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Pension reform sends Bordeaux prices skyward

Published:  23 July, 2008

Prices of blue-chip Bordeaux have risen by up to 20% in
the last three weeks, on the back of fevered buying from
UK merchants hoping to take advantage of changes to pensions rules effective next April - even though the full details of the new rules are yet to be announced. The changes to the law should mean that fine wine' can be included in Self Invested Personal Pensions (SIPPs) and would therefore be eligible for tax relief.

The most aggressive of the UK merchants in selling wine-investment SIPPs has been Berry Bros & Rudd (BBR), which has already stated it is firmly established as the authority on SIPPs wine investment' and sent a circular to its customers urging them to get involved.

Simon Staples, fine wine director at BBR, said he fully expects the quantities of blue-chip wines of the world - particularly from Bordeaux and Burgundy - to become much more scarce in a very short period of time'.

Last week, I sold 2,000 cases of wine at more than 2,000 a case, which is unprecedented for us. I think the first growths for the good vintages will become very scarce very soon. I can see the 1982s moving over 7,500 rather quickly, for example.'

Edouard Labruyere, a courtier at Bureau Laurent Quancard in Bordeaux, said: The last two weeks have been some of the busiest in my life. Ngociants have been asking me to find them stock at whatever price I can. We're not really sure what these pension changes are over here, but I've seen a dramatic increase in sales. Last week, I sold 2,000 cases of 2000 Loville-Las-Cases and 250 cases of 1996 Lafite, for example - at high prices as well. I've seen interest in all the first growths, the super-seconds and some of the top Right Bank estates.

The only one that isn't selling seems to be Le Pin, which has gone out of fashion. Most of the interest is centred around wines from 1990, 1996, 1998 and 2000.'

Stephen Browett, buying director at Farr Vintners, said he'd seen a definite trend in recent weeks towards investment-grade Bordeaux' but that this was not due to consumers or their pension fund buying the wines, but to merchants stocking up in readiness for the perceived demand next year.

Sebastien Rowe, a director at Bordeaux Index, said that the company had its second-busiest month in four years in September. I think the SIPPs changes are having an impact, but I also think people are also buying for non-SIPPs investments, and there has been a general shortage in stocks of top Bordeaux in the UK. We're still waiting to see what the full details of the SIPPs are. We don't want to promise things that we won't be able to deliver.'

Alan Mayne, chairman of Magnum Fine Wines, which specialises in wine investments, said he was worried that the changes in SIPP rules may lead to a spate of mis-selling and disreputable companies ripping off private customers by selling wine they simply don't have.

We haven't been shouting about this yet because the final details are not clear. There are a number of aspects of the new rules that we would want to see before we are confident about

it. We are, however, in talks with a number of pension funds at the moment.

My advice to would-be investors is to be extremely wary, at this stage, of any company trying to sell the investment portfolios for the purpose of benefiting from the changes

to SIPPs.'

Staples, however, said: I've talked to two major pension providers in the last week, and I think we've ironed out any problems that may arise. I was concerned about one or two things that I'm much more confident about now.' He added that it looks like the wine will definitely have to be held in a bonded warehouse.

Anthony Maxwell, a broker at Liv-ex, is less sure that the recent activity is solely down to SIPPs. We've seen a lot of activity and I would say that SIPPs has definitely had an impact,' he said. But I also understand that demand is strong in the Far East and the United States. You have to remember that not a lot of people spent a great deal on 2004 Bordeaux, so some merchants and their clients are looking at other things. I do think, however, that merchants are stocking up to some extent and waiting to see what happens next year.'

It does appear, however, that, once entered into a SIPP, the wine will not be allowed to be released at the will of the investor. It will be the fund manager's duty to maximise the return on the wine, which means selling to whomever and whenever they see fit. As Jancis Robinson MW points out on her website: There is no prospect of liquidising a pension fund in the most obviously appealing way.'

Staples said, however, that it will simply be a case of buying the wine back from the fund.

It will be a three-way thing between the fund, the customer and us. If the returns aren't great, they can tell their fund manager to liquidate it, who will phone us and we will tell them the current market price for the wine. I don't think it will be a problem.'

So far it is unclear if demand will be centred around the very top estates or also move down to the lower Mdoc crus classs and the better estates in Pessac-Lognan. As for less heralded vintages, such as 2002 and 2004, Rowe said: I don't see there being a big increase in demand for those years, although in time we may see interest filter down as other wines get more scarce.'

With the new rules in operation from 6 April 2006 (A' Day), just when the 2005 en primeur campaign will be in full swing, it will be of particular interest to see if SIPPs investors have an effect on en primeur pricing.

With 2005 looking like being an excellent vintage and US consumers expected to return following a quiet 2004, prices could jump, even above those seen in 2003. Sadly, I think that is pretty likely,' said Staples.