Liv-ex is the official valuer for a number of leading wine funds. We perform this duty for up to ten different companies
every month. But why is Liv-ex data trusted by wine funds and their
administrators to perform this task? We thought we would use today’s blog to answer some commonly asked questions and explain exactly what makes Liv-ex data unique and particularly well suited for
the accurate valuation of fine wine.
Transactional: Liv-ex valuations are based on live data from
the Liv-ex fine wine exchange. The exchange is used by all of the major wine
traders globally – 420 members across 35 countries – to both check prices and to trade. More than £20 million of
firm commitments to buy and sell, across 3,000 different markets, are live on
the platform at any one time. The strength of Liv-ex data is that our members
are making legal commitments to buy and sell at the prices that they quote on
our screen. Almost all other wine price data sources provide only ‘offers’ (in
the form of merchant list prices). What is more, these prices are “subject to
availability and final confirmation” and are therefore nothing like as
Standardised: Almost all trades on the exchange take place
according to a standard contract – with the same terms for payment, delivery
and the condition of the wine. This makes Liv-ex data truly like-for-like,
unlike auction or merchant data.
Transparent: All Liv-ex transaction and list price data is
posted, in real time, on Liv-ex.com. Both sides of any trade pay exactly the
same price, with no hidden costs or margin. And as Liv-ex holds no stock
and does not make a market on the platform, we are independent of the data that
we produce. This type of transparent transaction data is not available anywhere
Methodology: We call the methodology used to price wines held by funds, the
Liv-ex Mid Price (download the methodology). It uses live Bids, Offers and Transaction
prices to calculate a ‘Mid Price’ that represents the wine’s value on the valuation
date. (We also use the Mid Price to value our indices).
To see this methodology in action, we are displaying the
current market for Lafite Rothschild 2009 below. This wine is heavily traded on
the exchange and benefits from an active market.
First, we find the lowest offer. We include both 6x75cl and
12x75cl cases in the Mid Price calculation, although all prices are worked out
for 9l equivalents. As such, the best offer in this calculation is £7,260 (€743 per bottle). We
then sense check this offer by asking if there is any other stock available on
a merchant list at a lower price (as long as the merchant is a reliable
stockholder). In the example above the lowest merchant price is £7,400, so the
live offer stands. We then calculate a bid price. The best bid is £7,200 (€737 p/b),
giving us a spread of £7,200-£7,260 (€737-743 p/b), a difference of just 0.8%, and a Mid Price
of £7,230 (€740 p/b).
Finally we look at the most recent transaction (30 days old
or less) and see if that sits within the spread. If it does, it is used as the
Mid Point; if it doesn’t it is ignored. For Lafite 2009, the last trade (£7,260 from today) sits on the edge of the spread (all the red dots on the chart below are
actual trade-to-trade transactions). Therefore the final Mid Price for Lafite
2009 is £7,230 (€740 p/b).
(The blue line on the chart below is the Liv-ex Market Price. This is the lowest list price from a reliable, stockholding merchant over the last 14 days. It is used by Liv-ex as a price tracking tool and for informal valuations. It is not suitable for mark-to-market wine fund valuations.)
Liv-ex only values those wines that can be properly
marked-to-market. In general that means
the wines need to enjoy an active secondary market with robust data available. (80%
of Liv-ex trade is in the last 10 vintages and this is an accurate reflection
of where liquidity lives in the fine wine market.) Usually, a wine will need to
be from the 1982 vintage or later for this to be the case. For some wines with
very small productions – such as top Burgundy – this can differ. We advise that
any wine with an insufficient data set (such as very old Bordeaux and rare
Burgundy) should be valued at cost until resale, particularly in open ended
funds where an annual performance fee is charged.
We are often asked why we don’t include auction prices in our
calculation. First, due to a lack of standardisation of auction lots and low
liquidity auction prices can be very volatile with large swings in price on a
weekly basis (see the chart below for Latour 2005). Liv-ex has traded 72
cases of Lafite 2009 in 28 transactions over the last two months, as opposed to
three cases sold at action over the last year.
Second, auction commissions – which can be upwards of 20%
for the buyer and 10% for the seller – can vary. The seller’s commission is not
published on a sale-by-sale basis. As such the exact amount returned to the
seller – which is what should be used for valuation – is unclear. Often there
can be a 30% spread between what the buyer pays and the seller receives. The difference on Liv-ex is 4% on average.