Q: What is both liquid and illiquid, domiciled in both the Cayman Islands and Scotland, and has a lifespan of seven years, but holds assets with a shelf life of decades?
A: A whisky private equity fund that is being targeted for launch in Hong Kong in June.
Platinum Whisky Investment Fund is what its founders – Rickesh Kishnani and David Robertson – claim will be the first PE vehicle to invest in rare supplies of single malt Scotch whisky.
“The amount of whisky that was put aside for ageing in the 1980s and early ‘90s isn’t enough to fill the demand that we’re seeing across Asia and globally,” says Kishnani, the fund’s chief executive and managing director of Platinum Wines, a Hong Kong-based wine importer and distributor.
The fund, with a target size of $10 million, targets a net annual return of 15-20% over its seven-year life cycle and will charge fees of 1.5% for management and 20% for performance. SinoPac Solutions and Services will serve as its administrator.
Similar to a long-only hedge fund, the management of whisky as an asset will be an “active trading strategy”, says Kishnani. The first two years will be spent buying physical whisky stocks, with sales made at opportune times, when it can strike a selling price aimed achieving a high yield.
It seeks to partner with auction houses as well as hotel, bar and restaurant groups which hold private events and may want to feature certain brands of whisky. “We’ve already been in discussions with [them],” Kishnani tells AsianInvestor.
Like other alternatives vehicles, the Platinum Whisky Investment Fund has a chief investment officer. Robertson is an ex-director of rare whisky at distiller Whyte and Mackay. He will seek to ensure their authenticity – for example, by using carbon-dating to confirm the date of distillation of very old whiskies.
Robertson is based in Edinburgh, where all of the fund’s whisky assets will be stored. Having the fund’s stock consolidated in one location in Scotland will make third-party auditing, valuation and carbon dating easier, says Kishnani. He says investors are welcome to visit Scotland to see the fund’s physical assets.
Kishnani envisages having between 20 and 40 investors in the Cayman-domiciled fund, which will target high-net-worth individuals and family offices. He says they won't market to institutions, given the size of the fund -- which has been limited to reflect the limited supply of rare single malt whisky.
One can have an investment and drink it. “Every time we do a distribution, investors will have a choice of a small percentage of the cash dividend, or to swap that out for physical stock” of equal value at that time, says Kishnani.
While being an investor in a whisky fund makes for great conversations on the golf course, there are potential risks.
Chief among them is the fact that “whisky is illiquid” as an investable asset, notes Robertson. He cites the auction market as one viable exit route for the fund’s stock.
“We’ve seen an explosion in the auction market. In 2008, there was about 4,000 bottles that came onto the auction market globally,” says Robertson. “In 2012, there were about 75,000 bottles on the secondary market.”
The growing availability of rare whisky through auctions has not dampened selling prices, asserts Kishnani. He points to figures by the Investment Grade Scotch Index, produced by Scottish investment house Whisky Highland and based on auction prices. It shows the value of the top 100 single malts growing in value by 230% between January 2011 and Dec 2013.
One big driver has come from growing demand in Asia. “No one knew back in the ‘80s that Taiwan would be the third or fourth single biggest malt market” in the world today, says Robertson. “It would have been inconceivable.”
Growing interest and consumption of rare single-malt whisky in markets such as mainland China, India and Korea has expanded alongside demand for other luxury products, says Kishnani.
"You can make more private jets,” he adds, but as Robertson notes: “You cannot go back to 1946 and distill more whisky.”