In October 2018, a bottle of rare single malt Scotch whisky set a new world record price. The Macallan Valerio Adami 1926 was sold for GBP700,000. Just one year later, the same bottle was sold for an impressive GBP1.5 million at an auction held by Sotheby’s.
Transactions such as these illustrate how far whisky has quietly come into its own as an underrated investment asset in the past decade. But now, accredited investors can seize new opportunities in whisky investments from the introduction of an innovative product.
On Jan 18, Rare Cask Holdings announced the listing of Southeast Asia’s — if not, the world’s — first digital whisky-based asset-backed securities (ABS) on private securities exchange Hg Exchange (HGX). Rare Cask is a wholly-owned subsidiary of PrimePartners Corporate Finance Holdings. The whisky-based ABS are underpinned by Zilliqa’s blockchain technology and are linked to a collection of exclusive casks of single-malt Scotch Whisky known as Casks of Distinction (COD).
This collection is curated by Diageo, the world’s second-largest distiller, representing its rarest and highest-quality whiskies selected from the best casks held and matured at its Scottish distilleries. The casks include a Port Ellen 1979, Mortlach 1993, Coal Ila 1990, Benrinnes 1992 and a Talisker 1989, each maturing between 2022 and 2025.
These casks are expected to collectively produce 834 whisky bottles upon maturity. Each bottle represents one ABS, or token. The ABS are tradable on HGX through its private founding members and financial intermediaries — PhillipCapital, PrimePartners and Fundnel.
At the end of the term of each ABS, investors can decide to redeem the ABS for cash via the sale of the bottle through an authorised whisky merchant. Alternatively, they may receive physical delivery of the bottle from the underlying COD cask tied to each ABS.
According to Gerald Ong, deputy chairman and executive director of PrimePartners, two-thirds of the tokens were pre-sold to family offices and high net worth individuals from Asean and Europe. The remaining one-third is in the process of being sold to investors from China, Japan and New Zealand, he adds.
All five ABS have seen strong interest from investors on Jan 25 — the first day of trading — according to HGX. Notably, the Port Allen ABS surged 30% to close at GBP12,000 ($21,888). The total trading value of all five ABS recorded GBP700,000.
“The whisky-based ABS was well traded on its first day, confirming strong investor interest for this type of alternative investment opportunity and highlighting the benefits of the liquidity offered by listing on [HGX],” says Willie Chang, COO of HGX.
Ong says he is “delighted” by the positive reaction to the whisky-based ABS from investors in Singapore, across Asia and around the world. “The liquidity of the products demonstrates an active market in this exclusive portfolio of rare whisky casks,” says Ong of PrimePartners, a leading corporate finance firm more used to shepherding companies to IPOs than distilling returns from whisky casks.
Tokenising whisky casks
The idea to tokenise the whisky casks was the brainchild of Benjamin Twoon, Ong tells The Edge Singapore in an interview. Twoon is co-founder and COO of Fundnel and a “self-described whisky nerd”, he adds. Ong recalls Twoon proposing the idea to him and Chang about six months ago and they decided to “run with it” after “getting all the ducks aligned”.
According to Ong, the tokenisation allows investors to solve several issues related to investing in whisky casks. For one, investors can own a fraction of a whisky cask without having to own it entirely. A whisky cask can typically produce a few hundred bottles of whisky depending on its age. Secondly, it allows them to monetise the whisky casks before maturity. “So, it gives everybody a chance to trade,” he says.
Of course, investors can choose to invest in bottles of whisky. Most of the trading takes place through online auction sites. According to Whiskystats, 162,023 bottles were traded through auction sites in 2019, up 30% from the previous year. The total value of whisky traded through auction surged 37% in 2019 to a record high of EUR70.5 million, from EUR51.5 million in 2018.
However, Ong says provenance could be a problem when it comes to investing in bottles of whisky. The authenticity of the liquid in the bottle is difficult to ascertain, he says. Hence, investors are forced to rely on the auction site to sieve through thousands of bottles monthly and pick out those of questionable provenance.
“[But] how do you really know that it’s the authentic product?” adds Chang in the same interview.
With the ABS, however, the problem of provenance is minimised. The tokens are secured against whisky casks that are currently still stored and aged onsite at Diageo’s distilleries and warehouses. Counterparty risks are minimised too as Diageo will directly bottle and deliver the bottles of whiskies to Freeport Singapore, a high-security storage and display facility here, says Chang.
Ong says Diageo was picked as the supplier of whisky casks because “they are the best”. Diageo owns and operates distilleries around the world. Each year, the company’s team of Master Blenders spend countless hours in warehouses tasting and assessing casks, and select about 50 of them for inclusion into COD.
Still, how can investors be assured that the whisky casks handled by Diageo are truly authentic? Ong points out that an audit is conducted once a year by Prestige CM, a cask administrator, to ensure that “everything is hunky-dory”. HGX will also put out a research report to update the status of the whisky casks on a periodic basis.
Moreover, Ong does not discount Diageo’s reputation. “[Diageo] is a US$100 billion company. Do you really think they would fool around with one or two casks?” he says.
However, Prestige CM appears to be a newly incorporated company. According to RecordOwl, the company was only founded on Nov 27 last year. Ong explains that the company is a “youngish” because there are very few companies that provide such services here.
Returns could be attractive
So, what kind of long-term returns can investors expect from investing in the ABS?
Ong frankly says he does not know because there has never been such a product traded before. There are also no direct comparisons to the underlying casks themselves, he says, adding that COD is still a new initiative. “We can’t quite tell yet,” he says.
But if the fundamentals of whisky investing are anything to go by, the returns could be attractive. As bottles from a rare cask are consumed, every bottle from that cask becomes rarer and more valuable, says Chang. Consequently, rare whisky becomes an investment that is suitable as a long-term hedge against inflation as well. “So, I think that’s another kind of very unique property,” he says.
Moreover, the demand for whisky is rising, whether for consumption or investment purposes. Many countries are seeing increases in the standard of living, changes in lifestyle and consumption habits. These have led to a spike in demand for whisky, for instance, in China.
Since the Global Financial Crisis in 2008, major central banks around the world had kept their monetary policies ultra-accommodative to support the global economy. With the Covid-19 pandemic, monetary policies have been loosened again.
As a result, the search for yield has prompted investors to look elsewhere. Whisky, being one the most liquid alternative assets, have seen investors piling in, driving up the price of rare whisky, says Ong.
