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Thursday 11 October 2012

Nobles Crus Wine Fund: are these Burgundy valuations realistic?

In the cellars of Patriarche, Beaune

This is an extended and updated version of the news report, which was published on on Monday 8th October. It includes more details on some of the Burgundies that form part of the fund. Although I have only looked at a small sample of the Burgundies in the fund, it does suggest that the questions raised on the valuation of this fund extend beyond Bordeaux. 

The controversy over the valuation of the Nobles Crus wine fund certainly points to  the need for an agreed way of valuing wine funds so that investors can judge and compare their respective performances using a valuation that is both robust and independent.    

Nobles Crus: fund valuations questioned
The valuation of the Nobles Crus wine fund has recently been questioned by the Financial Times and by LeVif L’Express.

The FT asked Liv-ex to value 50 wines from Nobles Crus. The Liv-ex valuation, based in the mid price between bid and offer on their trading platform, was 36.73% lower than Nobles Crus’ valuation. For instance, Liv-ex valued 4872 bottles of Lafite 2010 at 840€ compared to Nobles Crus’ 1017€.    

Ten wine funds are valued by Liv-ex including The Wine Investment Fund and Wine Asset Managers (WAM).

Nobles Crus is based in Luxembourg. It is part of Elite Advisers, which was founded in 2007 by financiers Miriam Mascherin and Michel Tamisier. Nobles Crus now has capital of 109.1 million euros with a stock at 31st August 2012 of 60835 bottles mainly top Bordeaux and Burgundy. Minimum investment is 125,000€.

Nobles Crus defends their valuations saying that they are ‘in line with the global market’ and is in line with the average price on wine-searcher, which is based on retail prices with sales tax removed.

A new valuation process will soon be introduced. Miriam Mascherin said: “We have been working since January on this automatic valuation project. It is an automating process and will enlarge the source of information used for pricing. After having carried out extensive tests it has no impact on our current valuation, which validates and confirms what we do today.”

Nobles Crus is unusual in holding a significant proportion of old vintages in its fund. In December 2011, 23% of its Bordeaux was pre-1970 and 9% in Burgundy. This includes a large parcel of 1900 Margaux. The Wine Investment Fund has nothing earlier than 1990, while WAM has only 5%-6% of its pre-1990 and then only back to 1982.

1900 Château Margaux
Curiously two parcels of 1990 Château Margaux are listed: 404 bottles  valued at 916.75€ a bottle (total: 370,367€) and one of six bottles valued at 10267.67€ a bottle (total: 61,606€). wine-searcher's prices range from 9000€ to 10098.41€. 

Nobles Crus’ Burgundies include significant holdings of DRC (Domaine Romanée Conti) and Henri Jayer.  I compared the Nobles Crus' valuations (31st August 2012) with those on wine-searcher (early October 2012) for the Echézeaux from Henry Jayer and Richebourg from DRC.

Henri Jayer Echézeaux 
On 31st August 2012 there were 24 different Echézeaux from Jayer mainly different vintages but in some cases different bottle formats. The Nobles Crus valuation was 2,095,204.17€. I can find no data on wine-searcher for two of the items (1989 magnum and the 1994 vintage) so I excluded them reducing the total to 1,963,713.17€. In comparison the total from wine-searcher's average prices was 1,440,849.94 (26.63% below NC), while taking the cheapest wine-searcher price the total came to 1,030,365.91€ (47.53% below NC). 

In only two instances are Nobles Crus' valuations lower than the average on wine-searcher. Sometimes they are considerably higher. Jayer’s 1987 Echézeaux was valued at 3025.86€ a bottle in December 2011.  On 31st August the valuation was 4075.33€. On wine-searcher the most expensive price is 3262€ from Red Wine Exchange in Hong Kong. 

DRC Richebourg
Nobles Crus list 18 different Richebourgs from 2009 to 1962. A holding valued at 429,680.75€ or 410,859.50€ once the two large format entries with no data on wine-searcher have been excluded. This time the average price on wine-searcher is 4.64% higher – 429.926.72€, while the cheapest on wine-searcher totals 300,295.46€ – 26.91% lower than NC. 

Montrachet Marquis de Laquiche
I also looked at the small parcel of seven different Montrachet Marquis de Laquiche from Drouhin covering vintages from 2007-2009 in various formats. As with the Richebourg the average wine-searcher price is a little higher than the NR valuation – by 8.94%, while the lowest price is 12.16% lower.             

Lix-ex declined to value the very hard to find Burgundies because of insufficient reliable data to give a robust valuation.  

It is interesting that Nobles Crus defends its valuation saying that they are in line with the excellent wine-searcher, which lists retail prices around the world. Nobles Crus would appear to be assuming that they can sell their wines at retail price, which may be the case while the quantities they sell are small. During 2011 they sold 4.2% of the wine fund (total bottles on 31.12.11: 36,322 bottles) and achieved a price 1.39% above NC's valuation. With the exception of a parcel of 1995 Lafite all the wines sold were from the 2000 vintage or later.  

Nobles Crus is an open fund, so it may be more difficult to achieve such high prices should there be a substantial number of redemptions, especially bearing in mind that 82% of the fund (as of 31.12.11) is in the hands of institutional investors: banks, wealth managment companies, financial advisers and insurance companies. 

Mascherin comments: 'Our investment strategy is buy and hold. Nobles Crus buys wines that have a minimum of 5 years before maturity in order to sell them at their highest price. We are not a wine merchant. Today the Fund is 4.5 years old and it is legitimate to say that we are not yet in an extensive selling mode.'

Fair comment but this means that Nobles Crus' valuations have yet to be put to the test should a significant part of the fund need to be liquidated.    

Regarding provenance Mascherin said: “Christian Roger our fund manager only buys the best wines in their best vintages in perfect condition. We never buy bottles that have been conditioned other than in the domaine directly.  At purchase we do take into account the neck levels as well as a series of other criteria in order to buy only those wines that meet our high level of quality.

“We only buy wine where sources can be proven and blind testing can be carried out.  Any wine that has already been counterfeited is handled with the utmost caution and we would only buy from recognized approved sources.” 

There have been problems over the valuation of some wine funds before. In April 2010 the Vinum Fine Wine Fund, which was based in Guernsey, was closed by its directors after the Guernsey Financial Services Commission (GFSC) raised concerns over its valuation methodology.   

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