The good news is that what Wave Financial Group is doing with its Whiskey Fund doesn’t seem like some sort of digital boondoggle. While the investment firm uses the phrase “tokenization” in its pitch (bringing to mind NFTs, aka non fungible tokens), there is actual whiskey, in barrels, that’s being bought, cared for and eventually sold.
But what exactly is a digital asset fund, how does this apply to barrels of brown spirits and what exactly does it mean that this fund tokenized over $20 million worth of whiskey last year and wants to do it again?
I’m a spirits fan, not a financial wizard. So I hopped on a call with Steffani Scheurich, an alcohol industry expert with past experience at Pernod Ricard and Brown-Forman, and Benjamin Tsai, the president and managing partner of the crypto/blockchain-focused Wave Financial (and the portfolio manager for the Wave Kentucky Whisky Fund) to figure out why people should be interested in such an unconventional investment. (Caveat: While this is all interesting, please don’t take any of this as an endorsement, or lack of one, for investing in whiskey or funds like these.)
Financial firms are starting to look at whiskey as a solid investment
“When a whiskey first goes into a barrel, the cost is about $750-$900 per barrel,” as Scheurich explains. “But when you get to three to five years of aging, the price of that whiskey doubles, triples or even quadruples.” So, taking away tokens and digital currency and looking at this purely from an asset value standpoint, whiskey shows great growth. Ergo, interest from financial institutions, particularly one that is looking at unconventional investments.
The firm is working with a well-respected distillery
Even though they only started in 2012, Wilderness Trail is currently the 14th-largest distillery in the world. As Tsai explains, they have 680 acres and six ricked warehouses to work with, along with 100,000 barrels in inventory. With an expert team overseeing the barrels — and possibly wanting to buy some of the whiskey back at some point — there’s also a built-in level of quality assurance (WT’s high-rye Small Batch Bourbon scored a 94 from Wine Enthusiast in 2020).
Whiskey might be the best unconventional asset out there
Tsai notes that his firm looked at clean water, carbon credits, “Picassos” and even Japanese race horses before deciding on whiskey as the asset for the fund. “We like the returns on it, and there was a simplicity and reduced risk to it,” he says.
Investors have something real in their portfolio
While crypto and blockchain are a focus for Wave, those digital ideas are only a small part of this fund. “The fund is asset backed,” as Tsai explains. “These are not paper contracts or futures. These are actual barrels.” Tsai also notes he’s been asked more recently about investments in hard assets that will increase in value in an inflationary market, citing real estate and even used cars as current examples.
The plan to sell the whiskey is pretty straightforward
Wave plans to mature the whiskey for three to four years, then either sell the barrels back to Wilderness Trail, sell to distillers or producers who want or need a certain whiskey profile, sell to non-distiller producers (aka brands that blend and market but don’t own their own distillery) or sell to international markets, particularly Spain, Japan and Australia, where demand is high for bourbons.
In case you’re wondering what’s in Wave’s stock, the majority is a high-rye bourbon, followed by a wheated bourbon and a rye whiskey.
So what is “tokenization”?
Thankfully, it’s purely optional for investors. Basically, owners in the fund get security tokens, which they can sell on a secondary market and cash out early if they want. “It allows for some liquidity in a fund that doesn’t usually have one,” says Tsai.
The bad news? You’ll need to be an accredited investor and probably need to invest at least $100,000 to even begin a conversation with Wave.
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