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27 Dec 2006

Wine and Hedge Funds

Aside from the hedge fund millionaires investing in the land rich wine making lifestyle, a new trend is now being seen among hedge fund investors in the buying of premium wines. Merryl Lynch noted the surge in wine investment in their 2003 World Wealth Report, which found that the rich were devoting 13% of their assets to so-called alternative investments. The category also included art, hedge funds, and foreign exchange.

Peter Meltzer, author of the recently published "Keys to the Cellar: Strategies and Secrets of Wine Collecting," said in an interview with Reuters that six magnums of Domaine de la Romanee-Conti sold earlier this year for $170,375. "There has been a phenomenal growth in the collection of premium wines," said Peter Meltzer, the caretaker of the Wine Spectator index, a gauge of the most frequently sold premium wines, mostly Bordeaux and Burgundies. A single bottle of Chateau Latour 1955 sold with commission for $28,440.

Wall Street wine mavens interested in purchasing a Burgundy vineyard or expanding their investments, have the opportunity to invest in the some 105 million bottles of chardonnay white wines and 75 million bottles of pinot noir reds produced annually. There are about 4,000 “domaines” and 59 types of soil beneath the Cote d’Or’s 50-kilometer (31-mile) stretch.

It seems however, that buying a bottle of the stuff is less risky than trying to go for buying the vinyard “Owning a domaine is a venture capitalist’s dream, high in risk and if the weather is good and you’re really lucky, you might make a 4 percent return. But owning a domaine is the greatest lifestyle imaginable.” Says Wasserman, a vinyard owner in his own right.

It takes three years after the first harvest for the wine to be ready for market,” says Wasserman, who has been a Burgundy wine trader for 40 of his 62 years. “You’re not making a cent for three years, and then your buyers must wait a minimum of three to four years after that before they can drink it. Perfection wouldn’t appear until the wine is six to eight years old…..The land will cost you $6 million, and that will produce 90 casks of

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