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?
Les 5 du Vin 
Jim is formidable. Notre Inspecteur Harry à nous. Get them punks Harry !
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Thanks David. Will be very interesting to see what transpires here. Overall it is worrying that there is not an industry agreed way of valuing wine investment funds, although many do use data from Liv-ex.
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Sujet également traité sur mon blog, avec une approche différente, on s’en doute. Je ne vais pas revenir sur tous ces points, mais il doit être clair pour tout le monde que si, actuellement c’est Nobles Crus qui est sous les radars, il y a tout autant de fonds anglais ou asiatiques qui peuvent se faire du souci.
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Their claim to have sold 8.8m near valuation merely shows that that particular 9% of the portfolio was reasonably valued – it proves nothing about the rest of the portfolio. This Fund would have had the option to employ a redemption gate – essentially limiting the amount of redemptions paid each month/quarter to a manageable amount. The fact that they have bypassed the gate option and gone straight for full suspension suggests that, even given some breathing space, their ability to sell any more wine close to valuation may have rapidly declined.
If that is the case, will the managers simply sit tight and perhaps claim that the market conditions are not right to sell or will they gradually sell down the portfolio at market levels – and thus of course reveal any over-valuation? Although it may be emarrassing, it would be much better to do the latter rather than lock up the investors cash hoping for a miracle rally.
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Ben voilà… Tous les ans je vends à quelques gogos quelques bouteilles en trop qui traînent dans ma cave et ça me permet d’aller dans un bon petit restau tout en gardant quelques euros afin de m’acheter en Espagne quelques flacons de fino que je vide à la première occasion. Il est pas pépère mon investissement ?
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Claret an. An interesting analysis. As Nobles Crus has a significant amount of old vintages in its portfolio, it might well have been more prudent to go for a closed fund. My understanding is that the DSSF opted for suspension of the fund, it was not a decision made by Elite Partners.
Francois have looked for your post on Nobles Crus but for the moment am unable to find it. When was it posted please? Merci. Jim
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Jim :
It is developped under the comments of this topic :
http://gje.mabulle.com/index.php/2013/06/08/206495-une-vente-aux-enchnres
My best
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Merci François – a lively and interesting discussion. Ideally wine is made to be drunk and enjoyed. However, I recognise that wine investment exists and that it is possible to make money by investing in wine if you buy at the right wine, right price, the right time and then equally sell at the right time etc. I’m not against wine funds nor do I think that Nobles Crus were unwise to invest in top Burgundy.
My questions have related to their valuation methodology, investing in old vintage where the provenance may be difficult to establish and also the curious Irish company.
I also think that Miriam Wilson was unwise to be taking pot shots at other wine funds even as far back as 2009. http://www.hedgeweek.com/2009/06/25/interview-miriam-mascherin-elite-advisers-price-grands-crus-rising-thanks-mismatch-betwee
‘Our competitors, by contrast, tend to focus on en primeur wines from the Bordeaux area as no storage is required and the volumes available are much higher. A top Burgundy wine such as Romanée-Conti may produce only 5,000 bottles a year, while a premier cru from Bordeaux may produce 150,000 bottles.
Guides such as Robert Parker help these fund managers choose primeurs for their funds, so they employ less in-house expertise. Roger participates in wine-tastings alongside Parker and can take note of what he says, but he will judge for himself as well.’
‘Less in-house experience’? I doubt it. Does Christian Roger really taste alongside Robert Parker? I maybe wrong but my impression is that Parker tends to taste alone
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When you buy only the first growths and, for Burgundy DRC and Rousseau, I am quite convince that I do not need any comment from Parker, Roger or Jancis in order to put a value on what I buy. At this level, the classification by itself is enough for establishing the value of the wine.
Also : as I say in french : if someone in the 90′ has said to you the possible value of lafite in the 10′, you would have finance a room at Ste Anne for this guy.
But, I conceed : the reverse may be possible (quoique) : can we imagine a Lafite back to 50 euros in the next 20 years ? You put me also in Ste Anne for such a crazy idea ?
About fakes : I cannot go inside details, but be sure of one thing : many, many wine funds managers have not the capacity of Christian to find a fake bottle. Trust me on that.
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Francois. I’m not suggesting that the Nobles Crus fund includes fakes just that with older vintages it can be more difficult to establish a robust provenance. As far as I know the majority of funds steer clear of older vintages.
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You are right Budd and we know even some producers inthe past that made their own fakes for « leur argent de poche ».
And it is a good news to read under your signature that, finally, they are few wine funds with old vintages. This gives to Nobles Crus an additionnal value 🙂
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Monsieur Budd :
I do find a new job for you : please be in touch with Goldman-Sachs, supposedly a serious bank where money is a serious matter.
Look what they did (inside FT) :
« Goldman Sachs uncorks grand cru collateral for loan to ex-trader
The private bank of Goldman Sachs has snapped up an unusually liquid set of assets as collateral for a loan to a former executive – almost 15,000 bottles of fine wine.
The loan to Andrew Cader, who landed at Goldman after the US investment bank bought Spear, Leeds & Kellog back in 2000, was amended last month to include the grand cru collateral, according to a filing.
Before that the loan was backed purely by Mr Cader’s interests in various funds, including Goldman’s “Whitehall” real estate vehicles.
Like other private banks, Goldman Sachs USA undertakes collateralised or asset-based lending on behalf of its customers. Wealthy clients of private banks can borrow against a range of assets, including basic financial securities like stocks and bonds, and more esoteric ownership interests such as art collections and yachts.
“While we do not comment on individual loans due to client confidentiality, we take great care to apply high standards of risk management and appropriately value any form of collateral on all loans,” a spokesman for GS Bank USA said in a statement.
Seth Lapidow, a lawyer for Mr Cader, declined to comment on the loan.
Goldman’s new collateral includes wines mostly from the Bordeaux and Burgundy regions of France. The collection of grand cru, which was first reported by Bloomberg News, includes a 1929 bottle of Domaine de la Romanee Conti that is selling for $3,886.67 at FinestWine.com and for $2,944.44 at WeinArt Wolf & Co.
Collateralised lending increased sharply in the years after the financial crisis, with big banks, governments and central banks accepting a range of unusual assets – from cheese to pigs and music rights – as securities to back up their loans.
Some private businessmen have sought to tap into the jump in demand for collateralised lending as well as resurgent interest in wine collecting. Bordeaux Cellars, the London-based specialist lender, offers would-be borrowers with fine wine collections 12-18 month loans capped at 35 per cent of the market value of their wine portfolios, for instance.
Mr Cader was co-chief executive of the trading specialist, Spear, Leeds & Kellog. He made at least $85m when Goldman bought the company for $6.5bn.
Todd Christie, the brother of New Jersey governor Chris Christie and a former managing director at Spear, reportedly earned more than $60m from the deal.
Mr Cader has dabbled with various investments since leaving Goldman. He has since been embroiled in an acrimonious lawsuit filed by Warren Lichtenstein, the chairman of the activist fund Steel Partners, concerning child support payments where Mr Lichtenstein has accused Mr Cader of helping his former lover, Annabelle Bond, downplay her financial assets.
Mr Lichtenstein has a daughter with Ms Bond, the British socialite. »
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