Whisky: yes invest but wisely

Another whisky record was broken last month, as an old and rare bottle of Macallan 1926 sold for £2,187,500 / $2,714,250 - almost three times the pre-sale estimate (est. £750,000-1.2 million) and eclipsed the previous record of £1.5m ($1.9m). Macallan has become synonymous with whisky investment and money spent, with many people parting with hundreds of thousands of pounds for old expressions of the Speyside malt. It’s this boom that has led to an interest in whisky as an investment.

The Macallan 1926 at auction. Photo by Tristan Fewings/Getty Images

A recent Knight Frank luxury investment index (KFLII), shows the full extent of the rise in value of old and rare whiskies. Whisky was added to the index in 2019 and interest was piqued by investors and funds thanks to the Knight Frank rare whisky index, which showed a 12-month price growth of 40 per cent and a staggering ten-year rise of 582 per cent. But, despite headline sales, things are slowing down.

Rare bottles of whisky – the strongest ten-year performer by far – is the only KFLII asset class to actually see a negative annual performance, dropping by 4 per cent, according to the index compiled for Knight Frank by Dunfermline-based Rare Whisky 101.

“Bottles of rare whisky have had a far more sedate time from a performance perspective over the past three years,” confirms Andy Simpson of industry consultant Simpson Reserved.

“Higher value [over £5,000] bottles have retraced recently due to a myriad of geo-political, social and economic reasons. Certain brands have still performed well, while the market leader (from a sheer volume of market perspective), Macallan, has seen particularly punishing losses with its index retracing almost 12 per cent over the past 12 months.”

Despite this, there are still many people looking to put their money where the drams are.

If you are looking for a bottle or bottles that may sell well, there are options out there. One being to invest in first releases from new distilleries as a piece of history.

We’ve seen a new wave in the last few years – from Holyrood Distillery to Rasaay, and Isle of Harris Distillers. The Isle of Tiree sold out its first release in just over an hour, but it remains to be seen how these will sell in the secondary market and, for many, it’s a shame not to just open and enjoy a dram or two to toast a historical moment for the teams who have worked tirelessly to create the liquid.

House of Bruar’s in-house whisky expert, Martin Homola, points to how timing is key and thinks investing in big brands is best. He advises: “Knowing how to invest is about connections and contacts, it’s about being in the right place at the right time with the proper awareness about what to buy, where to buy, and when to buy and sell.

“Determining whether a bottle will become a collectible item is an art form in itself. It’s not necessarily dependent on taste, the distillery’s reputation, or age. A random event can transform the most ordinary bottle into a collectible piece – the collapse of a warehouse roof at Glenfiddich, destroying the majority of casks, turned the surviving bottles into investment gold dust.”

Martin outines his main tips for how to begin your whisky investment journey: “Stick with the ‘big’ brands, such as Macallan, Dalmore, Balvenie, Bowmore, or Springbank. Over time, well-established distilleries perform extremely well. Look for limited releases, vintages, and bottles which are part of a series. Usually, first releases increase in value the fastest.”

You can also find potential investment opportunities by looking past the brand and name on a bottle. He says: “Look for the bottles with a story behind them, like anniversary bottles, bottles for unique occasions, recently discontinued bottles, or any other story – this will add value.”

​Caution over casks

Bottles are just one part of the investment story, as investors are being cautioned about the increasing number of cask whisky investment companies who may be acting unscrupulously to make fast money out of the growing demand for premium Scotch whisky.

While the trading of casks is nothing new, some companies have sprung up to take advantage of this grey area. Currently, cask whisky trading, where brokers source and sell casks from distilleries and blenders, is unregulated. There is no official or published record of the buying and selling of whisky casks and no established legal trade process.

According to the Scotch Whisky Association (SWA), Scotch exports in 2022 grew by 37 per cent in value to£6.2 billion. The membership organisation does not offer advice to private investors, however.

In November, the Advertising Standards Authority issued a new enforcement which strengthened the rules on the advertising of whisky cask investments. Vikki Bruce, founder and director of CaskNet, is building software, founded on block chain technology, to solve the problem.

She explains: “I first discovered this alarming situation when I was asked to investigate a parcel of whisky casks valued at over £20m.

“The buyer had no ability to verify the casks’ ownership or existence, never mind whether the whisky inside the casks was the real deal. My experience is that there are unscrupulous brokers around the world who are capitalising on the complete lack of regulation or accountability, and consumers are getting scammed. While HMRC is gathering duty and the Scotch Whisky Association represents its affiliate membership [distilleries], there is no regulation to protect the consumer in this relatively newly developed marketplace.

“With assets ranging in value up to multi-millions of pounds, the opportunity for fraud is rife. We know a major problem exists; we don’t know yet how deep it goes. Almost certainly, what we have seen reported in the press is the tip of the iceberg.”

Blair Bowman, a whisky broker and advisor to the whisky industry, has been an outspoken critic of many new whisky cask investment companies.

He says: “Unfortunately, there are numerous so-called whisky cask investment companies in the market who are exploiting the lack of regulation and are joining the whisky industry from other luxury and lucrative markets, such as wine and art. Something needs to be done to eradicate those traders who don’t care about customers, much less protecting the reputation of Scotch whisky. They are in it simply to make money quickly.”

Alan Powell, a former HMRC policy officer, has advised distillery businesses on their duty and excise responsibilities for more than 40 years. He observes: “There is already room for government support in this market in terms of alcohol due diligence and alignment with existing authenticity schemes, such as the SDVS [Spirit Drinks Verification Scheme], DVLA, and sophisticated tobacco product track and trace.

“A system could be easily adapted within existing law or by simple modification.”