Fine Wine as a Viable Alternative Investment Asset Class & Developing a Proper Investment Process for a Fine Wine Investment Fund

By Terrace Chum

This research project:
1) Investigates whether Fine Wine Investment (FWI) offers diversification benefits to traditional investment assets, i.e. Equities and Bonds? In particular, does FWI offer diversification benefits to investors investing in Chinese Equities?
2) Explores an appropriate methodology in managing a Fine Wine Investment Fund (FWIF).
For 1), statistical data on investment returns from various asset classes are analyzed. The author applies a modified Fama & French Three-Factor Model regression analysis by adding a fourth factor - price momentum - to test whether FWI provides diversification benefits to a portfolio of Chinese equities. This is a positivist and quantitative approach.
For 2), the author develops a methodology in managing a FWIF by primarily studying the investment process of an established wine investment fund - The Wine Investment Fund (TWIF). This is a constructivist and qualitative approach.
The author’s intention is to prove that FWI is a good diversification to investment in Chinese equities. After establishing the case for FWI, the author presents what he thinks is a practical and sustainable investment process in running a FWIF. As will be seen from the findings of this paper, results show that FWI is a good way to diversify and enhance the investment returns of a portfolio of Chinese equities. The author then proceeds to study the investment process of a practicing FWIF and complements this study with his investment background as an equities fund manager to come up with a sound investment process for a FWIF.
Hong Kong has developed itself into a wine hub over the last few years. This, combined with Hong Kong’s status as the prime financial center in Asia, create an opportunity for the development of a wine investment industry in this dynamic city. The author’s motive in writing this thesis is his intention to set up his own FWIF with a sound investment process. This fund, if established, will be managed in Hong Kong. The author thinks that by proving FWI is a viable alternative investment to Chinese equities, he would be able to raise the interest levels of high net worth Chinese individuals and hedge funds towards investment in this emerging asset class.

• Language: English
• Publisher: Terrace Chum
• Release date: Dec 17, 2012
• ISBN: 9781301401154

Terrace Chum

Terrace, the founder of Savoie Fine Wine Cellar in Hong Kong, is a graduate from Hong Kong's first ever cohort of Wine MBAs awarded by Bordeaux Management School. His Wine MBA dissertation is “Fine Wine as a viable alternative investment asset class and Developing a Proper Investment Process for a Fine Wine Investment Fund". This thesis has been released in the form of an online book at www.smashwords.com. He also holds an advanced certificate in WSET and is currently enrolling in the WSET Wine Diploma Program. Terrace is a Chartered Alternative Investment Analyst. Prior to his role at Savoie, Terrace had worked as a Fund Manager for more than 17 years in Hong Kong, 11 of which was with Schroder Investment Management (HK) Ltd. specializing in Asian Equities. He was a Lipper Fund Award winner in 2008. Terrace is a Chartered Financial Analyst and holds an MBA degree in Finance from the University of Southern California.

Book preview

WINE MBA 2010-11

Bordeaux Management School & HKU Space

DISSERTATION

Fine Wine Investment as a Viable Alternative Investment Asset Class and Developing a Proper Investment Process for a Fine Wine Investment Fund

TERRACE CHUM

August 28, 2011

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Smashwords Edition

Copyright 2012 Terrace Chum

License Notes: This ebook is licensed for your personal enjoyment only. This ebook may not be re-sold or given away to other people. If you would like to share this ebook with another person, please purchase an additional copy for each person you share it with. If you’re reading this book and did not purchase it, or it was not purchased for your use only, then you should return to Smashwords.com and purchase your own copy. Thank you for respecting the hard work of this author.

Ebook formatting by www.ebooklaunch.com

Table of Contents

Acknowledgements

Foreword

1. Executive Summary

2. Introduction

2.1 Thesis of the Dissertation

2.2 Definition of Fine Wine

2.3 Developing a Wine Investment Industry in Hong Kong

2.4 The Emergence of the Chinese Investors in Fine Wines

2.5 About the Author

2.6 The Benefits of the Findings of this Dissertation

2.7 Description of the Dissertation’s Content

3. Related Literature

3.1 Topic 1 (Fine Wine Investment as a Viable Alternative Investment Class)

3.2 Increasing Investment Allocation to Alternative Assets

3.2.1 Wine and Arts as Alternative Investment Assets - a Comparison

3.2.2 Wine and Other Commodities - a Comparison

3.2.3 Chinese HNWIs Beginning to Invest in Alternative Assets

3.3 Applying Fama & French Model to Test the Thesis in Topic 1

3.4 Topic 2 (Developing an Investment Process for a FWIF)

4. Research Methodology

4.1 Topic 1 (Fine Wine Investment as Alternative Investment Class to Chinese Equities)

4.2 Topic 2 (Developing an Investment Process for a FWIF)

5. Data Description and Analysis

5.1Data Collection and Description of Data for Topic 1

5.2 Performance of Statistical Tests and Analysis of Findings for Topic 1

5.3 Data Collection towards Formulation of an Investment Process for Topic 2

5.4 Description of Data and Analysis of Findings of Topic 2

6. Presentation of the Findings and Recommendations

6.1 Topic 1 - Statistical Results of FWI as an Alternative Asset Class

6.1.1 Presentation of Findings from Analysis of Descriptive Statistics for Topic 1

6.1.2 Presentation of Findings from Analysis of Regression Analyses for Topic 1

6.2 Topic 2 - Investment Process Methodology Presentation

6.2.1 The Author’s Design of the Investment Process Framework

6.2.2 Organizational Support for the Investment Process

7. Conclusion

8. Bibliography

9. Appendices

Appendix 1

Appendix 2

Acknowledgement:

* A special thanks to my colleague Marica Pretorius for collecting, sorting and calculating the monthly return data relating to the MSCI Zhonghua Indices. She has made my life easier as far as this project is concerned.

* I feel indebted to Daniel Yan, former program director of the Wine MBA at HKU Space, for his help on research and the lining-up of resources, both human and material, for my project.

* Thanks to HKU Space professor Roy Ng for the guidance on research methods and methodology.

* Special thanks to HKU Space professor Dominic Li who inspired me with the use of the Fama & French Three-Factor Model for my statistical tests by showing me the AAWE Paper 11.

* I would like to extend my thanks to The Wine Investment Fund for their enormous help in terms of providing me with real life information about managing a fine wine investment fund. In particular, I am extremely appreciative to the fund manager, Chris Smith, for proactively helping me on this project and giving me so much information about their fund’s investment process and other related research information.

* I would like to say thanks to BeM professors Frantz Maurer and Florine Livat-Pecheux for assuring me that I am on the right track with my progress on this piece of work.

* I also want to thank my fellow Wine MBA classmates for the mutual encouragement we give to one another in researching and working on our projects.

* Francois, thank you for your editing and your help with the cross-reference. I will always remember you.

* Last, but not the least, I love my dog Tag. He has been by my side all the way during these numerous sleepless (Friday and Saturday) nights of working on this project.

Foreword

It was October 2009. I was at a crossroad of many aspects in my life and I had been feeling lethargic and had no impetus to do much. Trying to get myself to become curious about life again, I decided I should just go learn something of interest to divert my attention and focus away from thinking about nothing.

I decided on wine. I started by taking a couple of interest classes about wine. From there on, it was a journey of no return. The fun, knowledge, and business opportunities surrounding wine seem limitless, especially from this part of the world I live in at the present moment.

And so in the past three years I accomplished a Wine MBA degree, completed WSET level 2 and level 3. And now I'm enrolling in the WSET Wine Diploma program.

In the real world, I am also charging ahead with my wine endeavor. I founded Savoie Fine Wine Cellar in Hong Kong, which is due to open in