Why Provenance is a Must in Wine Investment

If you are investing in wine then Provenance is essential. Provenance, from the French provenir, "to come from", refers to the history of your wine: where, when and by whom it was made, where it has been stored, who has owned it and where it has been shipped to. It is in effect your wine's pedigree and acts as a certification of care. Without Provenance you may find that your wine is worthless as there is no proof that it is genuine or that it has been cellared or kept in storage correctly.

In transactions of old wine with the potential of improving with age, the issue of Provenance has a large bearing on the assessment of the contents of a bottle, both in terms of quality and the risk of wine fraud. A documented history of storage conditions is valuable in estimating the quality of an older vintage due to the fragile nature of wine.

Given the value of fine Bordeaux wines there is a market for counterfeit wine and Provenance acts as a deterrent against this. In the case of the select niche market for very old bottles of wine – which often reach high sums of money - Provenance is the difference between making a fortune and losing one. The infamous case of The Billionaire's Vinegar is a good example. The Billionaire's Vinegar is a book by Benjamin Wallace centred on a true story. The book tells the story of German collector, Rodenstock who had allegedly found rare bottles of Chateau Lafite walled up in a basement in Paris. A 1787 Lafite engraved Th:J sparked worldwide interest because it was thought that Jefferson had bought the bottles when he was in Paris serving as ambassador. Three of the bottles were sold at Christie's between 1985 and 1987 including the the 1787 Lafite which was bought by Malcolm Forbes for $150,000 – making it a record holder as the world's most expensive bottle of wine.

The billionaire in the title of the book is William Koch who sued Rodenstock claiming that he was the source for four Jefferson bottles that Koch bought in 1988. Those bottles are now believed to be fake. Rodenstock has said that the bottles were genuine but has not submitted them for testing. The book sold well and a Will Smith-produced film of the story is in development.

Obviously this case only shows the upper end of collecting and investing in wine but it is a good example none the less. Veteran collectors are well aware of how important Provenance is, which explains the high prices paid for wines straight from the cellars of châteaux and négociants. The wine’s condition is just as important as its origin and poor shipping, storage or handling practices that can render a Grand Cru as worthless as if it was a cheap fake. While the wine making process is subject to great scrutiny and best practices, once bottled the levels of scrutiny and attention can vary greatly as the wine makes its way through the supply chain.

With the wine investment market today looking increasingly more mainstream more people are considering wine as an addition to their portfolios. According to Liv-ex (the Fine Wine Exchange) private collectors in the UK alone hold more than US$2bn worth of fine wine in bonded warehouses and the fine wine market is worth US$3 billion annually – a figure that has trebled since 2004. There are also new ways to invest in wine other than the traditional routes of buying via Wine Merchants with Private Cellar Plans and via Wine Funds. Under the Enterprise Investment Scheme (EIS) qualifying UK tax payers can benefit from an advantageous and tax efficient opportunity from exemptions of Capital Gains, Income Tax and Inheritance Tax. The 1855 Club is a company trading in Fine Wine which has been created under the rules of EIS and has been designed for the benefit of the shareholders. If you would like to know more about this scheme please contact me , or ask your IFA or agent to do so, at nick.stephens@interestinwine.co.uk – and as with all potential investments please seek independent financial advice!