Beware of guaranteed returns

There are a number of wine investment companies currently offering guaranteed returns. Investments that come under the aegis of the UK FSA (Financial Services Authority) are not allowed to promise future returns and must warn that past performance is no guarantee of future performance. Exceptions to this will usually include bank and building society savings accounts but certainly will not include wine funds, which come under the FSA as they are collective investments..

This week there was press release (see here) from Cult Wines Ltd promising a guaranted 8% return in a year on a wine investment fund:

8.5% Guaranteed return on wine investment fund from Cult Wines – London 
'22/01/2010  Cult Wines of London, are offering investment portfolios with a guaranteed return of 8% over 12 months using assets of the Rothschild products such as Lafite and Mouton. The Risk is taken away from the client and provides a safety net of 8%, while the expected returns are much higher up into the double digits.  This doubles any available savings rates offered by mainstream banks.'
See rest of the release here.

On the face of it this would appear to be a fund that ought to require FSA authorisation and shouldn't be claiming an guaranteed return. It is, however, not a fund as Oliver Gearing, CEO of Cult Wines Ltd explains:

'It technically is not a fund as each investor is allocated cases of their own wine. The investors also retain the right to continue to hold their wine past the 12 months. In essence we give each investor the option after 12 months to sell their wine back to us at 108% of its purchase value, they can either take this if the wine hasn't increased by 8% or if it has gone up more than 8% they can ignore the option and continue holding their wine for longer. We are giving the investors a safety net but from our end backed on our own finances and assets.

Finances and assets cover the base total of chosen products from 0-108%. Our company investment/investors and of course the risk attached to the company have been carefully devised and set up with expert help.  We have a master of wine, who is a contact of our family, who has been involved in the proceedings. With this combined expertise we feel quite confident in the chosen products and risk elements, being Lafite 08/Mouton 08, and we feel that we have fully covered our clients.

As it happens, we have finished running the 8% project as we have filled our small test quota up to the maximum cash budget.'

Therefore, as it is not a fund, it is not regulated by the FSA and it would appear that you can  happily make claims of guaranteed returns. Another company – The Premier Bordeaux Wine Company offers a cheque for £100 and 'your certificate of entitlement to an investment that yields 14.9% per annum guaranteed'. 

Also in the press release from Cult Wines Ltd is a highly selective example of a big return from one wine from a very particular vintage.

'Bordeaux Fine Wine has been the investment of the ‘Noughties’ proving to be a top-performing asset ahead of equities, houses, oil and fine art. A case of 1982 Lafite Rothschild has increased in price by 857% over the last decade, from £2,613 (Dec’ 99) to £25,000 (Nov’ 09).'

Bordeaux Fine Wine may or may not be 'the investment of the "Noughties" but you cannot prove it to have been a better performing asset than equities, houses, oil and fine art just by reference to Lafite 1982. 

I'd be very wary of being offered a guaranteed return by a wine investment company.