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28/09/2018

Whisky Investment: Roll out the Barrel (City AM Column)

by Richard Ellis - Spirits Buyer

Following on from last week’s dip into the world of premium spirits investment, we’re taking the full plunge this week. For those for whom a bottle, or even a case of great whisky is not enough, there is a more alluring option available: buying a whole cask.

Whilst there are over 200 million casks of maturing whisky in Scotland, only a small proportion are single malt – the most valuable and sought-after production style. Given the period of time it takes to mature a fine malt before it is ready either for release or addition to a premium blend the market is naturally susceptible to swings in availability; there is currently a shortage of supply due to the significant growth in demand for whisky both in the context of cocktail culture and luxury collectables. Exports of Scotch reached record highs in 2017, with a strong combination of desire for ultra-premium whiskies and rapidly growing demand from Asia.

In fact supplies of single malt whisky are running at their lowest level for years with older whiskies (10 years +) particularly hit. The impact of this demand on distilleries has led to an increase in the amount of spirit produced – but there is key funding gap. The maturing spirit isn’t officially classified as whisky until it reaches 3 years of age and as we know, casks destined for serious whiskies will need to remain in stasis for considerably longer than that.

Generally speaking, there are three opportunities to invest in the maturing whisky cask market: new-make spirit (less than the legal minimum age of 3 years), 3 years +, and 10 years+. Whilst age doesn’t always equate to higher quality, the naturally slow and occasionally unpredictable process of maturation does require a degree of flexibility in the investor. Furthermore, one must consider ‘the Angel’s Share’:  a maturing cask of whisky will lose an average of 1-2% volume annually through evaporation. 

Those looking to turn a relatively fast profit at a moderate investment value could look to new-make spirit. Typically the distiller will buy casks back after they reach the minimum 3 years of ageing. This can be offered by large established distilleries as well as exciting new producers looking to get a new whisky off the ground, so the choice depends on your risk/reward appetite.

After 3 years of age, casks which have not immediately made their way into a young blend are most likely destined for 8-10 years’ ageing, or more. After a flat period, demand begins again for casks approaching 10 years of age and thus an inflexion point is reached where the investment outperforms.

Casks which have not been used post-10 years of age may well be destined for 18, 25 year or even older malts – or may even make special single-cask bottlings in their own right. These are of course fewer and further between and require a considerably greater initial investment; however the alpha opportunities are considerable. The best casks of the most sought-after distillers can reach seven figures!

As with all investments, a specialist is required to give the right level of service and advice. Both the initial sourcing and a thoroughly thought out exit strategy are key, not to mention the importance of understanding when to buy and sell. Outsize value appreciation potential is only possible if these parameters are correctly managed.