Livex

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Wine Investment 2008
The Wine Market Today Wine Investment 2008 2nd
December 2008 James Miles, Director, Liv-ex.com
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About Liv-ex

• Liv-ex runs a marketplace for professional
  traders of fine wine. We offer transparency and a
  set of commoditised trading standards to a
  traditionally opaque and inefficient market.
• We also sell price data to merchants, wine funds,
  warehouses, producers and consumers and publish
  the Liv-ex 100 Fine Wine Index the industry
  benchmark.
• Liv-ex now has more than 200 professional members
  accounting for about 70 of global fine wine
  turnover.

Price transparency for all Standardised
settlement Anonymity Electronic trading Global
Membership from San Francisco to Auckand
www.liv-ex.com
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The Role of an Exchange
A brief history 1700s - Coffee houses 1800s
Clubs with rules 1900s Trading floors 1980s
Face to face dealing fazed out 1990s Electronic
trading settlement 2000s Exchanges
de-mutualise and list on stock market

• Disseminate Trading InformationData and Ideas.
• Determine Enforce RulesA standard contract
  governing trade.
• Match, Settle Clear TradeTrading platforms are
  very new.

Transparency Reliability
Efficiency Market Growth
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The Fine Wine Market

• Total global market for fine wine is just3
  billion annually.
• UK wholesale and merchants - 400 million
• UK auctions - 25 million
• US auctions - 230 million
• Le Place de Bordeaux (Bordeaux negociants) -
  500 million to 1 billion, depending on the new
  vintage.

The fine wine market is really just a cottage
industry Annual turnover equates to a few
seconds worth of trade in forex markets.
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The Fine Wine Market

• The Fine wine market is Fragmented but
  polarised both by players and products
• Liv-ex members list more than 10,000 products
  but top 10 brands account for 60 trade by value
  on Liv-ex.
• Liv-ex has 200 members but top 20 account for
  between 75-80 of trade.
• Top two UK merchants did more turnover than
  auction houses worldwide in 2007.

The most traded wine by value Lafite Rothschild
accounted for 17 of all Liv-ex trade in the
last year by value.
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Liv-ex 10 Most Traded

• 1. Lafite Rothschild
• 2. Latour
• 3. Margaux
• 4. Mouton Rothschild
• 5. Haut Brion
• 6. Carruades de Lafite
• 7. Petrus
• 8. Cheval Blanc
• 9. Mission Haut Brion
• 10. Domaine Romanee Conti

Bordeaux wines account for more than 90 of trade
by value on Liv-ex
9 Bordeaux and 1 Burgundy
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The Power of the Firsts
No other producers in the world make such high
value wines in such quantity... As the most
liquid wines however prices are also the most
volatile... The Liv-ex Claret Chip Index
increased 48 in 2007 and is down 19 since June
08.

• 54 of Liv-ex trade by value
• 40 of a typical negociants en primeur campaign
• 23 of all UK and US wine auctions by value
• Despite a combined annual production of less than
  90,000 cases

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The Role of Speculation

• Price is the only way to ration a scarce
  commodity in a free market.
• Speculation plays a vital role in oiling the
  wheels of price discovery and financing the new
  crop.
• Speculation wine have been intertwined since
  the beginning of time.
• BUT investors must never lose sight of the fact
  that wines ultimately need to be drunk!

The sentiment that wine is for drinking, not
investing is romantic but naive... Wine is a
market and speculation plays a vital role.
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Primary Market

The better the wine the more fragmented the
supply chain.
Chateau/producer
Place de Bordeaux
How are prices set?
Agent/negociant
Who pays the opening price?
Secondary market
Merchant/retailer
Allocation system has broken down.
Private Customer
The secondary market is used to balance the
books.
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Secondary Market
Chateau
Place de Bordeaux
Negociant
Liv-ex
Wine funds
Auction houses
Merchant/Wholesaler/Retailer
Consumer
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Liv-ex Prices

• Liv-ex has brought price transparency and
  price standardisation to a previously opaque
  market place.
• Merchant List Prices Liv-ex collects thousands
  of list prices form its member merchants and the
  wider marketplace on a daily basis.
• Liv-ex Transaction Prices actual trade-to-trade
  transactions
• Other data Liv-ex Mid Prices, chateau release
  prices, negociant release prices and auction
  prices

Liv-ex has an unrivalled database of more than 3
million lines of standardised price data. And it
is growing by 100,000 lines every month
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The Liv-ex Wine Page
Full market information on any wine is available
in an instant.. previously getting this info
would have taken a full morning of phone calls

Liv-ex bids and offers, with quantity at each
price point
Best published list prices with quantity offered
Chart of best list price, average list price and
Liv-ex trade price points
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Liv-ex Cellar Watch allows you to track in depth
current and historic prices and to organise and
value the contents of your wine cellar.
Wine Invest 2008
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Wine Price Variance

• There is a great variation in prices charged by
  merchants
• Lafite Rothschild 2005 (12x75 case stored IB)
• Lowest Price 6,995
• Weighted average price 8,916
• Highest Price 10,350
• Price spread - 3,555 or 32 lower than highest
• Haut Brion 1989 (12x75 case stored IB)
• Lowest Price 8,385
• Weighted average price 10,071
• Highest Price expensive price 13,716
• Price spread - 5,331 or 39 lower than highest

When investing in wine, buying and selling at the
right price is key to getting the best returns
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The Liv-ex Indices
October 2008s 12.4 fall was the biggest monthly
move in either direction since the Index was
first calculated in 2001. Investors can buy or
sell cash settled futures on the Liv-ex 100 via
intrade.com and ODL Markets.

• After four years of large gains, the credit
  crunch has started to bite

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Historical Performance

• But wine is still out performing equities.

Despite their recent falls, the First Growths
as tracked by the Liv-ex Claret Chip Index - are
still the top performers.
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Structural Trends

• Supply is static. If anything increasingly
  quality conscious producers are making less wine
  than 20 years ago.
• Demand has two big drivers
• New markets 3bn people have joined the global
  economy in the last 20 years and are developing a
  taste for wine.
• Transparency the internet has transformed a
  traditionally opaque market and brought a tidal
  wave of new interest and money into fine wine.
• Both the long term drivers of demand are at an
  early stage and fundamentals remain little
  changed.

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Could do better?

• Settlement is still too costly and cycle time too
  long.
• En primeur is unacceptably risky.
• Transparency in production numbers and tasting
  samples would be of great benefit to the market.