Is investing in whisky casks as smooth as the tipple itself?

BOITUMELO NTSOKO: Welcome to the Money Savvy podcast. I’m Boitumelo Ntsoko. So you love your whisky and consider yourself a bit of an expert – so much so that you’re considering investing in whisky casks. But will investing in this asset be as smooth as your favourite tipple, or will it leave you with a financial hangover?

Michael Haldane, who is a managing director at Global & Local The Investment Experts, joins us on this episode to tell us all we need to know about investing in this asset class. Welcome, Michael.

MICHAEL HALDANE: Good day.

BOITUMELO NTSOKO: Why should one consider investing in whisky casks?

MICHAEL HALDANE: Number one, because it’s delicious [laughter]. Because it is a class that is not linked in any way to markets. So everything that has happened in the country and the world over the last half a year has actually helped the growth of whisky.

Casks are such an interesting asset. It’s 195 litres of vodka that over time, the older it is, becomes something wonderful.

It is also a class that helps all people in all countries. Whisky is now made in 85 countries; five hundred million litres plus every year is drunk, and 13 million of those come from one country – Scotland, the mother of all whiskies.

And finally the most important thing, whisky casks, when they are sold, according to Sars, no tax is payable.

BOITUMELO NTSOKO: Really? I’m shocked.

MICHAEL HALDANE: It’s fantastic.

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

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

BOITUMELO NTSOKO: Now how do you go about choosing the right cask?

MICHAEL HALDANE: It depends on your budget and the length of time. Whisky sells the best at certain ages – years 10, 12, 15, 18 and up.

So if you buy the whisky you need to keep it for a minimum period, in my head, of around five years. Your money buys a mix of whiskies [from] different areas, Lowland Scotland, Highland and wherever – and also different wood. Bourbon wood, wine wood, a whole mix.

Ultimately your whisky will be bought by a company which will empty that barrel, 195 litres, into a bottle. And it doesn’t depend on the makes that everybody knows – Johnny Walker, Regal.

The more independent it is, the more you will earn. Don’t follow [the] mass market. Find interesting places in the middle of Perth, Scotland, Inverness, which nobody’s ever heard about, and find a cask which has been there for the last 30 years.

Such fun.

BOITUMELO NTSOKO: There are recommendations that it’s best to buy a young cask at the right price, because you’ll see a higher return whenever you choose to sell than if you were to overpay for an older cask initially. Do you agree with this?

MICHAEL HALDANE: Not at all. Generally, it’s best to buy a cask anything between [an age of] five years and eight, and sell it anything between years 12 and 15 – generally. Every once in a while there’s a wonderful cask that you have to buy.

But a cask isn’t like a fixed interest rate. There isn’t that fixed earning every year.

Because of Covid, those years not enough whisky was actually made because they were not able to farm barley. And because there wasn’t barley, there wasn’t enough whisky. So any barrel of whisky made in the year 2020 will be worth a lot. This year the opposite thing. Don’t buy.

Whisky is priced on the volume of alcohol in it. The longer the life of a barrel, the less alcohol. So old barrels are good up until about age 35 years, then watch out. It depends entirely on your preference. So personally I have a mix. I buy whiskies which are brand new, I hold them for a minimum of eight years – but I have a wide mix of barrels from 1998 up until now.

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

MICHAEL HALDANE: Okay. Number one, you have to decide how much you have, and it’s in pounds. It’s anything from a couple of thousand pounds to a hundred thousand pounds. It really depends.

You then have to look at where these casks come from – regions, preferences. Then, once you have said yes, I’d like to buy those five casks, we will give you the necessary documents. We will then need copies [of] IDs, passports, evidence of bank accounts and address. Those are sent to the English tax office; not Sars, the English. They are worse than us. If it all comes out clear, you will then be given an order pack. On that pack, you will have a cask number, location, content. So you can have a cask number, eight-digit, in a warehouse [in] Inverness, row four, eight in deep. So you know exactly where it is.

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

Once you have that, you are then given an invoice, and that money is then paid over. Once that is sent, you are then officially that cask owner. You are then given a contract of sale, which is your legal ownership. Finally, you are given in that cask an official serial number and an official document claiming you are the owner. Quite a process.

BOITUMELO NTSOKO: How much do you pay for a cask and how can you ensure that you are not overpaying?

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

Whomever you buy from, [whether] private or industry, make sure the prices are the same.

So as an individual who is ignorant, you need to do a lot of work on that, first of all.

BOITUMELO NTSOKO: And how much can you make from this type of investment?

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

If you buy it between the ages of five and eight years and sell it at about year 12, you can look at an annual increase in price of between 8% and 11% return in pounds.

Some things you have to think about, for there are extra costs on it. You’re looking at about an extra £30 a year to have it kept in a warehouse, and it needs to be insured. It’s not a lot, it’s about £100.

And finally, it has to be tested every once in a while. So someone opens it up, tests it, and for that charges you £100. That job – I want it. Can you imagine?

BOITUMELO NTSOKO: That person has a fun job, hey?

MICHAEL HALDANE: And a headache.

BOITUMELO NTSOKO: [Laughing] And a headache as well. You have basically answered like two of my questions – about when to consider selling, and do you need to insure your whisky cask. So how then do you go about avoiding cask scammers?

MICHAEL HALDANE: I have heard of companies in Spain and Italy [that just] sell, they’ll flog anything. I’ve heard of about companies in Hong Kong that get whiskies and that price doubles it.

So look for a firm that has a good name, look them up. Are they operating in a country where that actual whisky is made?

Have they got a bonded warehouse licence, a Wowgr [Warehousekeepers and Owners of Warehoused Goods Regulations] – that’s what it’s called.

And are they telling you where that cask is? Are they giving you a picture of it? Are they giving you cask numbers, contents? And are they giving you referrals?

Great fun, but it’s a product which you keep for a long time and you have to be 100% sure that it actually exists.

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

MICHAEL HALDANE: It’s not a make-money-quick [investment]. I’ve had clients that said, ‘I’d like to enter into it’ and ‘I want to exit out’ within half a year. You can’t. You need to keep it for a minimum of five years or more. And, as I mentioned earlier, it has a limited life. So [within a] maximum [of] 30 years, 35, you have to put it in glass, and it has to be looked after. So it has to be tested regularly.

BOITUMELO NTSOKO: And just on the selling point – who sells it for you?

MICHAEL HALDANE: We use a number of companies overseas who would approach an individual, a bottler, but they also have a number of auctions. So, for example, there’s an auction on now. You enter a cask, you say, this is my price, minimal. It’s only sold if it hits that price. The buyer on that pays a fee, seller nothing, and that various paperwork we look after.

We also have a group on WhatsApp of a couple of thousand [people] and every once in a while we have on there a cask, and we actually offer it out. You’ll be interested that South Africans quite like whisky.

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

MICHAEL HALDANE: Probably a month. At the moment you need a month plus, just for paperwork and movement of money. The ownership is only moved once payment is made.

Your other option on a cask, which I haven’t mentioned: you can always put it on a boat, bring it into SA, Durban harbour, bring it home, cask it, put it in a bottle with your own label — Moneyweb, age year, single malt – and that’s a lot more fun as well.

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

MICHAEL HALDANE: It depends. You can probably earn more, but you have to have a liquor licence within SA. That’s the catch.

BOITUMELO NTSOKO: Extra work.

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

BOITUMELO NTSOKO: Thank you so much, Michael. That was Michael Haldane, who is managing director at Global & Local The Investment Experts.