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Manager focus: Andrew della Casa

Investors in the Wine Investment Fund received a lump sum payment of five years’ annualised double-digit returns in 2008, proving the asset class has a low correlation with equity and bond markets, says the manager, Andrew della Casa.

In August the fund paid out 108.6% to investors who had invested five years before, at a time when some equity markets were posting losses up to 60%.

Della Casa set up the Wine Investment fund in 2003 with Rodney Birrell, Chris Smith and William Grey. Birrell and della Casa are the financial heads behind the fund, while Grey and Smith select the wines.

The managers aim to generate 15% per year by holding physical stock of investment grade wine. They only select wines in the top 5% from Bordeaux Cru Classé and stick to their Price Step theory.

“The chateaux in Bordeaux produce the same quantity of wine every year, so there is a limit on the supply from the beginning. The number of these bottles of wine starts to go down as the wine is consumed, but no matter how good the vintage is, you can’t produce anymore from that year. There is a perfect inverse supply curve that we have not yet come across in any other asset class,” says della Casa.

At the beginning of a wine’s life, when it is undrinkable, the price can be volatile because of speculation on the quality and taste. For the next five or six years the price hits a plateau as it is considered too young to be interesting. Grey and Smith do not buy any wines at this stage.

Wine first becomes drinkable after eight to 10 years, and supply falls as the wine is tasted. Demand rises and the price begins to move upwards. The managers aim to pick up wines, which are then stored in a government bonded warehouse, before this stage to benefit from the rise in price.

As the wine matures, the price hits another plateau as attention turns to other vintages but after 15 to 20 years and more wine is consumed there are supply and demand imbalances which create uplifts in price.

Della Casa adds: “It is very rare for us to touch at the very early stage of its life, as the price is very volatile. Equally we won’t touch wines at the latter parts of their lives as less is being consumed and the price becomes unpredictable.

“The fund’s philosophy is very much to buy and hold but if a price level is reached that we think is unsustainable, we trade out of it.”

The fund holds the wine for the bulk of its lifetime before the managers use their contacts in the industry to arrange a sale.

Despite the high returns, della Casa says the wine industry was hit by the recession and some prices have come off, but relatively it is still outperforming.

“We called the bottom of the fine wine market at the beginning of the year and since then we have seen an increase in price of 4%. We are back to seeing an increase of 1.2% per month.”

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