Fintechs are revolutionizing the investment market for fine wine and art – Business Insider | Candle Made Easy

  • Investing in art and wine has long been the preserve of the wealthiest of clients.
  • New startups are tapping into increased demand from a broader audience for alternative assets.
  • “People are looking for ways to get returns in more esoteric places,” said one wealth advisor.

A new generation of emerging fintechs is hoping to do for fine wine and art what index giants like Vanguard did for stocks fifty years ago: bring them to the masses.

From a bottle of 2015 Domaine Leroy Musigny Grand Cru (worth about $100,000) to a Basquiat original (like one that sold at Christies this year for about $41 million), art and wine markets represent billions of dollars. But although they existed as an asset class long before stocks were traded on the first stock exchange, owning them has long been the preserve of the wealthy.

Now these alternative investments are attracting renewed interest during the pandemic as retail investors seek both higher returns with interest rates at rock bottom and excitement in their portfolios.

And while crypto has brought plenty of excitement to retailers, the startups spearheading this push are positioning art and wine as a more informed and tangible alternative — though critics (from existing collectors to members of the gallery world) remain cautious.

The increased interest in these alternative assets has also led to funding for these startups. Vinovest raised $10 million in April. Art-investing fintech Masterworks became a unicorn with its $110 million Series A in October. And Vint became the first SEC-qualified investment platform for wine and spirits in October, indicating signs of even broader adoption.

“There’s a very common theme among investors right now where people are like, ‘Hey, the stock market is at an all-time high, bond yields are low. What are we going to do?’” said Lorenzo Esparza, CEO of wealth advisory firm Manhattan West.

“People are looking for ways to make returns in more esoteric places,” he added.

Fintechs offer fractional ownership of art and wine

Fractional ownership is key for many startups looking to expand access to fine art and wine. A classic painting or a wine of a particular vintage is beyond the reach of all but the wealthiest of investors; a theoretical piece of one is more achievable.

By distributing stakes in alternative assets to a broader set of customers, startups hope to tap a customer base that has shown willingness to invest in relatively niche products like NFTs in 2021. Startups say by opening up the market they will bring liquidity, price transparency and access to art and wine.

“We definitely see that the alternative space in general is a few decades behind, but we can see the way it’s more fluid, transparent, accessible and accessible for the everyday retail investor,” said Anthony Zhang, the CEO of Vinovest , to Insider.

Not all startups have taken the fractional path.

Cult Wines allows customers direct ownership of wines selected by the service for their portfolio. Atul Tiwari, CEO of Cult Wine for North America, estimated the total value of the wine market worldwide at around US$450 billion.

Tiwari said about 1% of the market’s total supply, or $4.5 billion, is suitable for investment through services like Cult Wines.

While there’s no precise definition of what constitutes investment-grade wine, the distinction is generally apparent, Tiwari said. It’s difficult to “invest” in the packaged Franzia at your local grocery store.

“The very interesting thing about wine as an asset class is that the supply and demand mechanism works almost perfectly. Over time, as this wine is consumed, the consumer demand mechanism means that as long as demand is there and growing, prices will appreciate it,” Tiwari told Insider.

The fine arts market works similarly, with a firm supply and (possibly) higher demand leading to rising prices.

However, according to Michael Weisz, president of Yieldstreet, an alternative investment service, there are some nuances.

Opening up “market participation” will lead to rising art prices, Weisz told Insider. But he also believes that Yieldstreet will be able to showcase a new generation of artists who would not have received recognition from traditional galleries and auction houses, causing the art market as a whole to grow.

In terms of returns, investment-grade wine was the top-performing luxury asset from June 2020 to June 2021, returning 13%, according to real estate agency Knight Frank. While that’s a far cry from the gains of Bitcoin (285%) or the S&P 500 (38%) over the same period, wine is nonetheless a viable source of alternative returns.

Returns in the art market can be more difficult to determine. But a 2020 report by Citi’s private bank put the art market’s gains in the first seven months of last year at 5.5%. As with wine, art offers returns that are largely uncorrelated to the broader markets.

And while minimum startup investments vary, they’re far less than the usual fortunes required to participate in fundraising.

Cult Wines and Yieldstreet cater more to those who might be accredited investors; The wine service requires a minimum investment of $10,000, as does Yieldstreet for its art funds. Others take a different approach: for example, Vinovest’s minimum investment is $1,000.

Who stands to win (and lose)

Of course, old entrants are likely to lose out as asset classes become more competitive and open up to retail investors.

“Anytime a company does something radically different, especially in vintage wine or art, one of those luxury asset classes, there’s going to be resistance. We’ve actually seen that most of the resistance and skepticism comes from existing wine collectors,” Vinovest’s Zhang said.

“The collectors are like, ‘Oh, there are so many new people coming in, it’s going to be harder for me to get my allotment,'” he added.

But Zhang added that wineries have welcomed the growth of fintechs with open arms.

“For the winery, they see us as a channel to reach a new generation of the future rich. The average age of a wine collector is well into their fifties. They know they need that in the next 10 years or so to be able to find that next generation, and we’re helping them reach those people today,” Zhang said.

According to an industry expert, some artists and galleries may be less welcoming of the influx of new buyers.

“Galleries do not sell Henry Miller paintings to a fund. This is not good for the artist. Her job is to represent the artist’s best interests,” Candace Worth, an art consultant who previously worked for Christies, told Insider.

“What artist wants their work to end up in a mutual fund? He wants a reputable private collector. A serious institutional collection, a foundation, a museum. Where his work ends up is of paramount importance,” she added.

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