Noble Crus Wine Fund – news from beyond the grave

Nobles Crus wine fund closed down in 2013

liquidated in 2014

Although the controversial Nobles Crus wine fund was liquidated in 2014, it continues to make headlines beyond the company grave. Some lots in a recent Baghera Wines auction that featured substantial quantities of DRC wines were withdrawn over concerns whether some of the wines were genuine. Although Baghera Wines claimed that the wines came from a single Swiss collector, it appears that at least some of the wines came from the Nobles Crus wine fund. 

Nobles Crus was unusual in having holding a significant proportion of pre-1982 vintages, which raised questions at the time whether the provenance of these wines could be fully authenticated. 

Today's story by Rupert Millar from The Drinks Business:   

'Nobles Crus claims mar Baghera sale

Concerns over the provenance and authenticity of several lots of Burgundy have clouded the results of Swiss auction house, Baghera Wines’, latest sale, with claims much of the consigned Burgundy was sourced from failed wine fund, Nobles Crus.

The new, Swiss-based auction house conducted only its second sale in Geneva at the weekend, a sale dominated by over 1,000 bottles of Domaine de la Romanée-Conti.

The sale made CHF 6.2 million in total, CHF 4.2m of which was made from the very large consignment of Burgundy. Baghera Wines said before the sale and repeated to the drinks business that the DRC collection had all been stored at the Geneva Freeport since they were bought and that they came from the collection of a single, Swiss collector.

In an increasingly predictable pattern, shortly before the sale LA-based lawyer, Don Cornwell, posted on the Wine Berserkers forum that there were serious doubts about the provenance and authenticity of several lots being offered.

Cornwell pointed out that 19 lots were, in his judgment, either “outright counterfeit or which fail to conform to known standards for those wines and thus should not in good conscience be sold and should be withdrawn.”

He added a further 30-40 lots, especially some older Yquem vintages, were the cause for “serious questions”.

Read the rest here 

 

Extract from a post (23rd November 2012 – Jim's Loire) on Nobles Crus. 

Nobles Crus wine fund: some responses from Elite Advisers and the untested multi-million euro question
'It is not known how Ernst & Young will be able to produce robust valuations for the old wines bought from a variety of sources including merchants, restaurants and private collections. They may well have an extended stay in Switzerland where the Nobles Crus wines are stored – inspecting bottles individually assessing labels, the fill levels in bottles and their provenance – 'the intangible factors'. Provenance is decidedly tricky for very old vintages; a robust provenance may be almost impossible to establish. This is not to suggest for a moment that Elite Advisers did not buy in good faith; it is just the nature of the beast and why older vintages are, by their nature, illiquid especially if you have to sell a large number at one time.

One has to wonder whether Ernst & Young have the necessary expertise in-house to carry out such specialist work or will they be calling in experts?'

Extract from post on Jim's Loire – 23.11.2012 

http://jimsloire.blogspot.co.uk/2012/11/nobles-crus-wine-fund-some-responses.html

Noble Crus: larger shareholders benefit, while smaller are disadvantaged?

The controversial Nobles Crus wine fund was suspended by the Luxembourg financial authorities on 28th May 2013. Here is an update on the latest developments that suggests that the larger fund shareholders, who effectively pulled the plug on the fund, have been given preferential treatment to the possible detriment of the smaller investors. It appears that they may have been allowed to cherrypick the wines taken as settlement in kind.

I am indebted to the research and assistance of Jean Walravens, who has long raised pertinent questions about the management of the Nobles Crus fund.

On 1st June 2014 the Financial Times published an article: Luxembourg embroiled in fine wine row. The article covered this transaction and the subsequent complaints made by Albert Biebuyck, managing partner at Investor Protection Europe to Luxembourg’s Ministry of Finance, the CSSF and other European regulatory bodies. Biebuyck claimed 'it was the latest example of “lax and selective” regulation in Luxembourg, the biggest centre for funds in Europe and the second biggest in the world.

    

Letter from Elite Partners to investors: April 2014

For investors only  

Luxembourg, 14 April 2014

Dear investor,  

In our capacity as General Partner of  Elite's Exclusive Collection SCA, SICAV-FIS, we  would  like  to inform you  of  the  following transaction which has been  made  for  the  account  Elite's  Exclusive Collection- Nobles Crus ("Nobles Crus") on 28 March  2014.

As you are aware, we faced during the first quarter 2013 some redemption requests for an aggregate amount of  approximately EUR 37.7 million. In particular, large institutional shareholders related  to the same group (together the  "Redeeming Shareholders") submitted redemption requests  totaling approximately 70% of all pending redemption requests  as of 31December 2013. Liquidity reserves were insufficient  to enable us to honor thredeeming  shares and pay out the Redeeming Shareholders. Therefore, we accepted 10% of the redemption requests as of 31March 2013 NAV and postponed the acceptance  of the  remaining 90% in accordance  with  section  5.4 of Annex 1 of the issuing document.

The  Redeeming  Shareholders  proposed us to  allow  the  transfer   of  its shares  and  claims  toward Nobles Crus to a third party  (the  "Third Party") in the context  of a private  transaction between the Redeeming  Shareholders and the Third Party. The Third Party accepted  to take over the  shares and claims from  the Redeeming Shareholders  under the condition that it would be reimbursed in kind.

Last paragraph  of section 11 of part  A and section  5.5 of annex 1of part  B of the  issuing document allows  reimbursement in  kind, provided that  it  is determined on  a fair  and  reasonable  basis and complies  with  the following conditions:

Bottles   are  selected  upon  the  recommendation of  Vino  &  Finanza  Sri (the "Investment Manager") to  ensure  that  the  structure and  the  level  of diversification of  the  remaining portfolio will not be disturbed by the reimbursement in kind;

Deloitte Sari (the  "Auditor") must  release a special report  on possible findings in relation to the proposed reimbursement in kind (the "Special Report"); and

Costs of the reimbursement in kind must be borne by the requesting party (i.e., in the matter at hand the Third Party once it has acquired  the shares and the claims from  the Redeeming Shareholders).

It is to be noted  that the Redeeming Shareholders were not allowed  by their own rules of governance to directly hold wine. Reimbursement in kind was therefore not an option for the Redeeming Shareholders.

After  we completed the identification process of the Third Party to assess its repute  and eligibility as a possible  shareholder of Nobles Crus, we entered into a negotiation during  several months  on the selection  of bottles to be part of the reimbursement in kind (the "Bottles"). The Investment Manager was actively involved  in this negotiation.  

The price  retained for  the  Bottles  to  be transferred was the  value  retained in  the  accounting of Nobles Crus for the calculation of the net asset value of 31 December 2013.

We obviously informed the Commission de Surveillance du Secteur Financier (CSSF) on the terms  and conditions of the contemplated transaction.

The Auditor delivered the  CSSF and us the  Special Report  on 25 March  2014. As the  price  for  the transaction was based on the  net  asset value of 31 December  2013  (and not  on a privately agreed price different from  that  net asset value), no significant  point  was raised in the Special Report.

This transaction is in the  best interest  of Nobles Crus. It enables Nobles Crus without a discount  on the value of the Bottles  to reimburse a large part of the pending redemption requests. This is a major step  in  restoring the  liquidity of  Nobles  Crus and  a confirmation that  we  did  not  overvalue   the portfolio of Nobles Crus as pretended by some unfounded press releases in 2012.

Therefore we approved the transfer of the shares and the claims from  the Redeeming Shareholders to the  Third Party and the  reimbursement in kind from the Third Party with effect as of the  28th of March  2014.

The remaining portfolio of Nobles Crus as of today is approx. EUR 50.8 million. It has a similar  level of diversification  in   comparison  to   the   portfolio  before   31   December   2013   and   respects   the diversification  ratios   defined   in  the  issuing  document. The  portion of  Burgundy (35%  vs.  48%) respectively Bordeaux  (63% vs. 50%) remains constant. Wine en primeurs increased from  3.5% to 6% of the total portfolio. The average Parker rating  is slightly  higher  (96.97%  vs. 96.71%).  We remain  at your entire disposition if you would  like to receive further information on the current composition of the portfolio of Nobles Crus.

We also remind you that we are open for negotiation if you would like to investigate the possibility of a reimbursement in kind. We draw however your attention to the  fact that  such reimbursement in kind must strictly follow the requirements under the issuing document and we are entitled to refuse it if we have doubt  that the transaction could potentially have an adverse impact on the portfolio.

In addition to the  above mentioned transaction, we inform you that we are currently in negotiation with  some counterparties to directly acquire wine from Nobles Crus enabling to entirely restore the liquidity of Nobles Crus.

We  hope  that  we  will  soon  be in  a position to  request  the  CSSF  to  levy  the  suspension on the redemption and to proceed to the reimbursement of the pending requests.

Yours sincerely,

 

Jean Walravens comments:

I think that, considering the following facts, we can conclude, without a doubt, that small shareholders are harmed in this operation.  

On the one hand, the bottles that were given to major shareholders are not at all representative of the entire stock. According to Elite Partners, the proportion of Burgundy in its stock fell to 35% from 48 % and the proportion of Bordeaux increased from 50 % to 63 %. We can therefore calculate that the major shareholders received bottles with a proportion of 70%  Burgundy / 28 % Bordeaux.   

Nobles Crus price estimates for Burgundy were much less overvalued than price estimates for  Bordeaux. Based on the comparison between the prices (August 31, 2012) provided by Elite Advisers and Liv-Ex for a representative sample, Nobles Crus estimates exceeded those of Liv-Ex by 39.02% for Bordeaux and by 20.72% for Burgundy. It is likely that this difference has increased, as valuations of Nobles Crus appear not to have changed much while Bordeaux prices went down and Burgundy prices rose. Mainly taking Burgundy, large shareholders have got a good deal at the expense of small shareholders.

On the other hand Elite Partners said: "We entered into a negotiation during several months on the selection of bottles to be part of the reimbursement in kind (the Bottles)." Large shareholders have therefore participated in the selection of bottles. Obviously they will have refused any suspicious bottles. However, with the Nobles Crus purchase methods (purchases from individuals, restaurants, etc ...), there may well be a significant number of 'bad' bottles in stock.

The shareholder who completed the transaction is undoubtedly Banca Generali. Not only did they place Nobles Crus shares in their clients' portfolios but they had previously acquired a very large number of parts for nine sub-funds of their Luxembourg SICAV BG Selection Sicav. 

The Nobles Crus shares were acquired by funds that were not supposed to make such investments: China and India Equities, etc. (also including Latin America Equities – Jim). 

In its accounts of 31/12/2013, BG Selection Sicav already accounts for a fixed loss of 15% (haircut) on their Nobles Crus shares compared to the Net Asset Value published by Nobles Crus.'

It is interesting to note that the Generali Fund Management offices are located in the same building as the Elite Advisers offices.

 

Transaction in January 2014 or 28th March 2014?

 

 January 2014: funds under management €52,489,449

The January 2014 Nobles Crus' newsletter shows that the funds under management was €52,489,449. In March 2013 the fund stood at €91 million. This suggests that the completion of the transaction to the larger shareholders  may well have been earlier than 28th March 2014 stated by Elite Partners in their 14th April 2014 letter to investors.       

 

Nobles Crus wine investment fund suspended – treatable or terminal?

One hopes that the odds on investors in Nobles Crus getting 

their money back will be significantly better than those offered by most amusement arcades

My Les 5 du Vin post this week is on Nobles Crus' suspension and liquidity problems. 

Elite Partners, Nobles Crus: Luxembourg, le 31 mai 2013 la lettre aux investisseurs

Chers investisseurs, chers amis,

Beaucoup d'entre vous nous suivent depuis le lancement du Compartiment Elite's Exclusive Collection – Nobles Crus (<<Nobles Crus >>), il ya plus que 5 ans maintenant. Au cours des dernières années, Nobles Crus a réalisé d'excellents performances malgré un contexte marqué par de fortes turbulences. Nobles Crus est par ailleurs le plus grand fond de vins réglementé au monde.

Avec le temps, nous avons se relever les défis que nous imposait notre rôle de pionnier en investissments tangibles, tout en faisant preuve d'une réactivité vis à vis des critiques et d'une intregité inébranlable.

Après les articles diffamatoires apprus dans la presse en septembre 2012, Nobles Crus a dû faire face début 2013 à plusieurs changements dans la réglementation européenne. Ainsi les organismes de placement collectif en valeurs mobilières ("UCITS') ne devront plus détenir à partir du 31 décembre 2013, entre autres, des positions dans les fonds spécialisés tels que Nobles Crus suivant l'interpretation de l'article 50 (2) (a) de la Directive 2009/65/UE (réf. ESMA 2012/721) émise par l'Autorié Européenne des Marchés Financiers.

Nobles Crus se trouvé aujourd'hui confronté à quelques demandes de rachat d'Actions portant sur des montants provenant de quelques grands investisseurs institutionels. Nobles Crus n'a actuallement pas les liquidités nécessaires pour les honorer à très court terme. Nous vous informons que La Commission de Surveiilance du Secteur Financier (CSSF), l'authorité de surveillance du secteur financier au Grand-Duché de Luxembourg, a pris la décision le 27 mai 2013  de suspendre tout rachat et toute souscription de Nobles Crus à titre temporaire sur le base de l'article 45 (3) (j) de la loi de 13 février2007 sur les fonds d'investissements spécialisés, telle que modifiée. 

Nous vous informons que la dernière valeur nette par action de Nobles Crus en date du 30 avril est de 180,25 EUR.

Comme nous vous l'avons toujours indiqué le marche des grands vins est relativement liquide cependant dans les proportions différents de celles des marchés financiers. Nous savons qu'il est important, dans les circonstances présentes, de vendre au prix du marche et non dans l'urgence en vue libérer les liquidités nécessaires pour honorer ces demandes de rachat.

Notre mobilisations, soyez-en assuré, est générale et nous traitons tout ceci avec la plus grande attention et la diligence nécessaire pour servir vos intérêts. Nous en tenons pour preuve la vente faite en février 2013 qui portait sur un montant de 8 782 000 d'euros, et ce, au prix de valorisation du portfeuille de Nobles Crus. Certaines ventes sont actuellement en cours auprèsde contreparties privées et professionnelles et de maisons de ventes aux enchères.

Nous vous tiendrons informés des résultats et des efforts déployés par toutes nos équipes pour rétabilir au plus vite cette situation. Nous nous tenons à votre disposition pour toute précision complémentaire n'hesitez pas à contacter: M. Tamisier (+352 26 25 99 84 50 ou mtamisier@eliteadvisers.com), Mme Wilson (+352 26 25 99 84 30 ou mwilson@eliteadvisers.com) ou Mme Cioli (+352 26 25 99 84 45 ou vcioli@eliteadvisers.com). 

Bien cordialement

Miriam Wilson                      Michel Tamisier
General partner                   General partner     

      
(Jim: Je note que le fond était suspendu le lundi le 27 mai 2013 et les  investisseurs était informé le vendredi le 31 mai 2013.)  

My fellow blogger Hervé Lalau has kindly translated the letter from Miriam Wilson and Michel Tamisier in French:

'J'ai rarement vu un texte à valeur légale avec autant de fautes de français. Si ces gens gèrent leur "portfeuille" aussi bien que leur spelling, c'est alarmant...

Je te met le texte en bon français ci-dessous

Chers investisseurs, chers amis,

Beaucoup d'entre vous nous suivent depuis le lancement du Compartiment Elite's Exclusive Collection – Nobles Crus (<<Nobles Crus >>), il y a plus de 5 ans maintenant. Au cours des dernières années, Nobles Crus a réalisé d'excellentes performances malgré un contexte marqué par de fortes turbulences. Nobles Crus est par ailleurs le plus grand fond de vins réglementé au monde.

Avec le temps, nous avons su relever les défis que nous imposait notre rôle de pionnier en investissements tangibles, tout en faisant preuve d'une réactivité vis à vis des critiques et d'une

Après les articles diffamatoires apparus dans la presse en septembre 2012, Nobles Crus a dû faire face début 2013 à plusieurs changements dans la réglementation européenne. Ainsi les organismes de placement collectif en valeurs mobilières ("UCITS') ne devront plus détenir à partir du 31 décembre 2013, entre autres, des positions dans les fonds spécialisés tels que Nobles Crus suivant l'interprétation de l'article 50 (2) (a) de la Directive 2009/65/UE (réf. ESMA 2012/721) émise par l'Autorité Européenne des Marchés Financiers.

Nobles Crus se trouvé aujourd'hui confronté à quelques demandes de rachat d'Actions portant sur des montants provenant de quelques grands investisseurs institutionnels. Nobles Crus n'a actuellement pas les liquidités nécessaires pour les honorer à très court terme. Nous vous informons que La Commission de Surveiilance du Secteur Financier (CSSF), l'autorité de surveillance du secteur financier au Grand-Duché de Luxembourg, a pris la décision le 27 mai 2013  de suspendre tout rachat et toute souscription de Nobles Crus à titre temporaire sur le base de l'article 45 (3) (j) de la loi de 13 février 2007 sur les fonds d'investissements spécialisés, telle que modifiée.

Nous vous informons que la dernière valeur nette par action de Nobles Crus en date du 30 avril est de 180,25 EUR.

Comme nous vous l'avons toujours indiqué, le marché des grands vins est relativement liquide; cependant, dans les proportions différentes de celles des marchés financiers. Nous savons qu'il est important, dans les circonstances présentes, de vendre au prix du marché et non dans l'urgence en vue libérer les liquidités nécessaires pour honorer ces demandes de rachat.

Notre mobilisation, soyez-en assuré, est générale et nous traitons tout ceci avec la plus grande attention et la diligence nécessaire pour servir vos intérêts. Nous en tenons pour preuve la vente faite en février 2013 qui portait sur un montant de 8 782 000 d'euros, et ce, au prix de valorisation du portefeuille de Nobles Crus. Certaines ventes sont actuellement en cours auprès de contreparties privées et professionnelles et de maisons de ventes aux enchères.

Nous vous tiendrons informés des résultats et des efforts déployés par toutes nos équipes pour rétablir au plus vite cette situation. Nous nous tenons à votre disposition pour toute précision complémentaire, n'hésitez pas à contacter: M. Tamisier (+352 26 25 99 84 50 ou mtamisier@eliteadvisers.com), Mme Wilson (+352 26 25 99 84 30 ou mwilson@eliteadvisers.com) ou Mme Cioli (+352 26 25 99 84 45 ou vcioli@eliteadvisers.com).

Bien cordialement

Miriam Wilson                      Michel Tamisier
General partner                   General partner'    

   
(Jim: Je note que le fond était suspendu le lundi le 27 mai 2013 et que les investisseurs n'ont été informés que le vendredi le 31 mai 2013.)

    

Letter from Elite Partners to its Nobles Crus' investors and friends: Luxembourg 31st May 2013

 

Letter from Elite Partners: Luxembourg 31st  May 2013

Dear investors, dear friends,

Many of you have been following us since we launched the Elite’s Exclusive Collection – Nobles Crus Sub-fund (“Nobles crus”). More than five years ago now. During these years, Nobles Crus has enjoyed superb performance despite the particularly turbulent climate. Furthermore, Nobles Crus is now the largest regulated wine fund in the world.

With time, we have managed to overcome the challenges that have accompanied our pioneering work in tangible investments, while also demonstrating exceptional responsiveness to criticism and unwavering integrity. 

Following the publication of the defamatory articles in the press during September 2012, Nobles Crus has had to contend with several changes in European regulations at the beginning of 2013. Notably as of 31 December 2013, Undertakings for Collective Investment in Transferable Securities (UCITS) are no longer allowed to invest in, among others, specialized investment funds such as Nobles Crus, as defined in article 50(2) (a) of Directive 2009/65/EC (ref. ESMA 2012/721), issued by the European Securities and Markets Authority.

Nobles Crus now finds itself confronted with a few requests from some large institutional for redemptions involving considerable sums of money. Currently, Nobles Crus does not have the necessary liquidity to honour these request in the very short term. We there fore wish to inform you that the Commission de Surveillance du Secteur Financier (CSSF), the financial supervisory authority in the Grand-Duchy of Luxembourg, decided on 27 May 2013 to temporarily suspend all redemptions and subscriptions of Nobles Crus, under article 45(3)(j) of the law of 13 February 2007 on specialised investments funds, as amended.
For your information, the last net value per share for Nobles Crus on 30th April is EUR 180.25.

As we have always emphasised, the fine wine market is relatively liquid, however, in different proportions to those of the financial markets. We are well aware of the importance, in the current circumstances, to sell at market price and not too hastily sell in order to free up the necessary liquidity to honour these redemption requests.

Rest assured that we are all doing our utmost in managing this matter with the greatest care and attention to serve your best interests. The best proof of course is in practice, the sale undertaken in February 2013 amounting to EUR 8,782,000, was done at the valuation price of Nobles Crus’ portfolio. Furthermore some sales are currently taking place with private and professional counterparts and auction houses.

We will keep you informed of the results and of the efforts undertaken by all our team to rectify this situation as quickly as possible. Should you require an further information, please do not hesitate to contact Mr Tamisier (+352 26 25 99 84 50 or mtamisier@eliteadvisers.com) , Ms Wilson (+352 26 25 99 84 30 or mwilson@eliteadvisers.com ) or Ms Cioli (+352 26 25 99 84 45 or vcioli@eliteadvisers.com.

Best regards

Miriam Wilson                        Michel Tamisier

General Partner                     General Partner  

(Jim: I note that the CSSF suspended the fund on Monday 27th May; investors were informed on Friday 31st May.)

Elite Advisers' Nobles Crus wine fund suspended by CSSF – Luxembourg's financial authority

from Elite Advisers' website

The Belgian daily – Lalibre.be – is reporting that Elite Advisers' Nobles Crus wine fund has been 'temporaily suspended' by the Luxembourg CSSF (Commission de Surveillance du Secteur Financier) because of liquidity problems.   

 

'Nobles Crus en panne de cash
I. de L. 
Mis en ligne le 06/06/2013

Le fonds spécialisé en grands crus fait face à une situation délicate.'

‘Il en résulte que la CSSF (Autorité de Surveillance du secteur Financier au Grand-Duché de Luxembourg) a suspendu, à titre temporaire, les rachats et les souscriptions dans ce fonds. "Il s’agit d’une mesure de sauvegarde que prend la CSSF. L’impact de cette mesure sur les investisseurs privés est qu’ils doivent, dans ces circonstances, attendre la liquidation pour sortir du fonds ou du moins attendre la prochaine étape", relève-t-on à la FSMA (autorité de contrôle belge).’

Lalibre reports that because of a recent directive by l'ESMA a number of large institutional investors in the Nobles Crus wine fund are needing to exit the fund before the end of this year. Nobles Crus currently does not have sufficient cash to meet these redemption demands and is apprently trying to sell some of the wines in the fund to raise the necessary capital.

Read the rest here.   

Update: 12.00 
The CSSF decided to suspend the Nobles Crus wine fund on 27th May 2013 because it coud not meet the requested redemptions. On 31st May Miriam Wilson and Michel Tamisier, general partners in Elite Advisers/Elite Partners, informed their investors of the suspension. It may be significant that it would appear that it was the CSSF who stepped in rather than at the request of Elite Advisers/Elite Partners.   

Wilson and Tamisier report that in February 2013 they managed to sell 8,782,000€ of stock at ‘valuation price of Nobles Crus portfolio’. It will be interesting to see if the valuation of the stock they now need to sell will continue to be at their 'valuation price'. 

Unlike other wine funds Nobles Crus has significant holdings of old wines, mainly from Bordeaux and Burgundy. It will be interesting to see if their various provenances are sufficiently robust to stand up to the scrutiny now expected in the current climate.

Le Vif/L'Express is also reporting on the Nobles Crus suspension here.They report that the fund's valuation for the month of April has yet to be published. Normally this is available some three weeks after the end of the month. Furthermore the assets under the fund's managment have declined by 23% between October 2012 and March 2013. 

Back in January 2010 the Vinum Fine Wine Fund was suspended by the Guernsey financial authorities. It was unable to resolve its valuation problems and closed in April 2010.
  
In their letter to investors Wilson and Tamisier claim to have demonstrated 'exceptional responsiveness to criticism'. I assume this refers to the hiring last year of the services Mischon de Reya, the very distinguished and, I assume, expensive firm of lawyers to assist Elite Partners/Elite Advisers in its dealing with the press and their critics. See here: Elite Advisers: 'general concerns as to the nature and tone of your articles'. In the light of their current liquidity problems Nobles Crus investors may wish to reflect whether this was money well spent...  

8.6.2013: Now a detailed article here from the FT, another of the recipients of missives from Mischon de Reya.  

Nobles Crus wine fund: some responses from Elite Advisers and the untested multi-million euro question

Bottles of Bourgueil from 1893 to 1947@Lamé Delisle Boucard

Providing robust and credible valuations for old bottles requires time and expertise, even then it may be impossible to establish provenance

This afternoon I have received some welcome responses from Elite Advisers through the Brunswick Group, the firm employed to handle their PR in the UK.  

Ernst & Young Report

Work on the valuation report is on-going. There is no publication date fixed but Elite Advisers are keen to get the report published as soon as possible and published in a format that is comprehensible to their investors.

Ernst & Young are using data from Liv-ex. As Ernst & Young has not been in touch with Liv-ex I assume that this is the mid-price data (prices for 274 items with 1982 as the oldest vintage) that Liv-ex decided to send in late October to Elite Advisers to assist them in valuing the Nobles Crus wine fund. I understand from Liv-ex that this data covers around 40%-50% of wines in the fund by value. The data covers the more recent vintages in the fund – Liv-ex has already declined to value the old vintages because of the lack of robust data for these older wines. 

If Ernst & Young are using the Liv-ex mid-price data this would appear to ensure that the valuation, when it is published by Ernst & Young, will surely be lower than the Nobles Crus wine fund's current valuation. After all, the initial questions over the fund's valuation arose because of the discrepancy between the valuation from Liv-ex and the valuation that Nobles Crus use. 

It is not known how Ernst & Young will be able to produce robust valuations for the old wines bought from a variety of sources including merchants, restaurants and private collections. They may well have an extended stay in Switzerland where the Nobles Crus wines are stored – inspecting bottles individually assessing labels, the fill levels in bottles and their provenance – 'the intangible factors'. Provenance is decidedly tricky for very old vintages; a robust provenance may be almost impossible to establish. This is not to suggest for a moment that Elite Advisers did not buy in good faith; it is just the nature of the beast and why older vintages are, by their nature, illiquid especially if you have to sell a large number at one time.

One has to wonder whether Ernst & Young have the necessary expertise in-house to carry out such specialist work or will they be calling in experts?  

The unanswered, and as yet unknown, multi-million euro question remains – how close to reality would the valuation of the Nobles Crus wine fund prove to be if redemptions rose to 15%-20%? Would they hold or would Elite Advisers find that the price they were offered when trying to sell substantial quantities of wine was actually in the order of 25%-30% lower than their valuation? In addition there are the staff and administration costs involved in selling wine, which may be around 20% of the value. The larger the fund grows the more critical this question becomes. Clearly, managing a 20% rate of redemptions for a fund worth 20€ million is a rather different order than for one valued at 120€ million. 

Wine Experts Ltd

I'm told that this Dublin-based company is entirely independent of Elite Advisers. It acts as a sub-contractor by contracting Laurent Vialette to provide valuations for the Nobles Crus wine fund. Vialette's role was explained in a news story in harpers (24th October 2012) by Gemma McKenna and Lucy Britner: 'Wine Investment Fund Nobles Crus answers critics':  

'It also defended its valuation process – saying it takes the average of four prices from a list of 60 merchants and 10 auction houses, double checks the data with Winesearcher.com, and triple checks it using wine valuation expert Laurent Vialette. It is finally checked by the group's deposit bank CACEIS and audited by Deloitte.'

I haven't met Laurent Vialette but he must either be able to value wines remarkably rapidly or he operates as a charity since he would appear to charge less than 755 euros* for his valuable services and expertise. Does this sum permit Vialette to travel to Switzerland to carry out a detailed inspection of the wines?  (*Wine Experts Ltd had a turnover of just 755€ from October 2010 to 31st December 2011.) Even wine writing can be more remunerative!   

       

  

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 decanter.com 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€. 
 
Burgundy   

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.  

wine-searcher
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.