Investors in the Nobles Crus wine investment fund suffered a nasty shock at the beginning of June when they received a letter from the fund’s general partners – Miriam Wilson and Michel Tamisier of Elite Partners. The letter of the 31st May explained that on Monday 27th May 2013 the CSSF (Commission de Surveillance du Secteur Financier), Luxembourg’s financial authority had temporarily suspended the fund for paying out any redemptions or accepting any new funds from 27th May 2013 due to liquidity problems. Nobles Crus has been unable to meet its investors’ redemption demands.
The timing of the letters suggests that it was the CSSF who stepped in to protect investors rather than Elite Partners informing the CSSF that they had liquidity problems.
Wilson and Tamisier have blamed their liquidity problems on changes in European financial legislation requiring UCITS (unit trust funds) to stop investing in specialist funds like Nobles Crus and redeem any such investments before 31st December 2013. This is based on an interpretation (Article 50 (2)(a) of Directive 2009/65/EC) issued by ESMA on 20th November 2012. ESMA confirmed on Friday that UCITS will no longer be allowed to invest in specialist alternative investment funds.
From early 2011 through to the end of October 2012 the Nobles Crus wine fund saw a rapid increase in the capital under its control. It rose from €33.9 m at end of February 2011 to €67.2 m at the end of the year and then to €119.5 m by the end of October 2012. However, since this date the fund has fallen sharply by 23% to €91.9 m by the end of March 2013. Unusually the figure for April 2013 has yet to be published, although given the current problems of liquidity the value is likely to have fallen again.
It is not clear how far the recent decline in the value of the assets handed by the fund is attributable to the concerns raised by the Financial Times and others in September 2012 over the methodology used to value the fund or the need for institutional investors to divest themselves of holdings in specialised wine funds before the 31st December 2013.
For the sake of their private investors – many believed to live in Belgium – I hope that Elite Partners manage to sort out their liquidity problems. It will be very interesting to see whether the much criticised valuation system holds up under pressure and, equally whether the provenance of the old wines in the fund stands up to an intense scrutiny.
Unlike other wine funds Nobles Crus has a significant exposure to old Bordeaux and Burgundy. “30% of our wines are from 1989 or older” Tamisier told Luxemburger Wort (9th February 2013).
Such wines tend to be more difficult to sell, especially after the arrest of Rudy Kurniawan and the concerns over the number of counterfeit wines in circulation. It can also be hard to establish the provenance of older wines. For example, Nobles Crus includes examples from Romanée Conti and Château Pétrus, which the current owners are unable authenticate due to a lack of records for very old vintages. This is not, of course, to say that the wines in the Nobles Crus fund are fakes rather it underlines the problems of establishing robust provenance.
The percentage of Nobles Crus shares held by institutions is not known. In an interview with hedgeweek in June 2009 Miriam Wilson said that ‘Ninety per cent of our assets are from private clients and 10 per cent from funds of funds’. If the current liquidity problems are solely down to institutional investors pulling out, then the proportion of institutional investors must now be much higher. Otherwise there ought to be no liquidity problems as Nobles Crus keeps 10% of its assets in cash. The other possibility is, of course, that there is also a significant number of private investors are now looking to get out.
In their letter of 31st May Wilson and Tamisier claim to have demonstrated ‘exceptional responsiveness to criticism’. The reverse is the case as they tried to muzzle their critics by hiring Mischon de Reya, a distinguished international firm of lawyers to fire off a series of letters.
Having posted on several occasions about Nobles Crus and their valuation methodology on Jim’s Loire in the last quarter of 2012, I was privileged to receive one of these missives in mid-December 2012. ‘We have been following your coverage of your client closely, and have general concerns as to the nature and tone of your articles.”
In particular I was asked to remove from Jim’s Loire a letter sent to Nobles Crus’ investors on 11th December 1212 that I had posted on Jim’s Loire the following day. The letter was about the report from Ernst & Young, who had been asked to give a second opinion on Nobles Crus’ much criticised valuation methodology. Curiously despite their ‘exceptional responsiveness to criticism’ the Ernst & Young report was not published and was only available to investors who travelled to the fund’s offices in Luxembourg and then once they had signed a non-disclosure agreement.
On 7th January 2013 I published on my response to Mischon de Reya. To date I have received no reply.
Others in receipt of letters from Mischon de Reya included the Financial Times and Jean Walravens, a Belgian financial analyst who first raised concerns. In the interview with Luxemburger Wort Tamisier explained in some detail why they were not taking legal action. Why I have to wonder did Elite Partners waste money on legal sabre rattling when they didn’t intend to carry out their threats?
On 13th December 2012 I posed this question:
‘The as yet unanswered 100€ million + question is will Nobles Crus valuations prove to be accurate, robust and credible when faced with significant redemptions? That is a worry!’
Today Nobles Crus’ current liquidity problems certainly gives this unanswered question a sharper focus, although the 100€million question has shrunk to 91€ million at most and probably less. Wilson and Tamisier have reported that Nobles Crus managed in February 2013 to sell 8.782,000€ of stock at the ‘valuation price of the Nobles Crus portfolio’.
Will this continue to be the case now that the fund has been suspended? Will the suspension prove to be only temporary or will the fund now have to be wound up?