Earlier this month, we published an article, highlighting guidance for prospective cask collectors, published by the Scottish Whisky Association. We received a lot of positive engagements and praise from our followers, for helping bring more transparency to the cask investment market. In this follow-up article, prospective clients put their questions to Zach Sekha, one of UKV International's top whisky brokers...
I hear a great deal of specialist knowledge is required to choose the ‘right’ casks for investing. How will I know the whisky I'm investing in is any good?
In many respects, cask whisky is no different to any other commodity, where values can rise and fall in line with supply and demand. However, where whisky does differ from other commodities, is in the selection of casks that are most likely to deliver returns that outperform the market.
This is where whisky brokers come in. Choosing the right broker is the key to unlocking maximum returns, whilst minimising your exposure to the risks of the market.
UKV International has been helping collectors like yourself for over a decade. All of our brokers have at least five years industry experience, and a track record of success to go with it. Your dedicated broker will guide you through the selection process, so you can be confident in the cask(s) you’re investing in.
In addition, your investment is intrinsically linked to our brokers’ performance and compensation structure. Your broker will receive 10% of the profit when they realise your investment; therefore, the more capital they make you, the more they make themselves.
A lot of companies like yours have popped up over the past several years, offering different investment methods: everything from cask-share schemes to specialist whisky investment funds... and even crypto currency tied to maturing whisky stock – all promising good returns. What kind of investment are UKV offering and what are the risks?
The reason so many companies and schemes have popped up is because of the success of the market. However, you are right to be cautious. Not all brokers are equal. And neither are the investments they’re promoting.
Cask share schemes, for example, can be lucrative. They may also seem like a sensible way to reduce your risk / exposure. This however, is an illusion. The drawback of such schemes is that, if anything happens to the investment company, or the cask you’ve invested in, major complications can arise.
Investing in the full asset (i.e the whole cask) puts you in control of their investment, and removes the complications associated with more complex schemes. And at UKV, this is exactly the type of investment we offer.
As far as the risks are concerned, we categorically do not guarantee a return on your investment. Like all investments, cask whisky comes with its own risks. If we consider average market returns over the past decade, collectors have typically seen returns in the range of 5-10% per annum. However, due to the success and expertise of our brokers, UKV clients typically enjoy even better returns, usually in the range of 10-15% per annum.
Cask whisky investment is not regulated by the Financial Conduct Authority. Does this mean my investment is unprotected from fraud and other illicit practices?
Cask investments are not regulated or protected by the FCA, but there are many investments that aren’t, property being just one example. The FCA only regulates financial instruments such as CFD’s, Bonds, Equities etc.
However, your investment is in safe hands with UKV. Your capital is protected by an FCA registered solicitor until you receive your asset held under the HMRC provision and your certificates notarised by all the parties involved.
The term for this level of protection is commonly called ‘escrow’ and is the same protocol used when purchasing a property. UKV pays for the services of this solicitors, in order to protect ourselves as well as our collectors.
I read online that one of the most common issues is overvaluation, with casks often being sold at 2-4 times their market value. How do I know I am paying a fair market price for my cask?
It’s a valid concern and there have undoubtedly been instances of rogue firms taking advantage of naive investors, who don’t understand the market.
However, our structure and operating model ensures this cannot happen. In fact, it would make no sense for us to sell casks above their current market value. As highlighted in our response to Andrew’s question, the performance of our clients’ investments (over time) is intrinsically linked to our brokers’ performance and compensation structure.
As one of the market leaders, with significant capital at our disposal and long-standing relationships in the trade, we are able leverage our scale to acquire whiskies early and at great value, which is how we are able to achieve such lucrative returns.