Scotch Whiskey Investments: Investing in liquid (Scottish) gold

Whiskey is hotter than ever. Not just for drinking, but especially for investing. In recent years, against a backdrop of economic and geopolitical tumult, demand for alternative investments has increased. People are looking for opportunities to achieve attractive returns with alternative categories in addition to their traditional investments. You soon come to the corner of so-called alternative investments such as vintage cars, cryptos, watches and single malt whiskey – made in Scotland.

‘Whiskey has experienced unprecedented growth as a consumer product in recent years. The bottles are flying off the shelves. The demand is so high that the international whiskey industry can barely cope with production,” says Michel Kappen, CEO of Scotch Whiskey Investments. ‘For example, a number of years ago, The Macallan distillery expanded its production facilities at a cost of £120 million. That is a good sign, but whiskey will really have to mature in a barrel for 25 years before it can be called 25 years old. That is partly why investing in older, exclusive whiskey is so interesting.’

Rising prices

Michel Kappen previously worked as an advisor at Rabobank and had a greater passion for (single malt) whisky. He decided to turn his hobby into his job. ‘Selling a bottle here, a nosing & tasting there: it was all part of it. But because this well-intentioned hobbyism did not make any difference, I was forced to think differently. The whiskey I sold became increasingly expensive to purchase. And this observation was an advance to our contemporary success: could you also invest in whisky? It became the first chapter of my own boys’ book.’

Step by step, the outlines for a platform on which whiskey bottles can be traded and on which the value (development) is transparent were created in his mind. Due to his consultancy background, certain trading structures are applied, albeit this time in the field of whisky. ‘We finally opened the World Whiskey Index in 2007, with former Minister of Finance Gerrit Zalm as guest of honour. This day is still very clear in my mind, just like the AFM permit obtained in 2014.’

Completely unburdened

After the launch of the World Whiskey Index, the (inter)national media increasingly wrote about investing in the Scottish water of life; the status of an alternative investment form was quickly achieved and gradually became Scottish eau-de-vie a more than serious consideration for investors. Kappen: ‘We have actually launched a completely new alternative investment on the market.’

But what next for those who want to try their luck with investing in whiskey, who would like to achieve a pleasant return but do not want to have to worry about it too much? The investment product “Portfolio management in whisky”, which was launched on the market in June 2018, turned out to be a bull’s eye. ‘Since its launch, approximately 650 of our customers have opted for this investment product. This translates into a total portfolio of over 290 million euros in Scottish single malt whiskey managed for our clients. Not only new customers, but also existing relations have placed their whiskey portfolio in this new portfolio management service. Investors are taken care of with a minimum investment of 100,000 euros. The investor receives both bottles and barrels of whiskey in his portfolio. The minimum management term is five years.

Whiskey takes time, usually only after ten to fifteen years does a whiskey portfolio have the best chance of return. At the end of the contract term, we help with the sale of the portfolio. To give an idea: the average return over the past six years is about 11.5 percent. But past returns are no guarantee for the future. Due to the scarcity, the whiskey market has proven to be very stable in recent decades.’

Act yourself

Investing in high-quality single malt whiskey can therefore provide a pleasant return, but not everyone is able to put aside 100,000 euros (or more). Scotch Whiskey Investments has a suitable solution for the smaller investor with THE SWEX. This platform is the successor to the World Whiskey Index, the platform that turned out to be too far ahead of its time. Michel Kappen about this trading platform that saw the light of day in 2022: ‘THE SWEX is the largest online trading platform in the world with more than 100,000 bottles of Scottish single malt whisky. The platform includes bottles owned by our asset management clients and current traders, as well traders named. The bottles offered and traded on the platform are safely stored in our store whiskey vault stored in Sassenheim or in our storage bonded warehouses in Scotland. All these bottles could be traded through THE SWEX. As an owner or trader you can decide for yourself which bottles and (part) barrels you offer for sale. It includes bottles from closed and existing distilleries as well as ‘virtual’ bottles. In other words: whiskey that is currently still in barrels to be bottled at a later time.

Kappen continues: ‘To promote tradability on the investment platform, we offer the feeling of an exchange where supply and demand meet, resulting in an interesting deal for both parties. In that respect, THE SWEX is unique in its kind: it is the first platform on which exclusive and special single malt whiskeys can be traded. And all this in a user-friendly manner, with simple tools to build and manage your own whiskey portfolio. It can be compared to a share portfolio, but slightly more special and tastier.’

Whiskey of the future

So far we have mainly talked about bottles of (Scottish) single malt whisky, but what about whiskey that is currently maturing in warehouses and waiting to be bottled? Kappen: ‘Many of our investors not only invest in bottles, but also in barrels or parts of barrels. It is important that we deliver high-quality whiskey at the end of the day, that investors receive a guaranteed number of bottles and, not unimportant, that very high quality is delivered.’

Until whiskey finally disappears into the bottle, it remains in several respects a living product. It is therefore essential to closely monitor all barrels that are maturing from both a qualitative and financial point of view. Kappen: ‘We are dealing with “the angels’ share”, the amount of whiskey that evaporates from a wooden barrel at a rate of about 2% per year. Another important aspect is the decline in the alcohol percentage of about 0.5% net per year. This percentage must not fall below 40%, otherwise one can no longer call it whisky. Knowing that each individual vessel has its own percentage of evaporation, it is more than important that our own cask managers ensure the development of all barrels runs smoothly and achieve the promised number of bottles. The more interim measurements we take, the faster we can intervene during the ripening process.

In addition, samples of the maturing whiskeys are sent from our own warehouses to the cask managers to monitor the maturation. The frequency of the analyzes does depend on the age of the whiskey samples. We taste the youngest whiskeys every three years, our focus is on those aged 21 and older. In the past, we could easily manage everything annually. But now that the volumes are so large, that is no longer possible. So the older the whisky, the higher the frequency of monitoring the samples. Additional backups are made of this and stored safely in our database sample library are stored in Sassenheim.’

Scottish expansion

To look ahead is to govern, which is also the case for Michel Kappen and his whiskey investment concept that he devised about twenty years ago on the Heereweg in Lisse. To facilitate the future of investing in whiskey and the further growth of the organization, we are currently working hard on a significant expansion of the company. Not in Lisse, but less than a half-hour drive from the ten epic golf courses of the Scottish village of St. Andrews, where Scotch Whiskey Investments has purchased twenty acres of land (equal to 80,000 m2). Not to roll out its own golf course, but to build its own storage for bottles and, in particular, maturing barrels of single malt whisky. Michel Kappen about this next step: ‘Almost dizzying, but the intention is that 28 warehouses of 11,000 cubic meters each will ultimately be built there. So a total of 308,000 m3 where we will soon be able to store 190,000 barrels of maturing whisky. If you consider that an average barrel contains 250 liters, you arrive at astronomical numbers. And I’m not even talking about the millions of bottles we store there. A project of unprecedented scale that the (Scottish) industry is waiting for. “Glenrothes” will therefore become a large storage center for the entire whiskey industry. Not only whiskey producers, but also brokers and investors are eagerly looking for additional storage capacity. And that will be offered here shortly. This involves a significant investment, but one that will pay for itself in the long term. A small detail: the first four warehouses are now in use.’

But sheer storage isn’t the only reason Scotch Whiskey Investments has set its sights on Glenrothes. Because entrepreneur Kappen would not be entrepreneur Kappen if he had not thought out his ideas down to the last detail. ‘We know that when those barrels are in our warehouses, we will also be able to monitor them. Our cask managers are there, we have more control and feeling than anyone else. With this in mind, we offer a high quality of service and can inform our relations in the meantime about the status of their barrel or (sub) barrels. Not only private investors, but also ‘big players’ need to know that we have control over the entire process from A to Z. Both the maturing process of the whiskey in the barrels and the bottling and therefore the overall management will take place in Glenrothes.’

Kappen has not yet finished talking about the next step for his company, which was founded less than two decades ago. With the current situation in the world, including scarcity and rising raw material costs, Kappen is already thinking a number of steps ahead. ‘One of the new initiatives we are currently developing involves simplifying the monitoring of volume evaporation and alcohol strength. It is technically possible, but it requires enormous investments. However, the desire to monitor a vessel for evaporation loss as effectively as possible is very relevant. If we can achieve this, our investors will be able to get much more return on their investment in the future. Today, a good old and scarce bottle of whiskey is easily worth a few thousand euros. Every extra drop we can save benefits the investment of our relationships. New methods and techniques to… whiskey casks to mature as long and as best as possible, we will soon roll it out in Glenrothes.’

Phased rollout

“We want to move forward,” Kappen concludes. ‘Scottish single malt whiskey is and remains very popular, but it concerns large quantities. The industry will therefore be forced to focus more on quality and try to make profits there. Producing mainstream, often young whisky, is simply becoming unaffordable. Our plans for Glenrothes are being rolled out step by step. At the moment we mainly create storage for our own bottles and barrels. We then look at how the Scotch whiskey industry is developing and then expanding in phases. After all, there must be a need for that additional storage capacity. Ergo: accelerate where we can, and slow down where necessary.’

Learn more at scotchwhiskyinvestments.com

This is an article from Baaz 1.2024. Read it digitally now: Baaz 1.2024!