Why invest in whisky?
Whisky is hotter than ever. Not only for drinking but especially for investing. In recent years, against a backdrop of economic and geopolitical turmoil, the demand for alternative investments has increased. People are looking for opportunities to achieve an attractive return alongside their traditional investments with alternative categories. Soon you find yourself in the corner of so-called alternative investments such as vintage cars, cryptos, robots, watches, and single malt whisky – of Scottish origin.
'Whisky has experienced unprecedented growth as a consumable product in recent years. The bottles are flying off the shelves. The demand is so great that the international whisky industry can barely keep up with production,' begins Michel Kappen, CEO of Scotch Whisky Investments. 'For example, the distillery The Macallan expanded its production facilities a few years ago for £120 million. That's a good sign, but whisky must still age in a cask for 25 years before it can be called 25 years old. This is one of the reasons why investing in older, exclusive whisky is so interesting.'
Rising prices
Michel Kappen previously worked as an advisor at Rabobank and had a more than great passion for (single malt) whisky. He decided to turn his hobby into his work. 'Selling a bottle here, a nosing & tasting there: it was all part of it. But because this well-intentioned hobbyism didn't make a significant impact, I was forced to think differently. The whisky I sold became increasingly expensive to purchase. And this realization was a precursor to our contemporary success: could you also invest in whisky? It became the first chapter of my own boy's book.'
Step by step, the contours for a platform where whisky bottles can be traded and where the value (development) is made transparent began to form in his mind. Due to his advisory background, certain trading structures are applied, albeit this time in the field of whisky. 'Ultimately, we opened the World Whisky Index in 2007, with former Minister of Finance Gerrit Zalm as the guest of honor. That day is still very clear in my mind, just like the AFM license obtained in 2014.'
Fully taken care of
After the launch of the World Whisky Index, (inter)national media increasingly wrote about investing in the Scottish water of life; the status of an alternative investment form was quickly achieved, and gradually the Scottish eau-de-vie became a more than serious consideration for investors. Kappen: 'In fact, we have introduced a completely new alternative investment to the market.'
But what now for those who want to try their luck investing in whisky, who want to achieve a pleasant return but do not want to have to look after it too much? The investment product "Portfolio Management in Whisky" that was launched in June 2018 turned out to be a hit. 'Since the launch, around 650 of our clients have chosen this investment product. That translates to a total portfolio managed for our clients of over 290 million euros in Scottish single malt whisky. Not only new clients but also existing relationships have placed their whisky portfolio in this new portfolio management service. Investors are relieved with a minimum investment of €100,000. In their portfolio, the investor receives both bottles and casks of whisky. The minimum management period is five years.
Whisky needs time; usually, only after ten to fifteen years does a whisky portfolio have the best return opportunities. At the end of the contract period, we assist with the sale of the portfolio. To give an idea: the average return over the past six years is around 11.5 percent. But past returns do not guarantee future results. Due to scarcity, the whisky market has proven to be very stable in recent decades.'
Self-trading
Investing in high-quality single malt whisky can yield a pleasant return, but not everyone is able to set aside €100,000 (or more) (see also: why you often want to save first before you start investing). For the smaller investor, Scotch Whisky Investments has a suitable solution with THE SWEX. This platform is the successor to the World Whisky Index, the platform that was ahead of its time. Michel Kappen on this trading platform that saw the light of day in 2022: 'THE SWEX is the largest online trading platform in the world with more than 100,000 bottles of Scottish single malt whisky. The platform includes bottles owned by our asset management clients and current traders, also known as traders. The bottles offered and traded on the platform are safely stored in our whisky vault in Sassenheim or in our storage in bonded warehouses in Scotland. All these bottles could be traded via THE SWEX. As an owner or trader, you can determine which bottles and (partial) casks you offer for sale. It includes both bottles from closed and existing distilleries as well as 'virtual' bottles. In other words: whisky that is currently still maturing in cask to be bottled at a later time.
Kappen continues: 'To promote the tradability on the investment platform, we offer the feel of a stock exchange where supply and demand meet with an interesting deal for both parties as a result. In that respect, THE SWEX is unique: it is the first platform where exclusive and special single malts can be traded. And all of this in a user-friendly way, with simple tools to build and manage your own whisky portfolio. It can be compared to a stock portfolio, but then a bit more special and flavorful.'
Whisky of the future
So far, we have mainly talked about bottles of (Scottish) single malt whisky, but what about whisky that is currently maturing in warehouses and waiting for the moment when it can be bottled? Kappen: 'Many of our investors not only invest in whisky bottles but also in casks or in parts of casks. It is important that we deliver a high-quality whisky at the end of the process, that investors receive a guaranteed number of bottles and, importantly, that a very high quality is delivered.'
Until whisky ultimately disappears into the bottle, it remains in various respects a living product. Therefore, it is essential to closely monitor all casks that are maturing from both a qualitative and financial perspective. Kappen: 'For example, we deal with "the angels' share", the amount of whisky that evaporates from a wooden cask at about 2% per year. Another important aspect is the decrease in alcohol content of about 0.5% net per year. This percentage must not fall below 40%, otherwise, one can no longer speak of whisky. Knowing that each individual cask has its own evaporation percentage, it is more than important that our own cask managers guide the development of all casks and achieve the promised number of bottles. The more interim measurements we perform, the faster we can intervene during the maturation process.
In addition, samples of the maturing whiskies are sent from our own warehouses to the cask managers to monitor the maturation. The frequency of the analyses depends on the age of the whisky samples. We taste the youngest whiskies every three years, with our focus on those aged 21 years and older. In the past, we could easily manage everything annually. But now that the volumes are so large, that is no longer feasible. So the older the whisky, the higher the frequency of monitoring the samples. Extra backups of these are also made, which are safely stored in our sample library in Sassenheim.'
Scottish expansion
Looking ahead is governing, so it is for Michel Kappen and his whisky investment concept that he conceived nearly twenty years ago on the Heereweg in Lisse. To facilitate the future of whisky investing and the further growth of the organization, significant expansion of the company is currently underway. Not in Lisse, but less than half an hour's drive from the ten epic golf courses of the Scottish village of St. Andrews, where Scotch Whisky Investments has purchased twenty acres of land (equivalent to 80,000 m2). Not to roll out its own golf course, but for the construction of its own storage for bottles and especially maturing casks of single malt whisky. Michel Kappen on this next step: 'Almost dizzying, but the intention is that ultimately 28 warehouses of 11,000 cubic meters each will rise there. In total, therefore, 308,000 m3 where we will soon be able to store 190,000 casks of maturing whisky. When you consider that an average cask contains 250 liters, you come to astronomical numbers. And I haven't even mentioned the millions of bottles we will store there. An unprecedentedly large project that the (Scottish) industry is waiting for. "Glenrothes" will thus become a major storage center for the entire whisky industry. Not only whisky producers but also brokers and investors are eagerly looking for additional storage capacity. And that will be offered here soon. This comes with a significant investment, but one that pays off in the long term. A small detail: the first four warehouses are already in use.'
But mere storage is not the only reason why Scotch Whisky Investments has set its sights on Glenrothes. Because entrepreneur Kappen would not be entrepreneur Kappen if he had not meticulously thought out his philosophy. 'We know that once those casks are in our warehouses, we can monitor them. Our cask managers are present there; we have more grip and feeling than anyone else. With this in mind, we offer a high quality of service and can inform our clients about the status of their cask or (partial) casks in the meantime. Not only for private investors but also 'big players' have the need to know that we have the entire process under control from A to Z. Both the maturation process of the whisky in the casks and the bottling and thus the overall management will take place in Glenrothes.'
Kappen is not done talking about the next step of his company, which saw the light of day less than two decades ago. With the current situation in the world, including scarcity and rising raw material costs, Kappen is already thinking several steps ahead. 'One of the new initiatives we are currently developing involves simplifying the monitoring of evaporation of volume and alcohol strength. Technically, it is possible, but we will have to make huge investments. However, the desire to monitor a cask as effectively as possible for evaporation loss is very relevant. If we succeed in this, our investors can achieve even more returns from their investment in the future. A good old and scarce bottle of whisky is today quickly worth a few thousand euros. Every extra drop we can save benefits our clients' investments. New methods and techniques to let the whisky casks mature as long and well as possible will be rolled out in Glenrothes soon.'
Phased rollout
'We want to move forward,' concludes Kappen. 'Scottish single malt whisky remains in high demand, but it concerns large quantities. The industry will therefore be forced to focus more on quality and try to capture its profit there. Producing standard, often young whisky is simply becoming unaffordable. Our plans for Glenrothes are being rolled out step by step. At the moment, we are mainly creating storage for our own bottles and casks. Then we will see how the Scottish whisky industry develops to subsequently expand in phases. There must be a need for that additional storage capacity. Ergo: accelerate where we can, and slow down where necessary.'
More information at scotchwhiskyinvestments.com
This is an article from Baaz 1.2024. Read it now digitally: Baaz 1.2024!
