At the crossroads of investment and connoisseurship, cask trading is an alternative investment that’s seeing huge growth in Asia. We look at why it’s popular, how it works, and its potential.
It’s no secret that diversification is the foundation of any savvy investment strategy. That’s why many investors are including alternative investments in their portfolios. Although these might be financial, the term also applies to highly valuable goods that have the potential to appreciate over time, including art, antiques, watches and jewellery—and spirits.
Whisky has proven a particularly popular choice. Rare Whisky 101 estimated that a record-breaking 172,500 bottles of whisky would be sold at auction in the UK in 2021, generating a total value of £75,000,000. However, many potential whisky investors are turning to cask trading, especially in Asia.
“Exclusivity is a big draw [because] no two casks are ever the same,” says Simon Aron, CEO of Cask Trade Ltd., the UK’s leading cask trading company. “For bottles, the spirit retains the age at which it was bottled; for casks, the liquid continues to mature and hence, the value increases with time.”
WHY CHOOSE CASK TRADING?
At its core, cask trading is the buying and selling of whole casks of spirits. Often this is whisky, but it could also be other spirits like rum. These casks can be bought for fun and personal consumption, of course, but if chosen carefully, they could also make for a good investment. There are many advantages of buying casks over bottles, which is what makes cask trading such an attractive proposition.
Exclusivity is a key factor, of course, since each cask is unique and contains a whisky that’s in limited supply. But, buyers also have the choice of choosing underestimated brands and ageing their whisky however long they wish, creating the potential for a high-yield purchase. In fact, on average, whisky casks generate annual returns of 8 to 10% for investors.
ENTRY AND EXIT
So how do you get into cask trading? Technically, it’s quite simple. You can simply work with a broker or licensed stockist like Cask Trade Ltd. But, it’s important to know what your goals are before you make a purchase.
“Cask buyers need to ask themselves why it is they’re getting in casks,” says Aron. “Is it for investment? Bottling and self-consumption? Different casks have different liquid volumes, ABV%, and of course, different flavour profiles, hence they have different exit points and ageing potential. This is why it’s important to know why you are purchasing a cask.”
Of course, if you’re getting into cask trading to enjoy wee drams from your private stock, personal preference is going to be a major factor in what you buy. But, for investors, the potential appreciation and returns on a cask will be more important. For Aron, looking for hidden gems is the way to go, and he advises that potential investors avoid the temptation to go for big names, whisky aged in sherry butts, or peated whisky, and instead focus on underrated gems because “any so-called non-top-tier casks are bottlers’ favourites.”
Another advantage of cask trading? You can do it from anywhere, at any time. There are many several exit strategies for casks, including Buy-Backs, Bottling, Consignments, Private Sales, and Auctions. How you’ll choose to exit your casks depends on your initial motivations for buying them. “Consider your investment goals in terms of what you’re looking to achieve,” advises Aron. “Also [consider] the liquidity of your asset, how easy it is to sell.”
Cask Trade Ltd. is the rare marketplace that offers its own dedicated auction site, giving customers access to the full complement of exit strategies. For its auctions, Cask Trade Ltd. validates sellers, proof of ownership, and cask history and offers full transparency and no sellers’ fees, creating a safe transaction for buyers and sellers.
THE ASIAN FACTOR
Asia has a particularly robust appetite for whisky casks, with Euromonitor estimating that whisky sales in China will value at £2.2 billion in 2022. Here, the market is largely driven by high-income, knowledgeable customers who are willing to experiment. Seeing a 25% jump in its Asian business, Cask Trade Ltd. seized the opportunity to open a Hong Kong office in 2021 to cater to its regional clientele.
“The most impressive medium and long-term growth of Scotch whisky consumption is in Asia,” notes Aron. “Asia’s appetite for whisky casks was our biggest driver for establishing the business…we’ve seen tremendous growth in business and are looking at an additional 25% since having a physical presence in Hong Kong.”
For those looking to take the plunge, Aron has one final piece of advice. “Do your due diligence on cask providers and work with an experienced team with good business ethics.”