- Fine art and wine investing has long been the domain of the wealthiest of clients.
- New startups are tapping into an increased demand from a broader audience for alternative assets.
- “People are looking for ways to generate returns in more esoteric places,” said one wealth advisor.
A new generation of upstart 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 roughly $41 million), art and wine markets represent billions of dollars. But despite existing as an asset class long before shares on the first stock market began trading, owning them has long been the province of only the wealthy.
Now, these alternative assets are seeing renewed interest during the pandemic as retail investors search for both higher yields with interest rates at rock-bottom levels and excitement in their portfolios.
And while crypto has provided plenty of excitement for retail traders, the startups leading this push are positioning art and wine as a more grounded and tangible alternative — even as detractors (from existing collectors to members of the gallery world) remain wary.
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 wine and fine spirits investment platform in October, hinting at signs of even wider acceptance.
“There is a very common theme among investors right now where people are saying, ‘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 generate returns in more esoteric places,” he added.
Fintechs offer partial ownership in art and wine
The key to many of startups looking to expand access to fine art and wine is fractional ownership. A classic painting or wine of a particular vintage is out-of-reach for all but the wealthiest investors; a theoretical slice of one is more attainable.
By doling out shares in alternative assets to a broader set of customers, startups are hoping to tap into a client base that has shown in 2021 its willingness to invest in relatively niche items, like NFTs. By opening up the market, startups say they’ll bring liquidity, price transparency, and accessibility to art and wine.
“We definitely see the alternative space in general being a couple decades behind, but we can see the path for it to be more liquid, for it to be more transparent, for it to be more accessible and easy to get into for the everyday retail investor,” Anthony Zhang, the CEO of Vinovest, told Insider.
Not all startups have gone the fractional route.
Cult Wines allows customers to have direct ownership of wines chosen for their portfolio by the service. Atul Tiwari, Cult Wine’s CEO of North America, estimated the total value of the wine market globally at around $450 billion.
Tiwari said that roughly 1% of the market’s total supply, or $4.5 billion, is fit for investment through services like Cult Wines.
While there’s no exact definition of what constitutes investment grade wine, the demarcation is generally obvious, Tiwari said. It’s a tough sell to “invest” in the boxed Franzia at your local grocery store.
“The very interesting thing about wine as an asset class is that the supply and demand mechanism almost works to perfection. Over time, as that wine gets consumed, the client demand mechanism means that as long as the demand is there and it’s growing, prices are going to appreciate,” Tiwari told Insider.
The market for fine art operates in a similar way, with fixed supply and (potentially) higher demand leading to rising prices.
But there is some nuance, according to Michael Weisz, the president of Yieldstreet, an alternative asset investing service.
Opening up “participation in the market” will lead to rising art prices, Weisz told Insider. But he also thinks Yieldstreet will be able to showcase a new generation of artists that wouldn’t have received recognition from traditional galleries and auction houses, growing the size of the art market as a whole.
As for the returns, investment-grade wine was the best performing luxury asset from June 2020 to June 2021, returning 13%, according to estate agency Knight Frank. While that’s a far cry from bitcoin’s gain over the same period (285%) or the S&P 500 (38%), wine is nonetheless a viable source of alternative returns.
Returns in the art market can be harder to pin down. But a report by Citi’s private bank in 2020 pegged gains in the art market in the first seven months of last year at 5.5%. As with wine, art offers returns that can be largely uncorrelated with the broader markets.
And while the minimum investment required by startups varies, they’re far less than the usual wealth needed to participate in collecting.
Cult Wines and Yieldstreet cater more to those who might be accredited investors; the wine service requires a $10,000 minimum investment, as does Yieldstreet for its art funds. Others take a different approach: Vinovest’s minimum investment, for example, is $1,000.
Who stands to win (and lose)
To be sure, legacy market players likely stand to lose when asset classes become more competitive and open up to retail investors.
“Whenever a company’s doing something drastically different, especially in classic wine or art, one of these luxury asset classes, there is going to be resistance. We’ve seen actually most of the resistance and skepticism come from existing wine collectors,” Vinovest’s Zhang said.
“The collectors are like, ‘Oh, there’s so many new people coming in, it will be harder for me to get my allocation,'” he added.
But Zhang added that vineyards have welcomed the growth of fintechs with open arms.
“For the winery, they’re viewing us as a channel for them to reach a new generation of the future wealthy. The average age of a wine collector is well into the fifties. They know that over the next decade or so, they need to be able to find that next generation and we’re helping them reach those people today,” Zhang said.
Some artists and galleries might be less welcoming to the influx of new buyers, according to one industry expert.
“Galleries are not selling Henry Miller paintings to a fund. It’s not great for the artist. Their job is to represent the best interests of the artist,” Candace Worth, an art consultant who previously worked for Christies, told Insider.
“What artist wants their work to be in some investment fund? They want a serious private collector. A serious institutional collection, a foundation, a museum. Where their work ends up is paramount,” she added.