Is investing in whiskey casks as smooth as the glass itself?

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BOITUMELO NTSOKO: Welcome to the Money Savvy Podcast. I am Boitumelo Ntsoko. So you love your whiskey and consider yourself an expert, so much so that you consider investing in whiskey casks. But will investing in this asset be as smooth as your favorite drink, or leave you with a financial hangover?

Michael Haldane, Managing Director of Global & Local The Investment Experts, joins us in this episode to tell us everything we need to know about investing in this asset class. Welcome, Michael.

MICHAEL HALDANE: Have a good day.

BOITUMELO NTSOKO: Why consider investing in whiskey casks?

MICHAEL HALDANE: Number one, because it’s delicious [laughter]. Because it is a class that is not linked in any way to the markets. So everything that has happened in the country and in the world over the past six years has actually contributed to the growth of whiskey.

The barrels are such an interesting asset. It’s 195 liters of vodka that over time, the older it gets, becomes something wonderful.

It is also a class that helps everyone in every country. Whiskey is now made in 85 countries; over five hundred million liters are drunk every year, and 13 million of them come from just one country – Scotland, the mother of all whiskeys.

And last but not least, the whiskey casks, when sold, according to Sars, no tax is due.

BOITUMELO NTSOKO: Oh good? I’m shocked.

MICHAEL HALDANE: It’s fantastic.

BOITUMELO NTSOKO: Now why invest in whiskey casks instead of rare whiskey bottles?

MICHAEL HALDANE: A bottle has a constant age. If you buy a bottle of whiskey that is eight or nine years old, it [the whisky] is constantly this age. A cask ages in wood. So for the first period, 36 months, it’s not called whisky. It’s just vodka. [But] because of this wood, every year it ages, it gets better. So if you bought a bottle of whiskey and it was originally eight years old, and you kept it for a period of nine years, [making it] 17 year old whiskey – compared to this age in a cask, the cask would be worth much more.

BOITUMELO NTSOKO: Now, how do you choose the right cask?

MICHAEL HALDANE: It depends on your budget and the duration. Whiskey sells best at certain ages – 10, 12, 15, 18 and up.

So if you buy the whiskey, you have to keep it for a minimum period, in my mind, of about five years. Your money buys a blend of whiskeys [from] different regions, Lowland Scotland, Highland and elsewhere – and also different woods. Bourbon wood, wine wood, a whole mix.

Ultimately, your whiskey will be purchased by a company who will empty that 195 liter cask into a bottle. And it’s not about the brands everyone knows – Johnny Walker, Regal.

The more independent he is, the more you will earn. do not follow [the] mass market. Find interesting places in the middle of Perth, Scotland, Inverness, that no one has ever heard of, and find a barrel that has been there for 30 years.

So funny.

BOITUMELO NTSOKO: There are recommendations that it is better to buy a young cask at the right price because you will get a higher return each time you choose to sell than if you had to pay too much for an older cask initially. Are you okay with that?

MICHAEL HALDANE: No way. Generally, it is best to buy a keg between [an age of] five years and eight years, and sell it anything between 12 and 15 years – usually. Once in a while there is a wonderful cask that you have to buy.

But a rollover is not like a fixed interest rate. There is not this fixed salary each year.

Because of Covid those years there wasn’t enough whiskey because they weren’t able to grow barley. And because there was no barley, there was not enough whiskey. So any barrel of whiskey made in 2020 will be worth a lot. This year it is the opposite. Don’t buy.

The price of whiskey depends on the volume of alcohol it contains. The longer the life of a barrel, the less alcohol there is. So old barrels are good until about 35 years old, so be careful. It entirely depends on your preference. So personally I have a mix. I buy whiskeys that are new, keep them for at least eight years – but I have a wide range of casks from 1998 to present.

BOITUMELO NTSOKO: So can you just walk us through the process of investing in this asset class?

MICHAEL HALDANE: OK. First, you need to decide how much you have, and that’s in pounds. It’s anything from a few thousand pounds to a hundred thousand pounds. It really depends.

Then you have to look at where these casks come from – regions, preferences. Then, once you say yes, I would like to buy these five barrels, we will give you the necessary documents. We will then need copies [of] Identity documents, passports, proof of bank accounts and address. These are sent to the English tax office; not Sars, the English. They are worse that we. If everything is clear, then you will receive an order pack. On this pack, you will have a cask number, a location, a content. So you can have a barrel number, eight digits, in a warehouse [in] Inverness, tier four, eight deep. So you know exactly where it is.

So if you want you can visit it – go give it a hug.

Once you have it, you get an invoice and that money is then refunded. Once this is sent, you are then officially the owner of this keg. You then receive a sales contract, which is your legal property. Finally, you receive in this barrel an official serial number and an official document certifying that you are the owner. A whole process.

BOITUMELO NTSOKO: How much do you pay for a keg and how can you make sure you’re not paying too much?

MICHAEL HALDANE: There is such variation. I’ve seen casks a hundred yards apart using the same rye, same water, same salt, air, whatever, and they taste different and are priced differently. It’s the same between cars, paintings, properties – none of them are alike. But barrels are priced in the industry per liter of pure alcohol.

No matter who you buy from, [whether] private or industrial, make sure the prices are the same.

So, as an ignorant individual, you have to do a lot of work on that first.

BOITUMELO NTSOKO: And how much can you earn with this type of investment?

MICHAEL HALDANE: As I said again, they are different and [with] kegs generally the longer you own it the more it pays.

If you buy it between the ages of five and eight and sell it around the age of 12, you can expect an annual price increase of between 8% and 11% in pound yield.

Some things you need to think about as there are additional costs. You’re looking at about an extra £30 a year to keep it in storage, and it needs to be insured. It’s not much, it’s around £100.

And finally, it should be tested from time to time. So someone opens it, tests it and charges you £100 for it. This job – I want it. Can you imagine?

BOITUMELO NTSOKO: This person has a fun job, huh?

MICHAEL HALDANE: And a headache.

BOITUMELO NTSOKO: [Laughing] And a headache too. You basically answered two of my questions – when to consider selling and should you insure your whiskey cask. So how do you avoid keg scammers?

MICHAEL HALDANE: I have heard of companies in Spain and Italy [that just] sell, they will whip anything. I’ve heard of companies in Hong Kong that get whiskeys and double the price.

So look for a company that has a good name, look for it. Do they operate in a country where this real whiskey is made?

Do they have a bonded warehouse license, a Wowgr [Warehousekeepers and Owners of Warehoused Goods Regulations] – that’s what it’s called.

And do they tell you where that barrel is? Do they give you a picture of it? Do they give you the cask numbers, contents? And do they give you referrals?

Very amusing, but it is a product that we keep for a long time and of which we must be 100% sure that it really exists.

BOITUMELO NTSOKO: And what are some of the common pitfalls that prevent kegs from being a good investment?

MICHAEL HALDANE: It’s not a way to make a quick buck [investment]. I’ve had clients say, “I’d like to get in” and “I want to get out of it” within six months. You can not. You must keep it for at least five years or more. And, as I mentioned earlier, it has a limited lifespan. So [within a] maximum [of] 30 years, 35 years, you have to put it in glass, and you have to take care of it. It should therefore be tested regularly.

BOITUMELO NTSOKO: And right on the point of sale – who sells it for you?

MICHAEL HALDANE: We use a number of companies overseas that would approach an individual, a bottler, but they also have a number of auctions. So, for example, there is an auction going on right now. You get into a barrel, you say, it’s my price, minimal. It is only sold if it reaches this price. The buyer pays costs, the seller nothing, and we take care of these various documents.

We also have a group on WhatsApp of a few thousand [people] and once in a while we have a barrel there, and we actually offer it. You will be interested in the fact that South Africans like whisky.

BOITUMELO NTSOKO: [Laughing] I’m not that surprised. So how long does this process normally take to sell?

MICHAEL HALDANE: Probably a month. Right now you need a month or more just for paperwork and money movement. Ownership is only transferred once payment has been made.

Your other option on a keg, which I haven’t mentioned: you can always put it on a boat, bring it into SA port, Durban, take it home, put it in a keg, put it in a bottle with your own label – Moneyweb, year of age, single malt – and it’s a lot more fun too.

BOITUMELO NTSOKO: But would you earn the same amount of money, though?

MICHAEL HALDANE: It depends. You can probably earn more, but you must have a liquor license within SA. That’s the problem.

BOITUMELO NTSOKO: Additional work.

MICHAEL HALDANE: It’s extra work. So I honestly recommend holding the barrel and selling it.

BOITUMELO NTSOKO: Thank you very much, Michael. It was Michael Haldane, Managing Director of Global & Local The Investment Experts.

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