Lunzer Wine Investments (LWI) - FAQ’s

Reasons for Investing in Fine Wine

1. Why is Wine Investment becoming more acceptable as an alternative asset class?
2. Which wines are likely to produce the best returns?
3. Why do most investment advisers recommend wines from the region of Bordeaux?
4. How finite is the volume of production of each of the Bordeaux Chateaux?
5. What is the overall size of the Bordeaux Fine Wine Market?
6. Can Investors lose their total investment?
7. What is the LWI Investment Philosophy?
8. How has Peter Lunzer, the LWI Stock Picker, performed in the past and how long is the track record?
9. How has the wine investment market been affected by current economic climate?

Investment products being offered by LWI

10. Who can invest in LWI investment products?
11. How many products will be available to Investors?
12. How does LWI value the wines for reporting purposes?
13. Are redemptions allowed?
14. Will Investors be allowed to drink the LWI Funds wine stock?
15. What will Investors receive in terms of services and reporting?

LWI Investment Strategy

16. Does LWI buy Bordeaux En-primeur stock?
17. Does LWI acquire large format Bordeaux bottles?
18. Does LWI acquire wines with US or Taiwanese strip labels?
19. Why does LWI only buy whole cases of wine in original wooden cases?
20. What is the relevance of only buying wines ‘Under Bond’?
21. What is the exit strategy for selling wines to realise profits?
22. Why choose LWI over other fund’s?

Storage and Insurance

23. Where are the cases of the Fund´s wine stored?
24. How are the Funds wines insured?

Reasons for Investing in Fine Wine

1. Why is Wine Investment becoming more acceptable as an alternative asset class?
For many years people have invested in wine which they kept either at their merchant cellars or placed in their cellars at home. After the wine matured the traditional concept was to sell half of the stock to fund new acquisitions and to drink the rest ‘almost free of charge’. As people become more aware that these increases in value can be measured and are consistent so participating in wine investment funds has become more popular.

2. Which wines are likely to produce the best returns?
There are many wines that rise in value over time. The criteria that are most important are that the wine is of high quality, made in finite quantities and has a global secondary market that can be analysed to asses the wine’s potential for increasing in value

3. Why do most investment advisers recommend wines from the region of Bordeaux?
The best Bordeaux Chateaux produce fabulous wines which for centuries have been in great demand all over the world. The Bordeaux wine market is truly global and that protects it from excessive fluctuations regardless of the way in which currencies and global economies fluctuate.

4. How finite is the volume of production of each of the Bordeaux Chateaux?
The rules of wine production in France and specifically in Bordeaux, limit the volume of wine that a hectare of land is allowed to produce. Left to its own devices a grape vine would produce huge quantities of indifferent grapes. In order to make high quality wine, a carefully restricted quantity of juice per vine is harvested and fermented into wine. After up to 20 months ageing in oak barrels the final selection of the wine that represents the Chateau’s capability is blended from a selection of the barrels thus further reducing the production.

5. What is the overall size of the Bordeaux Fine Wine Market?
The top Chateaux of Bordeaux contribute about £2bn to the market each year. Global annual sales of investment grade Bordeaux wines on the global secondary markets is approximately £1.5bn. The stock of investment grade wines held by merchants and individuals is estimated at £6bn to £8bn globally and £1.5bn to £2bn is stored in the UK.

6. Could Investors lose their total investment?
Yes, however the best wines of Bordeaux have never lost money in any 5-year rolling period in the last 25 years.

Between 1983-2002 the Fine Wine Index showed an average annual compound growth rate of 12.3%. (Source: “Wine Investment for Portfolio Diversification” by Mahesh Kumar)

7. What is the LWI Investment Philosophy?
Having advised wine investors since 1985 and formal wine funds since 2003, Peter Lunzer has evolved his own propietry investment philosophy called the “Wine Price Ratio” which revolves around the way a wine changes in value from its en-primeur opening price to the highest price that the best vintage of that wine has ever achieved. It is exceptionally repetitive how a wine moves in price by reference to its age, the quality of the vintage and the altering rate at which the wine is consumed.

8. How has Peter Lunzer, the LWI Stock Picker, performed in the past and how long is the track record?
Peter Lunzer, the CIO of LWI, has been involved in the wine world for nearly 30 years. The first formal 5-year track record was achieved whilst acting as CIO for The Wine Investment Fund which he co-founded. From 2003 to 2008 the overall return was an increase of 108% net of all fees.

9. How has the wine investment market been affected by current economic climate?
The latest figures from the Liv-ex index show that wine prices have been rising gently from January to August 2008 – this is despite the European and US economy crises. In recent months the inter merchant prices reported by Liv-ex have fallen slightly but overall the wine investment market appears to be remaining reasonably firm.

Investment products being offered by LWI

10. Who can invest in LWI investment products?
LWI will offer products globally with opportunities for institutional, family offices and high net worth investors to participate in carefully designed fund structures.

11. How many products will be available to investors?
For institutions, family offices and high net worth investors there will be closed-end funds with a 5-year horizon. Additionally a simple product structure has been devised for both institutions and individuals who would like to invest on their own rather than participate in a fund. Active management of this product will be charged at 1% per annum fee and the advantage to investors will be the ability to set their own rules with regard to the investment period.

12. How does LWI value the wines for reporting purposes?
The London International Vintners Exchange (Liv-Ex) provides an independent valuation service based on Europe-wide, inter-merchant trading prices. This method is both a conservative and consistent method of valuing portfolios.

13. Are redemptions allowed?
Trading wine is costly and therefore whilst redemptions will be allowed for all managed funds there will be a small fee associated with each redemption.

14. Will Investors be allowed to drink the LWI Fund’s wine stock?
The fund’s stock will be bought at the lowest available price and sold at the highest price to the benefit of all investors. If any investor is interested in drinking one of the wines then that wine will be bought for him on the open market at the best possible price leaving the investment stock intact.

15. What will Investors receive in terms of services and reporting?
Administrators will be appointed to manage all appropriate reporting. Monthly valuations and monthly investor reporting will be emailed to all investors. Annual report and accounts will also be emailed.

LWI Investment Strategy

16. Does LWI buy Bordeaux En-primeur stock?
En-primeur wines are not bought for a number of reasons. Finding a genuinely large allocation of the best wines at the real opening prices is not easy. Having found sufficient volume of the right wine the price paid will be affected by the subsequent harvest. If the subsequent harvest is of a comparable or higher quality, then the price paid will stagnate possibly for as long as 3 years.

17. Does LWI acquire large format Bordeaux bottles?
Bottles other than the standard size or magnums are subject to changes in fashion and therefore with the exception of half bottles of Sauternes all other sizes will be avoided.

18. Does LWI acquire wines with US or Taiwanese strip labels?
The wine world is very conscious that wine should not travel more than necessary. Therefore if there are clear signs that the wine has crossed the Atlantic twice or been to the far east and returned then those cases will be avoided.

19. Why does LWI only buy whole cases of wine in original wooden cases?
In terms of trading stock a premium is paid for pristine-condition, whole cases of a wine in the original packaging.

20. What is the relevance of only buying wines ‘Under Bond’?
Taxes are only paid on wine when it is released into free circulation so it makes no sense to buy wine outside the bonded warehouse system. Additionally a wine stored in bond can be checked with regard to provenance and its storage conditions are virtually guaranteed unlike a case of wine in free circulation which may have spent 5 years in the wildly fluctuating temperatures of an uninsulated garage.

21. What is the exit strategy for selling wines to realise profits?
Employing a wine sales team is expensive but by negotiation with selected merchants the aim is to sell all wines to end users at an agreed commission to the merchant with the intention being to minimise the cost of sale.

22. Why choose LWI over other fund’s
Peter Lunzer comes from a purist wine background rather than a purely financial orientation. The advantage in terms of picking wines is that he understands the nature of a wine as it matures. As an example some wines or even whole vintages pass through adolescent stages of maturity which makes their flavours more challenging. It is the understanding of how they may emerge from these stages that will be most valuable in picking future winners.

Storage and Insurance

23. Where are the cases of the Fund’s wine stored?
The Fund will hold physical stock of its wines, stored in the UK in a government-licensed, bonded warehouse. The two most important storage facilities are London City Bond and Octavian and LWI will open accounts at both warehouses.

24. How are the Fund’s wines insured?
Each Bonded warehouse offers an insurance policy at full replacement cost at minimal premiums.