 trillion dollars, which, interestingly, is bigger than the private debt space, which really surprised me. Overwhelmingly, the bulk of that will be art because there is so much in private hands, and art, you know, is just worth a lot more. You could build, you know, to build an art portfolio—I know NOYACK has an art fund—but to build an art portfolio as an individual, you’re going to spend many millions of dollars, right? Whereas a wine portfolio, you could probably spend half a million and build a really well-diversified portfolio. So, the cost of entry is just that much lower. The wine markets are also smaller than the art market, so again, it’s hard to size because so much of it is in private hands, but we estimate at WineFi that our investable universe is about $5.5 billion. So, a fairly small percentage of that total collectible space. However, I think there are two things that recommend it. Number one, you don’t need to sell the types of wines that we’re investing in at auction as you would with a painting. That’s really important because you save on auction fees. If you’re spending 18% of your total sales price going to an auction house, you can effectively save when you’re selling wine because you’ll sell it to a private client or you’ll sell it to a trade buyer or you’ll sell it to a hospitality venue. Only the rarest and most illiquid stuff, which typically isn’t actually the best investment by the way because it’s impossible to price, will go through an auction house. Then, the other thing that I think, and I’ve mentioned this three times already on this call, the other thing that does make it stand out versus other collectibles and I think is super unique with wine is that objective third-party market price. Because whiskey, art, watches, classic cars, people have attempted to create almost indices for these assets, but they always have a vested interest. If you’re a whiskey broker and you’ve created a system to price whiskey, that’s an immediate conflict of interest. Whereas with wine, there are companies like Liv-ex, Wine-Searcher, and Wine Decider that provide this pricing data independently of the rest of the market and remain fiercely independent. I know the CEO of Liv-ex well, and we get on very well. He’s a great guy. He won’t even appear on our podcast just to talk about Liv-ex because he would see that as a potential conflict of interest. That’s the kind of level of transparency that you need to have in order for this asset class to become mainstream and for it to really stand out amongst other collectibles. Market size aside, I really think for that reason, it really does.
Anwar: Thank you so much, Callum. Yeah, it was, you know, I think this is great insight that you have shared regarding WineFi and the entire wine investing platform as a whole for people who are interested in entering the space. It’s really impressive how you are opening doors for everyday Millennials and Gen Z to find new ways to diversify our portfolios. As you know, we are always interested in trying new things, whether it’s crypto, art, collectibles like trading cards, or just vintage items, and now wine is another one to add to that list. We really appreciate your time. Thank you so much for this.
Callum: A real pleasure to be here today.
