Welcome to the latest edition of Bull Case Bear Case. As always, the goal is to give investors a clear, balanced view of both sides of the coin. Prepare to tackle the week with confidence! This week, we preview the Lafite 2010-2019 Vertical.
Lafite 2010-2019 Vertical
5/11 @ 12:00 PM ET
The best of Bordeaux. Tucked on the west coast of France along the Girdonde Estuary is the Château Lafite Rothschild, home to the most famous and respected vines in Bordeaux. The history of Lafite Rothschild dates back to the 1200s but matured in the mid-19th century when Napoleon III, the Emperor of France and nephew of Napoleon Bonaparte requested a formal wine classification system within France. Lafite was named one of the four Bordeaux-based châteaux to earn First Growth status when the 1855 Classification was complete and from that point forward, the estate has maintained a level of dominance over one of wine's most recognized regions. Backed by impressive lineage and supported by consistent outputs of the finest red wines, Lafite has maintained a strong presence both on primary and secondary markets as the brand continues to display strong relevancy into the 2020s. In 1985, Château Lafite Rothschild established a world record when Christie's sold a single bottle from their 1787 vintage for $156,000. At the time, the bottle was believed to have been owned by Thomas Jefferson, although further analysis over the years has raised doubts. Either way, Lafite Rothschildcontinued to deliver shocking auction results into the 21st century when Sotheby's sold three bottle for $232,692 each in 2010. While some estates such as Romanee-Conti maintain a level of secure and avoid public attention, Château Lafite Rothschild has continued to work on its global image over the years and was even featured in a documentary on SOMM TV that gave viewers a behind-the-scenes look at the estate and business.
Aided by the Asian market. At the turn of the 21st century, Lafite trailed Bordeaux producers including Latour and Mouton-Rothschild in volume, but the script was quickly flipped in 2010. This collection from Vint actually showcases the exact wines that helped develop the current Lafite brand into a powerhouse throughout Korea, Hong Kong, and mainland China. In 2010, Sotheby's Hong Kong hosted its first ever sale dedicated entirely to Lafite and the auction resulted in the record 3-bottle lot mentioned in bullish point #1. In a 10 year period between 2000-2010, the average price per case of Lafite experienced a 12x increase in valuation within the Asian markets. That 2010 auction was an attempt from Bordeaux to develop its image within mainland China and the result catapulted Lafite to new heights within the region. One of the most famous sales in wine auction history occurred at that 2010 event in Hong Kong when a single bottle of 1869 Lafite sold for $233,972 after opening with an estimate of $8,000. The auction set the stage for a bull run of Bordeaux in Asia which has continued into the 2020s are volume remains consistent across multiple countries.
Significant volume and liquidity on third-party markets. In 2021, no wine had a higher traded volume than Lafite Rothschild. The volume is aided by the production quantities of Lafite Rothschild compared to other blue-chip wines on the market. While lower production can create increased demand and higher prices, too low of quantities can cause a wine to be too volatile and in turn, remove its status as 'investment grade' within the secondary markets. Whether intentional or not, Lafite has managed to balance their supply better than most estates and they produce enough bottles to limit extreme volatility, while also maintaining enough demand to cause appreciation of prices. One of the primary reasons why Lafite has found so much success within the Asian markets is because the wine can be treated and traded like a commodity.
The laggard returns from Bordeaux. While traded volume for Bordeaux wines is climbing, performance is trailing the field of blue-chips significantly. The Bordeaux 500 on Liv-Ex is currently up 10.9% over the last twelves months, which is last among the five primary indices tracked by the market. The Bordeaux 40, which is a stronger core of wines that includes Lafite us up 13% since last April but compared to the Burgundy 150, which is up 46%, or Champagne, which is up 51%, performance could be better. One of the knocks on Lafite has been that its production is too high for extreme levels of appreciation to occur. In a normal or bear market, the heightened volume and liquidity is a positive but in a strong bull market, Lafite has experienced record volume but while other French regions such as Champagne and Burgundy see region returns, Lafite and Bordeaux have been left behind.
Less diversity than usual. The majority of Vint's collections are themed around a specific region or style, which allows an investor to add a collection of wines from a single area with a single purchase. This collection is similar in that it features a single region, Bordeaux, but it also features a single estate. The lack of diversity within the overall collection and focus on an individual estate, granted a historic one, adds a layer of risk to the investment as a singular shift in public perception can have a costly impact on the value of the offering. The market cap is reasonable, as the fair market value for the collection would fall near $115,000 compared to the $121,000 offering but the collection could see volatility if Asia sours towards Lafite in the future.
Lots of liquid but no clear exit plan. For a wine with so much volume and liquidity, investors will need to wait to learn just how liquidity will work on Vint. Vint has mentioned that they are working on a liquidity solution and in a perfect world both buyouts and an active secondary market will provide investors looking for the opportunity to move cash in and out of collections. Wine traditionally has a longer hold period than other assets and there is a benefit to holding onto wine investments for a few years, both for tax purposes and appreciation. It is fair to acknowledge that some investors will be looking to flip their investments rather quickly though and at least today, there is no option in place to accommodate that investing style. Whether or not Vint will create a secondary market or the process of buyout offers could all impact investor decisions and portfolios in the future.
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