Cult Wines Investment Guide

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Wine Investment Gui de


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ContentsIntroduction & Cult Wines Ltd

Director ProfilesTom GearingPhilip Gearing

The MarketOverviewMarket SizeWine Market Performance

Emerging Markets Influence

Our Investment Grade CriteriaRobert Parker JrVintageBranding & Marketing

Our Investment Objective & Policy

Why Invest in Fine Wine?Additional Motives for Investing in Fine WineSWAGTax Effi cient Investing

Why Invest with Cult Wines?What do we Offer?How to Begin?How Does the Investment Work?

Tastings & Events

Press Appearances & Contributions

Contact Details

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Page 4

Page 5-8

Page 10-11

Page 12

Page 13-14

Page 15-16

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Cult Wines Ltd Introduction

www.wineinvestment.com +44 (0)20 8332 9386Page 3

Introduction & Cult Wines Ltd

Cult Wines Ltd

As one of the UKs largest fine wine investmentcompanies and over 15 years experience in fine wine,we are well positioned to bring you all the necessaryexpertise to help private clients access the benefits ofan investment in this market.

We are a family run company with an open andtransparent focus on which we have built an unrivalledreputation, working with a wide range of investors

across the globe.

The team here at Cult Wines are investment specialistscombining our fine wine and financial marketsexpertise to create highly responsive portfolios. Ourstrength lies in our stock selection and routes tomarket, but we also boast one of the most dynamicand innovative analysis and research teams, regularlyproviding clients with key market data.

Our team of specialists are dedicated to generatingreturns and delivering value and our service is widelyacknowledged as the most competitive available inthe UK. Our team will provide the expertise, the toolsand the information for clients to build a profitableportfolio thats right for their investment objectives.

At Cult Wines we also recognise the value in providingquality support services and our dedicated personnelacross accounting, logistics & administration willensure that your asset management requirements aremet at every level.

We trust that you will find this guide to be both aninformative and essential tool in your introductionand evaluation of the fine wine market and we lookforward to working with you in the near future.

Introduction

Investable fine wine constitutes less than 1% of allfine wine that is produced, predominantly focused onthe prodigious estates of Bordeaux. With an extendedperiod of compound annual growth rates in theregion of 10-20% fine wine displays an imposing trackrecord.

Whilst, investing in fine wine is not a new phenomenon,both market liquidity and price transparency have

developed to a point whereby investors at all levelscan now profit from this market.

An investment in fine wine has long been synonymouswith low risk and stable returns due entirely to theassets unique characteristics:

Finite supply - ever decreasing through consumption Perfectly inverse supply curve Tangible asset Veblen good

With the emergence of new markets in Asia increasingglobal demand the delicate balance of managingsupply and demand has never been more acute,probably in the entire history of the fine wine market.

The market for fine wine has increased steadily overthe last 5 years and this has been exacerbated by theemergence of China as a world superpower alongsidecontinuing demand for fine wine in the BRIC nations.

The competition for the worlds greatest wines

is increasing exponentially, increasing marketconfidence that we will see continued growth overthe short, medium and long term.

Phil Gearing Director of Cult Wines Tom Gearing Director of Cult Wines


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Cult Wines Ltd Director Profiles


Cult Wines Ltd Director Profiles

and finished runner-up in Season 8 of the BBCs TheApprentice after battling against 15 other candidatesover 12 gruelling weeks for the opportunity to win a250,000 investment from Lord Alan Sugar. Toms firmbelief in fine wine as an asset class, saw him pitch afine wine investment fund idea to Lord Sugar and hisadvisors which was described by Mike Soutar as one of

the best business plans Ive ever read.

Philip Gearing - Director

Philip combines financial markets experience with finewine expertise to provide a unique mix of skills ideally

positioned for the investment services offered by CultWines.

Philip spent over 20 years in Investment Bankingwith some of the market leaders including GoldmanSachs, Swiss Bank Corporation & Tokyo-Mitsubishiand therefore has both the technical & business skillsrequired to develop the range of investment optionsthat Cult Wines offers to its clients.

Philip has also spent many years in the fine winemarket launching a specialist Burgundy merchants inthe mid-90s and was founding partner of FinancialWines in 2001 which led the way in offering on-line

price transparency services to the International finewine community.

Tom Gearing - Director

Tom entered the wine industry as director of Cult Winesafter graduating from the University of Nottingham,having read History. Tom had gained experiencepreviously working with his father and fellow directorPhilip in the 1990s for Burgundy Cellar, in the early2000s for financialwines.com and working with hisbrother part time whilst studying at university.

Tom developed a keen interest in wine throughout his

formative years, whilst accompanying Philip on manytrips to the Cote dOr.

Tom showed he had an eye for wine from an earlyage, and once even upstaged the esteemed wineprofessionals at Christies at the age of 13 when hespotted that a 1959 12 bottle case of Domaine de la

Romane-Conti, Romane-Conti had actually beenreconditioned and not sold in the condition as stated

at sale. (Interestingly that case purchased for 16,000 in2000 is now worth 150,000!).

Tom is passionate about fine wine from both aninvestment point of view and aesthetically, and hasformalised this passion for fine wine by obtainingthe WSET Level 2 qualification with distinction and iscontinuing to study up to Diploma level.

Tom has continued to pursue his entrepreneurial flair


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Cult Wines Ltd The Market


The Market: Overview

buyers of Bordeaux Grand Cru classs, but in recenttimes the Asian market in particular Hong Kong and

mainland China has established itself as a major hub

for Fine Wine.

This influx of demand has put added pressure on an

asset which is finite in its supply. Unlike any other

tangible asset, Fine Wine has a perfectly inverse supply

curve. No matter how good the vintage, once bottled,

the number of bottles diminish through consumption,

and cannot be replaced.

It is also considered a veblen good - a commodity for

which peoples preference for buying increases as a

direct function of their price, as greater price confers

greater status, instead of decreasing according to the

law of demand.

Although investing in fine wine as a viable asset classseems a relatively new phenomenon, savvy collectors

and fine wine enthusiasts have been doing it for many

years.

By purchasing more cases than they wish to consume

the future sale of the excess cases would fund further

purchases. As people have become more aware

that these increases in value can be measured and

are consistent - participating in wine investment has

become more popular.

Over the last 25 years there is no doubt that wine has

been a sound investment, with prices for the best

wines rising around 15% per annum.

Traditionally the US and Europe have been the largest

the ultimate in liquid investmentsBloomberg Apr 13 2010


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The Market: Size & Performance

In terms of investment classes, fine wine is still

considered both niche and small, as the market size is

estimated at between $5 billion per annum (estimated

figure courtesy of Liv-ex). However, of all the alternative

investment classes fine wine is considered to have the

most viable, widely accepted and mature market.

Market Size

The top Chateaux of Bordeaux contribute about 2bn to

the market each year. Global annual sales of investment

grade Bordeaux wines on the secondary markets is

approximately 1.5bn. The stock of investment grade

wines held by merchants and individuals is estimated

at 6bn to 8bn globally and 1.5bn to 2bn is stored

in the UK.

the investment demand for this asset class, add the

continuing growth in consumption and the market

has the perfect dynamics to offer real investment value

over a sustained period.

A proven track record:

Between 1950-1985 the Vintage Claret Index

demonstrated an average annual compound

return of 15.2%

The 1983-2002 Fine Wine Index showed average

annual compound growth of 12.3%

Between 2003-2007 the Liv-ex 100 average annual

compound growth rate was 15.3%

Between 2007-2012 the Liv-ex 100 has returned

65%, despite experiencing two economicdownturns in that period.

Wine Market Performance

Fine Wine has outperformed almost every major

financial index over the past two decades. During the

last twenty years there have been periods whereby the

market has returned upwards of 20%, most notably

2009 & 2010. Looking at a typical market cycle of 5

years, returns of around 15% per annum are a more

accurate reflection of performance.

Fine Wine has also been proven to be a well-established asset class in times of financial turmoil,providing a safe haven for investors. As the searchfor asset diversification, capital growth and aninflation hedge grows, it is clear that interest inthis market both from individual and institutionalinvestors is rising fast.

The establishment of Wine Investment Funds inthe UK, China & most recently France highlights

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5 Year Index

Performance

Comparison:

*Cult Wines Index: Tracks a basketof 10 wines representative of ourstock exposure.

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China is now the worlds 5th largest wine consumer. It

has overtaken the UK and Germany as the largest wine

importer last summer, and Hong Kong has surpassed

New York as the worlds biggest wine-auction market.

It is now the place to auction fine wine, and this

dominance has seen both Ch. Lafite-Rothschild and

Ch. Latour hold private cellar auctions in Hong Kong.

The level of global interest in wine investment is

continuing to rise according to new figures released by

Vinexpo, which show a 25 per cent increase in visitor

numbers to its recent Asia-Pacific event.

The traditional markets of Europe and North America

underpin the marketplace but it is the emerging

markets that keep it buoyant.

With the continuing economic development of the

BRIC countries is it only natural that we are witnessing

a new influx of consumers for luxury goods such as fine

wine.

Take India: It has emerged as one of the fastest

growing markets for wine yet for the countrys cast

population of 1.1billion; consumption remains

extremely low, indicating huge growth potential. We

are already starting to see signs of various factors such

as government policies, increasing disposable incomeand the influence of western culture driving Indian

demand for fine wine.

The Far East, most notably Hong Kong and China have

had an enormous impact, it is clear that the regions

buyers are the driving force behind the positive

trajectory of Bordeaux Fine Wine in the last few years.

Hong Kong has led the way for the Far East and in 2008

they abolished import duty and taxes on Fine Wine,

becoming the first tax free wine port amongst the

major economies.

As a result wine imports rose by 88% in the immediate

wake of the duty abolition and it is estimated that as

wine sales fall in Europe they will double in Asia to

US$17 billion by the end of 2012 and US$27 billion by

2017.

This will be driven largely by mainland China where

economic growth, rising income and lifestyle changes

have led to a 360% increase in wine imports since 2005.

As a result the Asian Fine Wine Market is expected to

be worth $870million within the next 10 years.

Mainland buyers are pricing out consumers from

Japan, Taiwan and in some cases Hong Kong in their

quest for top quality Bordeaux Chateaux. This has led

to a staggering appreciation of prices for First Growth

since 2009.

Coupled alongside Chinas economic growth, which has

seen its economy becomes the worlds second largest,

The Market: Emerging Markets Influence


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Union des Grands Crus de Bordeauxs recent tastings in

Delhi and Mumbai earlier this month were as much an

investment in the future as the present.

Brazil is another new area of interest with recent strong

economic growth with the number of wine drinkers

between the ages of 25-30 expected to increase year

on year.

The fine wine market is very much in its infancy in the

emerging markets but what is clear is that these new

regions are putting a heavy strain on static supply,

giving confidence to the investment market that

further periods of sustained growth can be expected.

Continued...

India Wine Industry Forecast expects consumption

of wine to increase by 25-30% annually. This was

underlined at the 2010 En Primeur tastings where,

for the first time, fine wine representatives from India

attended.

Whilst many would point to the strict religious beliefs

which underpin Indian society as a potential obstacleto growth. Fine wine isnt considered hard liquor and

is in fact treated in a similar way to soft drinks. It is the

status and rich history behind each Chateau that will

appeal to the newly expanding middle-upper classes.

The barrier for India appears to be the high Import

Tax for fine wine, an obstacle that is already under

the microscope, with the European Union currently

negotiating to reduce the 150% import as part of a

Free Trade Agreement, but this is unlikely to happen

during 2013.

The Market: Emerging Markets Influence

Key notes from Asia-Pacific Wealth Report by Cap Gemini & Merill Lynch

Asia-Pacific HNWIs appetite for investments of passion increased in 2010, portfoliodiversification has emerged as a strong driver of such demand by HNWIs in Asia-Pacific.

Asia-Pacific HNWIs continued to favour Luxury Collectibles as a hedge against inflation andcurrency risk, as well as for aesthetic and cultural appeal.

HNWIs from China, India, Singapore, and Hong Kong were especially active in the investmentsof passion space in 2010.

*HNWI=High Net Worth Individual

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You dont have to be an expert to profit

from wine. Just invest with one.

Simply call one of our portfolio managers today to see what we can do for you.


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Cult Wines Ltd Our Investment Grade Criteria


Our Investment Grade Criteria

Robert Parker Jr

Robert Parker is the preeminent wine critic and has

been predicting and influencing wine market trends

for over 25 years. He has helped define the modern

wine market and his ratings are probably the most

significant contributing factors in setting the prices

for newly released wines. His 100-point scoring model

and uniquely styled tasting notes in his publication The

Wine Advocate are without doubt the most widely used

by firms and collectors worldwide. The price surge forthe 2009 vintage is the most recent example of Parkers

influence on the market. The U.S. wine critic awarded

18 Chateaux the perfect 100pts score, prompting an

increase in price of 50-100% for certain wines.

Grade Criteria

Our stock selections are the result of very detailed and

lengthy analysis undertaken by our in-house team of

analysts, allowing us to provide our clients with the

most comprehensive range of recommendations in

the market.

These selections are based around a range of specific

characteristics, such as branding and marketability,

Chateaux ownership, Robert Parker Junior (RPJ) score,vintage quality and value.

Branding & Marketing

Branding is a key driver for buyers of fine wine

particularly in the emerging markets such as Far East

and India. Brand is commonly associated with heritage,

ownership and exclusivity but can also be attributed to

cultural subtexts. For example, Lynch Bages is famous

in Chinese society (especially in Hong Kong), as in

Chinese, it is called (Lan Chi Pat), a famous

19th Century Opera singer. As a result it has a popular

and loyal following.

Further wines such as Beychevelle have have developed

cult status simply because the label features a Chinese

dragon boat again considered lucky.

Chateaux ownership also plays a large role in

developing the brand and penetrating new markets.

LVMH the worlds largest luxury conglomerate owns

two Bordeaux estates, Cheval Blanc & dYquem and The

Pinnaults family company PPR owns the First Growth

Bordeaux estate Ch. Latour, alongside a collection ofassets that range from Gucci to Christies auction house.

Vintage

Vintage quality is very dependent on climatefactors, making each vintage unique, separatingthe average from the good and the good from thegreat. The exceptional vintages have an elevatedstatus and greater demand which commands apremium in price. Other vintages may reach theirdrinking windows earlier than others, affectingconsumption patterns.

With outstanding vintages such as the lauded1961 and 1982, and more recently 2005, 2009 and2010, global demand for these wines amongstconsumers, collectors and investors is rising fast,which can lead to sustained price development.Nevertheless, weaker vintages (off-prime), withsubstantially lower release prices, can also deliverstrong investment potential and each vintageis assessed on its own merit alongside othercontributing factors.


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Cult Wines Ltd Investment Objective & Policy


The investment objective is to generate high capital appreciation across short, medium and long term strategies

through investment in both physical and en primeur wines from Bordeaux and other selected regions.

Portfolios are created for each individual client based on risk and term strategy.

Each portfolio targets a return in excess of 15% per annum over a recommended investment term of 5 years.

Portfolios do not have a fixed term and clients can liquidate all or any part of their portfolio at any stage, typically

when advised by their Portfolio Manager. This is free of any early termination or cancellation charges.

We apply an active approach to portfolio management and will seek to achieve maximum performance for

clients through detailed analysis and specific market factors as determined by our analysts. Portfolio Managers

keep clients up to date with the performance of their stocks and will approach clients on an individual basis,

making personalised recommendations to enhance their portfolio.

Outperforming the Market: Through our stock selection strategy, intuitive reactions to specific market conditions

and a well-planned exit strategy, we are able to outperform the key market indices.

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Investment Objective & Policy


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Cult Wines Ltd Why Invest in Fine Wine?


Why Invest in Fine Wine?

SWAG

SWAG, which is short for silver, wine, art and gold, is

the term coined by Joe Roseman, a former hedge fund

manager, in his book Swag: Alternative Investments

for the Coming Decade. SWAG assets tend to have

the ability to last and perform well and they provide

portfolio protection in a way that traditional financial

assets do not.

Equities can go bust and bonds can default, but a

bottle of Lafite will always be a bottle of Lafite. Many

financial analysts struggle to value assets like SWAG

because it does not have an income stream. However,

the financial pages are littered with examples of

equities with income streams that analysts have badly

misjudged as income streams dont really help analysts

see those bombshells coming.

Ideally, the addition of a new asset causes the overall

return of the portfolio to rise or stay the same but at the

same time reduces the volatility. Historically, fine wine

has managed to do that as academic research shows

that fine wine has a low correlation with traditional

financial assets. In his point of view, there are two key

drivers for wine prices. Firstly, the very best wines are

highly restricted in supply and therefore the supply

curve for these wines is almost perfectly inelastic.

Secondly, demand is rising constantly and this willcontinue to be a key factor. He believes wine is an asset

that needs to be held for the medium term and as a

part of a well-constructed portfolio.

Motives for investing in Fine Wine

Tangible Asset - Wine is a real asset, which unlike a

share or a bond, has an intrinsic value. As an investor

you will be the owner of the wines.

Inflation Hedge - The price of fine wine tends to

increase with inflation. This makes investing in fine

wine a good way to preserve wealth in times of rapidly

rising inflation.

Flexibility - While we encourage investors to set a

3-5 year horizon for their portfolios, wine investment

can be liquidated or extended, according to individual

requirements.

Developing Asset - Fine wine quality improves with

age and whilst it is not an income producing product,

it is a tool for capital appreciation.

Finite Product - Fine Wine appellations are not

extendible as strict laws govern the production of

the majority of investment-grade wines. The historic

classifications remain very much unchanged.

Diversification - Classed as an alternative investment,

Fine Wine is considered a vital component of any

diverse portfolio.

Passion or Interest in Wine - Fine Wine is a fascinating

subject matter and investment in the market

allows those to combine their interest with capital

appreciation.

Investing in fine wine is a good way to preserve

wealth in times of rapidly rising inflation


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Cult Wines Ltd Why Invest in Fine Wine?


Why Invest in Fine Wine?

Tax Effi cient Investing

Fine Wine is a tax effi cient investment and has advantages for UK domiciled investors.

Investors are not liable to pay Capital-Gains Tax (CGT) on any profits from wine investments with a total value not

exceeding 250,000. Wine is exempt from CGT because it is regarded by the HMRC as a wasting asset with a

predicted lifespan of less than 50 years.

An Investment in fine wine can have substantial tax benefits and we suggest that you consult with your tax advisor

for how best to include this asset in your investment portfolio.


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Cult Wines Ltd Why invest with Cult Wines?


Why Invest with Cult Wines?

What do we Offer?

Managed portfolio covering stock selection, storage and liquidation.

Stringent stock selection process

Tailored and flexible portfolio service

Availability to wide ranging stock

Access to key market information through:

weekly bulletins, quarterly portfolio valuations, buy and sell recommendations

The Cult Wines Team in Bordeaux for the En Primeur Tastings Apr 2012


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Cult Wines Ltd Why invest with Cult Wines?


Why Invest with Cult Wines?

How does the investment work?We quote you the price of the stock plus our 15%

management fee which includes portfolio updates,

shipping, handling, all administration costs, storage

and insurance and the guaranteed sale of your wine at

0% brokerage fee.

You can sell your wines at any stage regardless of the

proposed term of the portfolio; we do not levy any

early redemption charges at any stage.

When selling, liquidation of stocks can take 4-6 weeks

and this will be based upon an agreed exit strategy

with your portfolio manager.

Cult Wines do not charge any selling commission.

We will provide you with regular updates on the

market throughout your investment term includingnewsletters, weekly bulletins and market reports. You

will also receive quarterly valuations of your portfolio.

We will monitor your portfolio throughout the

investment term and will advise when to sell. We take

an active role in all client portfolios and this allows us

to maximise returns.

Your wine will be stored under your name intemperature controlled conditions at a Government

bonded warehouse. Ownership is confirmed by

documentation from us, certification and access to the

bonded warehouse records.

How to Begin?1. Decide on how much you would like to invest.

There is no minimum investment level but we have a

recommended minimum level of GBP 5,000 in order

to build a diverse portfolio and access stock with the

strongest growth potential.

2. Decide on your investment term.

Investors are urged to set a 3-5 year horizon for their

portfolios to enjoy the typical market cycle.

3. Liaise with a Portfolio Manager.

We advise all investors to contact a Portfolio Manager in

order to build a portfolio that is right for them. The aim

is to construct a portfolio drawing on your objectives

and our tailored analysis.

4. Selecting the Wines.

After consultation with a Portfolio Manager, you

will receive a recommendation based around

your investment level, term and risk profile with all

supporting analysis for each selected wine.

5. Contact our Offi ce Line

Call Cult Wines on +44 (0)20 8332 9386. We are at

hand to answer any questions you may have and to

make your investment as simple and as straightforward

as possible.

Cult Wines do not levy any early redemption charges

at any stage or charge any selling commission.


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Cult Wines Ltd Tastings & Events


Cult Wines Tastings & Events

Events & Tastings

As a client of Cult Wines and as part ofour portfolio management services,you will be invited to exclusive eventsand tastings which will be held at ourRichmond offi ces.

We are investment experts but alsopassionate about fine wines and want toshare both the enjoyment of the worlds

finest wines with our clients as well as thefinancial reward.

Wine Tasting Room

We recently finished having a bespoketasting room built at our offi ce andthis will allow us to hold regular eventsthroughout the year as well as always

having our door open to clients to visitand share a glass of wine with us.

Over the course of each year there will bea number of different events and tastingscovering the broad spectrum of finewine.

Enjoy Wine

From New World Pinots, Barolos andTuscans, Burgundy and the mostprestigious Bordeaux estates we hope tointroduce wine enthusiasts of all levels tothe worlds premier wine producers.

Furthermore we are happy to arrangeprivate tastings for friends, small groupsor corporate events.

Feel free to contact a member of ourteam to arrange a tasting or simply torequest further information.


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Cult Wines Ltd Press Appearances & Contribitions


Press Appearances & Contributions

Cult Wines Ltd has a strong media profile, regularly appearing and contributing to the media on the subject of thewine market.

This has seen Cult Wines and its principals featured in the following publications and media channels dating back

to 2001.

Philip Gearing featuring on Canadian Financial News Channel - BNN Tom Gearing, Director of Cult Wines speaking to Thomson Reuters

Above: An interview with Tom Gearing featured in Britains best-selling financial magazine - MoneyWeek

Right: Director Philip Gearing has been involved in the market since 2001 Financial Times


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Cult Wines UK Offi ce

St Andrews House, Upper Ham Road, Richmond, TW10 5LA

Tel: +44 (0)20 8332 9386 Email: [email protected]

Cult Wines Hong Kong Offi ce

15/F, 100 QRC Queens Road, Central Hong KongTel: +852 2824 8323 Email: [email protected]

Visit our website at: www.wineinvestment.com

Company Registration No. 6350591

Documents

Cult Wines Investment Guide