Should You Invest In A Whisky Fund?

The Platinum Whisky Investment Fund was one of the world’s first private equity funds to focus on rare, single-malt whiskies. Organized in 2014, with a projected term of seven years, the fund has now announced its successful liquidation. From an initial funding of USD 12 million, the fund generated net proceeds of USD 26 million - a gross annual rate of return of 17%. 

Whisky investment funds have grown dramatically over the last decade. According to the often-touted Knight Frank Luxury Investment Index, the benchmark index of rare whiskies saw its asset value grow by a staggering 564% over the last 10 years. This represents a yearly return of around 18.9% over the decade. Sub-indexes of Japanese whisky appreciated even more.

Of course, the value of the average bottle of Scotch whisky did not increase by a factor of 5.64 times over the last decade. The index measures the price changes in a group of 100 different rare and collectible bottles of Scotch whisky. Given that there are over 3,000 Scotch whisky expressions, the index only tracks around 3.3% of the available Scotch whiskies.

The Fund, launched in June 2014, initially raised $12 million from 50 high net worth investors based in Hong Kong, Singapore, mainland China and the United Kingdom. It offered a unique investment vehicle focused on old and rare single-malt whiskies from Scotland and Japan. Over the past five years, the Fund traded thousands of bottles of investment-grade whiskies through auctions and whisky trading companies in Europe and private clients based in mainland China.

Among the more notable holdings in the fund were:

• The oldest bottles in the Fund were a collection of 36 bottles of 1902 Highland Park 50-year-old, which were taken and distributed by many of the Fund’s investors.

• The oldest cask in the Fund was a Talisker 1980, direct from Diageo, which will be bottled as a 45-year-old in 2025 and will likely be the oldest single cask of Talisker ever bottled.

• The most valuable bottle by selling price, a 60-year-old 1926 Macallan with a label by Valerio Adami, was sold to an Asian private client for close to GBP 1 million/USD 1.32 million).

• The most profitable collection was 300 bottles of 1981 Karuizawa Founders Cask 30-year-old from Japan’s Karuizawa Distillery, which delivered a 300% profit in the three years between purchase and disposal. 

According to leading whisky analyst and broker Rare Whisky 101, the UK whisky auction market has quintupled in the past five years from approximately GBP 14 million/USD 18.5 million in 2016 to over GBP 53 million/USD 70 million in 2020, and is on track to reach GBP 75 million/USD 99 million by year end 2021. Worldwide, the collectible whisky market is probably in the range of between $100 million and $150 million.

Recently I sat down with Rikesh Kishnani, Founder and Chief Executive Officer, to talk about his experience managing the Platinum Whisky Investment Fund.

JM: Has the Fund been completely liquidated now? Was its initial capital all provided up front or in installments? What was the internal rate of return over its life?

RK: The Fund raised $12 million and exited at over $26 million from 2014 to 2021 – the gross annual rate of return was 17%. It completed its exit as of September 30, 2021, and all dividends have been paid out to the investors.

The capital was raised on a rolling basis from 2014 to 2016 with the following drawdown structure – 50% of commitment amount at signing of subscription agreement, 25% of commitment amount 6 months after signing, and final 25% of commitment amount 12 months after signing. This allowed the Fund to plan the purchasing based on the capital coming in.

JM: What was the allocation between bottles and casks? Did the fund bottle any of its casks or were all of its holdings sold as purchased?

RK: Approximately 35% ($4 million-plus) was invested into 17 ultra-premium casks (multiple 30-year-old Macallan Sherry casks and several casks from the Diageo Casks of Distinction program such as a 1979 Talisker cask and a 1990 Rosebank cask).

The Fund did not bottle any of its own casks – they were all sold as casks and the new owners bottled the casks based on the different agreements for each cask.

The remaining $8 million was invested into approximately 12,000 bottles. Removing the top 50 single ultra-premium bottles, the average price of the bottle collection was kept under $500 per bottle. This made the Fund exit easier given the bottles were affordable to whisky collectors and consumers around the world.

JM: Overall how did the return on casks compare to the return on bottles?

RK: The Fund’s investment in casks averaged a 150% gross return, outperforming the return from the investment in bottles, which averaged 85% gross profit.

The market demand for casks has grown rapidly in the past few years. The advantage with casks is as they continue to age. The value generally goes up as it reaches milestone ages (18, 25, 30, etc.).

JM: What was the single best performing investment the fund made? What was the worst?

RK: The single best performing investment was bottle number 8, Macallan Adami 1926, 60-year-old. Originally purchased for approximately $200,000 in 2016, it was sold to a private collector for over $1 million only 3 years later.

The lowest performing whiskies were silent stills (bottles from closed distilleries) that were not famous brands. Rosebank, Port Ellen, and Brora all performed very well in part because of their cult following among whisky enthusiasts but especially after the news was announced that these distilleries are all being resurrected.

Bottles from other silent stills such as Glen Flagler, Littlemill, and Glenesk did not perform as well as the Fund expected. The downside of being incredibly rare bottles from distilleries no long in operation is that very few people had access to try them.

JM: How did you source your investments in casks? Was this done primarily through brokers and auctions or direct from the distillery?

RK: Primarily direct from Diageo through their Casks of Distinction program but the Macallan casks were sourced through whisky industry contacts. The Fund did not purchase any casks through auctions or brokers.

JM: What about the investment in bottles? Was this done via auction acquisitions, purchases directly from the producers or at retail/wholesale?

RK: All the bottles were purchased through private collectors across Europe – mostly in the UK and Italy, who had built very large collections over decades. The Fund team completed authenticity and quality checks on all purchases. No bottles were purchased through retail or auction.

JM: Most Scotch whiskies have not appreciated at a 17% annual rate. How did you decide on which whiskies to purchase?

RK: The acquisition strategy for the Fund focused on 5 key categories:

1)    Old and rare – bottles distilled before 1950

2)    Vintage/Limited edition – bottles from the 1970s, 80s, and 90s and single casks

3)    Silent stills – bottles from distilleries that were closed and no longer operating

4)    Value – bottles under USD 200 per bottle that represented great value potential

5)    Non-Scotch – Japanese whiskies mostly focused on bottles from the Karuizawa distillery

The exit strategy for the Fund concentrated on partnerships with large whisky merchants in Europe and private collectors in Greater China.

JM: Investment funds always make a point of advising their investors that “past performance is no indication of future performance.” Do you believe that collectible whiskies will continue to appreciate in value at the same rate they have over the last decade or are the best years of the whisky market behind it?

RK: There is a fundamental lack of supply of aged single malt Scotch whisky simply because not enough was laid down for long term aging in the 1990s and 2000s.

Through the last 2 years of the pandemic, we have seen strong growth in our online auction business Whisky Hammer, as more consumers around the world prefer purchasing and managing their whisky collection online.

Our Still Spirit e-commerce whisky platform can ship bottles to most countries around the world and saw a strong rise in demand particularly from Greater China and Southeast Asia where whisky is becoming a drink of choice for the young and affluent.

The imbalance between supply and demand suggests there is still strong opportunity for growth in the whisky market. The difference now is that investors, collectors, and consumers need to be more discerning with who they buy from.

Working with trusted merchants who have a proven track record will be critical to uncovering the best opportunities ahead in this lucrative alternative asset class.