Fine Wine Investment: All About Bordeaux? November 2008

1. Fine Wine Investment: All About Bordeaux?November 2008

2. Investment characteristics of top flight Bordeaux • Deep and actively traded market, including en primeur • Place de Bordeaux • London brokers • Robert Parker points clearly drive prices • World-wide recognised “brands” and loyal markets • Ageing potential

3. Investment characteristics of top flight Bordeaux • Limited supply, reinforced by legally enforceable “appellation” strictures • Stringent quality standards • Portfolio diversification potential: • Price levels / brand strength • Medoc / Right bank / Sauternes • Bottle format

4. Champagne • Fewer restrictions on supply; champagne producers such as Roederer buy in around one third of the grapes that they use. Although strictly quality controlled, not quite the same as the constraints in Bordeaux where only grapes grown on the estate are used in the wine • Volumes certainly sufficient for active investment market: • DP: 160,000 cases per annum • Krug: 42,000 cases / annum • Roederer Cristal: 34,000 / annum • Complexity provided by blending of chardonnay and pinot noir grapes • Quality consistently extremely high • Less ageing potential and extremely vulnerable to less than optimal storage, particularly heat, (one reason you see the anti- UV wrapper on Cristal)

5. Burgundy • Land in extremely small parcels, thus: • Low production from each vineyard: three vine’s annual production required to produce one bottle of DRC RC • Allen Meadows “Burghound” generally held to prevail as leading critic • Some white burgundy seen at auction • Impractical to build up large positions in the very top wines

6. Rhone Valley • Winemakers: Guigal, Jaboulet Aine, Bonneau • Top Fine Wines: Hermitage La Chapelle, Cote Rotie • Volume sufficient for a liquid market (2000 HLC was 107,000 bottles) • Doubtlessly has its own distinct following, not dissimilar to Bordeaux and Burgundy • However (with a couple of exceptions) the iconic HLC has fallen a little from grace since the great vintages of the 60’s and 70’s (which were considered in many cases to have aged better than equivalent Bordelais fine wines) • Many wines now struggling to achieve 90 points, making en primeur investment risky (10 poor vintages after the 100 point 1990)

7. Italy • Despite being the largest producer of wine in the world, many of • the fine wines of Italy are produced in relatively small quantities; • making them difficult to access in sufficient volume to support • mainstream investment • Tua Rita Redigaffi (2000 = 400 cases) • Bruno Giacosa (each wine = c.550 cases) • Dal Forno Romano Amarone (825 cases) • Antinori Solaia (3,000 cases) • Tenuta dell’Ornellaia (c.10,000 cases) • Tommaso Bussola Amarone / Recioto (500 cases) • Risk that wines made from dried grapes (amarone, recioto) may • become unfashionable

8. Port • Return of classic vintages can be attractive, e.g. 1963 Taylor’s has returned over 14% annualised • Realistically, main beneficiaries may be the decreasing cohort of port aficionados going forward • Risk of going out of fashion in the medium to long term, qv sherry, madeira

9. Spain • Generally fully priced from release • Pingus – less than 500 cases per annum • Vega Sicilia Unico • Potential candidate • 6,500 – 7,000 of the “Unico” • Released after 5 years of ageing • Globally acknowledged “brand” • Clos Erasmus – 250 cases • Parker no longer rating top wines

10. California • Consistent quality in top wines, helped by reliable weather • Can be relatively expensive, e.g. Opus One vs Parker Points • Potential risk of buying wine that needs to travel across the Atlantic • Screaming Eagle still rated personally by Parker, quality consistently exceptionally high, but only c.650 cases and a 10 year waiting list • Alban Vineyards / Sina Qua Non wines dispersed across a number of discrete locations and grape varieties • Robert Mondavi Cabernet Sauvignon Reserve; volume sufficient, but quality not quite top drawer – below “super second” Bordeaux

11. Summary • Bordeaux will remain at the core of fine wine investment market for foreseeable future for portfolio managers and private investors alike • Limited opportunities for sizeable investments outside of Bordeaux • Other areas do, however, provide potential for smaller scale investors where they can access wines at reasonable entry prices • Secular risk of wines going out of fashion, e.g. Port, Amarone

12. Disclaimer This presentation is authorisedand issued by ARCH Financial Products LLP (“ARCH”) whose registered office is at 90 Long Acre, Covent Garden, London, WC2E 9RA, regulated by the Financial Services Authority and is not intended for or to be relied on by private investors. Consent under the Control of Borrowing (Bailiwick of Guernsey) Ordinance, 1959 (as amended) has been obtained in respect of the issue of securities referred to herein. Neither the Guernsey Financial Services Commission nor the States of Guernsey Policy Council takes any responsibility for the financial soundness of the Funds or for the correctness of any of the statements made or opinions expressed with regard to them. This document does not constitute an offer, or a solicitation of an offer, of securities, and no securities are to be offered or sold, in the United Kingdom other than to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses, or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Financial Services and Markets Act 2000 (as amended). Unless otherwise stated, the source of all figures contained herein is ARCH. Past performance of investments is not a guide to future performance. This presentation does not constitute advice or a recommendation to enter into any transaction Whilst all reasonable care has been taken in preparing this presentation, the information contained herein has been obtained from several sources that we consider reliable but we do not represent that it is complete or accurate and it should not be relied upon as such.  Neither ARCH, nor any partner or employee shall be in any way responsible for its content. Partners and employees of ARCH may have a position or holding in any of the above investments or in a related investment. Any decision to purchase or sell securities should be made based solely on the information contained in the fund’s offering memorandum. ARCH does not provide investment advice to clients or potential investors. This presentation is valid as of November 2008. Doc ID 0811241125.