In today’s Finshots, we tell you why people are investing in whisky casks and why these alternative investments are susceptible to fraud.

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The Story

Making whisky is a working capital-intensive business. Distilleries have to go through a long, labour heavy process — malt grains like wheat or barley, mash it, ferment it, distill it and finally let it rest in oak casks for years.

Take Scotch whisky, for instance. It has to mature for at least three years before it can legally be called Scotch. The premium stuff is aged for much longer. And during all those years, the whisky just... sits there, maturing quietly. But distilleries can’t afford to do the same. They have to keep producing fresh batches year after year. Which means they need working capital — money to buy raw material, casks and invest upfront in storage and ageing.

But since they can’t sell the whisky until it matures, there’s no revenue coming in. No profits to reinvest. And that creates a cash crunch.

So to raise working capital and stay afloat, distilleries often sell some of their whisky casks every year.

But wait… who’s buying these casks?

It’s not like the whisky’s ready to pour. It’s still in its early stages, just beginning its long ageing journey.

And that’s where whisky cask investors come in.

They put their money into young whisky, hoping that as it matures, its value will rise. And when it does, they can cash out by selling the cask to another investor, an independent bottler or even back to the distillery at a neat profit.

It’s a win-win. The investor gets to ride the value curve of ageing whisky, and the distillery gets the money it needs to keep things going.

That’s pretty much how whisky cask investments took off.

But this kind of alternative investment has caused quite a stir in the UK lately. Several people have lost millions of pounds to whisky cask investment scams. Some even poured in their entire life savings into schemes that sounded lucrative, only to watch it all vanish when the fraudsters disappeared without a trace.

So if something like rare whisky can be this risky… why bother investing in it at all?

Well, for starters, the returns look far too tempting to ignore. We’re talking nearly 430% growth in rare whisky prices over the past decade. That’s crazy, especially when you compare it to gold, which went up by around 250%, or the S&P 500, which climbed about 165% during that same period. It’s no wonder then that investors, especially the high net worth folks are drawn to it. And sure, when global markets are being tossed around by wars, supply chain shocks, tariffs and all kinds of uncertainty, traditional assets feel shaky. Even the so-called safe options like bonds just don’t feel rewarding enough. So many are willing to take the alternative investment route.

The proof is in the pudding. According to the UBS Global Family Office Report 2024 – which covers families with an average net worth of $2.6 billion, global alternative investments made up 40% of all strategic asset allocations, and even more in Europe, at 45%.

But returns aren’t the only draw. 

There’s also the experience. When you invest in a whisky cask, you’re not just owning a financial asset. You’re owning the equivalent of 400 bottles of spirit. You can visit the distillery, taste the whisky as it matures and even design your own personalised bottles or limited releases. And for many, that adds an emotional and social value beyond just the numbers.

And then there’s the tax angle, especially in the UK and Ireland. 

You see, whisky casks are exempt from Capital Gains Tax because they’re classified as “wasting assets” or “wasting chattels”. Meaning they are expected to lose value over time due to evaporation. So when you sell your cask, you keep the profit, tax-free. And that’s a neat little boost to your returns.

It sounds like a dream. And scamsters know this all too well. 

They know whisky is seen as a legitimate alternative to volatile stocks or boring old safe havens like gold. And they also know that if they dangle the promise of mouth-watering returns, they can swindle millions from unsuspecting investors. In 2023 alone, UK investors lost nearly £3 million ($4 million) to alcohol related scams. And honestly, it’s not hard to see why.

For starters, even though whisky sounds like a hot investment trend, most people diving in barely understand the market. A KPMG study, for instance, found that nearly a third of the non-professional investors, mostly high net worth individuals, had limited knowledge about how whisky investments actually work. That means they wouldn’t bat an eye if someone sold them a cask at five times its real value.

And it’s not just the pricing. Many investors don’t really know how their returns are supposed to materialise. Investment firms might claim to offer casks from iconic distilleries, which sounds impressive at first. But they conveniently leave out key details like trademark restrictions.

Under UK trademark laws, when you buy a cask from a big-name distillery, you usually don’t get the rights to use that distillery’s name when bottling and reselling the whisky. That branding belongs to the distillery because they don’t want independent investors or bottlers cashing in on their brand. And without those naming rights, you can’t slap a fancy label on the bottle, which is why your whisky gets sold under vague regional names or coded references. And that can drastically reduce its resale value.

All this confusion gives scamsters the perfect cover. 

They know many investors don’t ask too many questions. Some fraudsters have gone as far as selling imaginary casks that didn’t even exist. Others have sold the same cask to multiple investors without ever transferring actual ownership. It’s like this. The scamsters keep the cask, take money from different investors, hand out fake ownership certificates, maybe even set up fake online platforms to make investment and performance tracking seem genuine, and then vanish overnight.

So, how do we stop scams like these, you ask?

Well, the answer is simpler than you might think — regulation.

You see, whisky cask investments in the UK aren’t regulated by the Financial Conduct Authority (FCA). Which means there’s no official oversight for buying and selling whisky casks as investments. So when scams happen, investors have no safety net. It’s a similar situation in Ireland.

So maybe, just maybe, this latest multi-million-pound scam could be the wake-up call the UK needs. If whisky cask investments were regulated, it would bring more security to investors. 

Take the US, for example. It’s tougher for individual buyers to invest in casks there, and the Securities and Exchange Commission often steps in when casks are marketed as collective investment schemes or when returns are promised based on management.

If something like this could be implemented in the UK and Ireland, where the whisky industry is worth billions and supports thousands of jobs, it could actually boost confidence and credibility in these rare investments. And more trust could mean more growth for the whisky business itself.

We’ll just have to wait and see if the UK gets the hint.

Until then…

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