Within the unregulated waters of whisky cask investment schemes, there be sharks. The sector has certainly had a bad press, and there has been lots of squabbling and finger-pointing, often by those with a vested interest. Tom Bruce-Gardyne lifts the lid on this murky world for City AM’s Whisky Business.
“Let me take you into the ruthless world of the multi-million-pound whisky scams,” declares intrepid reporter Samantha Poling.
“The sharks are circling. They know there’s blood. They can smell it,” adds whisky cask broker and independent bottler, Kenny Macdonald. “Unfortunately, in this particular case, the blood is whisky.”
It was a stirring start to her BBC exposé – ‘Hunting the Whisky Bandits’, first broadcast in March last year. The victims are real enough, having lost their life savings in casks of whisky that were eye-wateringly overpriced or never even existed. But the evil perpetrators are almost cartoon-like.
In a sting operation, we meet convicted fraudster Craig, think sharp-suited Apprentice contestant, only ten times worse, and his blonde sidekick, who apparently doubles as an eyebrow technician from Essex. Seeing them in the flesh, you wouldn’t buy a used paperclip, let alone a second-hand car, from either of them.
The outing of such pantomime villains has provoked a great deal of finger-pointing from other cask investment firms, and cries of ‘trust me, not them’, says Isabel Graham-Yooll of the independent rare spirits consultancy, Wisgy.
She sees it as a distraction from the core issue. “The real problem is people being sold things as an investment that has nowhere near the value they’re being charged,” she says.
As Kenny Macdonald points out, the 2019 Knight Frank Wealth Report sparked the gold rush in cask investments by quoting a very particular index compiled by Rare Whisky 101 of what were claimed to be the 100 ‘most desirable’ bottles of rare whisky.
Had you bought them 10 years earlier, you could have made a 580 per cent return. Then again, had you picked the winners in the last ten Grand Nationals, you would have made even more. The report’s editor, Andrew Shirley, later made clear the index “has absolutely nothing to do with cask whisky.”
And yet it was endlessly quoted by cask investment schemes, along with the fabled bank manager from Stoke who flipped his £2,000 cask of Macallan for £200,000.
These became, or should have become, red flags for would-be “investors”, although “gamblers” may be closer to the truth. Backing the cask that comes in at 100-1 is like hitting the jackpot at Vegas, and as Isabel says, “the casino always wins in the end.”
Has the cask whisky market improved?
But over a year and a half on from that BBC programme, how have things changed?
In May the company behind Cask 88 and Braeburn Whisky brands went into liquidation leaving “thousands of global customers uncertain of their asset ownership” said Griffins, the administrators.
A company was appointed to sort out the mess and work out the location and ownership of each cask. Its director, Alastair Valpy, who is also CEO of Volpe & Costello, which own three bonded whisky warehouses, believes it was principally an administrative issue. Bills hadn’t been paid to the original distillers, leading to a breakdown in relationships with them, which left the punters in the dark.
Not surprisingly, many are keen to exit the world of cask investment, and that’s the problem, especially now, when it is not a good time to sell your cask.
Alastair is keen to win back their trust by being more transparent, while building a separate business as an independent bottler that will give them a market for their whisky in years to come.
With an import license in Hong Kong, where he used to work in finance, and planned licenses in Thailand, Singapore and mainland China, he is very much focused on distribution.
Seeing the consolidation in the whisky cask market, he says: “It is reminiscent of changes in regulation in financial markets where bad actors that are unable to sustain their business practices and high profits are forced to exit, leaving customers behind who need to be looked after. The businesses that are positioned to do so and can turn their positions around will ultimately stand to benefit the most over a longer time horizon.”
Beware of the tax
Private cask ownership can be motivated by some big event like a wedding or the birth of a child. Or it can be the desire to support a new local distillery. “I think it’s a lovely, generous thing to do,” says Isabel. “And for your generosity you get a token cask and get to feel part of the journey.”
But don’t confuse it with an investment, and be aware the taxman is ready to hit every cask as it leaves the sanctuary of a bonded warehouse. If your hogshead yields 150 litres of pure alcohol after the Angels have taken their share, the duty alone is currently £6,000.
The whisky industry may disapprove of the private cask market, yet it has been quietly feeding the trade round the back of the distillery. New distillers have made some pretty outlandish claims about the future value of their spirit. I heard of an English whisky distillery saying its casks would be worth £50,000 in 10 years’ time.
In truth, with most casks, any valuation is a bit arbitrary. It is worth remembering that the vast majority of them are traded with no money changing hands. They are simply swapped from one distiller to another to create the recipes for their blends. The value lies not in the ingredients but in the brand.
That fact won’t change, regardless of whether the world of cask investments does clean up its act. And meanwhile, the problem of investors being able to leave the market with ease remains.
This is what sets WhiskyInvestDirect apart. It is essentially about investing in the future prosperity of the Scotch industry, and it acts as a platform to buy and sell maturing whisky in anything at or above wholesale volumes.
By contrast, no such platform exists with cask investment schemes where the often-unresolved issue is how do you exit, and cash in your asset.
Award-winning drinks columnist and author Tom Bruce-Gardyne began his career in the wine trade, managing exports for a major Sicilian producer. Now freelance for 20 years, Tom has been a weekly columnist for The Herald and his books include The Scotch Whisky Book and most recently Scotch Whisky Treasures. This content has been produced in collaboration with WhiskyInvestDirect, the Scotch whisky trading platform for distillers, independent bottlers, and private investors.