Whisky investment continues its meteoric rise as an increasingly viable alternative asset class. But it’s not just prospective investors that it’s attracting, it’s also luring the City’s best and brightest from their roles in finance looking for a step-change to an investment sector that shows no sign of slowing down any time soon.
Thomas White, new head of investment at Tomoka Fine & Rare, is one such individual leading the charge. Having turned his back on a lucrative career in equities and currencies, White managed a whisky startup company before being headhunted to run Tomoka’s flourishing investment division. And it would be fair to say he’s bullish about the firm’s outlook over the next decade.
We caught up with White at Tomoka’s Royal Exchange base to find out more…
Square Mile: Firstly, tell me a bit more about your background, where you come from and how you ended up at Tomoka.
Thomas White: I started my finance career at 18 years old, entered the derivatives market and then inter-dealer broking. Later, I moved into more high risk intraday swing trading within equities and currencies, which is where I spent most of my time in finance. When Covid hit in 2019, the high-risk nature was something I wanted to move away from, the ups and downs of those markets didn’t really align with my values anymore. I was settling down, becoming a new father, so for me it was time to look for something a little bit more stable and more long term.
I looked at a few asset classes, mainly tangible assets – fine wine, gold, precious metals, and art – but it was really whisky that stood out. What resonated with me about whisky is the fact that it’s maturing in the cask, and unless you’ve got a time machine, you can’t go back in time and produce more. There’s only a certain amount of each distillery’s production each year. And with demand outstripping supply, it jumped out to me as an asset class for diversification for investors, a safe haven from market volatility.
I entered the whisky market about three years ago when I helped manage a startup company before I was headhunted by Tomoka. I never jump to decisions lightly, I always like to analyse everything, but once my decision was made it was a bit of a no-brainer for me.
SM: What attracted you about the job?
TW: Firstly, the fact that the two directors here – Jass Patel and Shane Cody – are genuine whisky guys that makes the difference. Most companies within whisky, like myself, come from a finance background, but these guys live and breathe whisky. They started Tomoka 12 years ago as a retail proposition first and have since moved into investment.
Second of all, the variety in products, and some of the exclusivity to different deliveries and products that we have. I won’t mention any names on previous companies, but a lot of the products I was selling before, you can get from a variety of different companies within the industry. There wasn’t anything unique about what we were dealing with. At Tomoka, with the likes of Powerscourt Distillery and Stowloch Whiskey, it’s exclusive product. Add to that the fact that here at Tomoka they’re also innovating in the investment space and that’s incredibly appealing.
SM: You’ve mentioned you’re a finance guy. Tell us more about your day-to-day role?
TW: As head of investment, my finance background means that I speak to and advise our client base on their investment, outside of the product itself. Most of the investors coming into whisky are coming away from certain areas within the stock market because of the volatility out there, so it’s my role to help guide them on that journey. I mean, the likelihood is we have a global recession on the horizon – that’s certainly what the macro factors are pointing towards in my opinion. You look at the banking crisis right now, we’ve had three major US banks go under in the course of the last few months. We’ve had the Credit Suisse issue as well. So within a time of uncertainty, my job here is to give that level word of advice to our investors and clients, not just about their existing portfolios, but those in the stock market as well.
Of course, I’m not a master distiller, nowhere near, but my knowledge in whisky in terms of the products and the sell side of things and the finance behind it, and the numbers certainly will help push this company to where it needs to be, which is at the top of the pile. We want to be a titan of industry over the course of the next five to ten years. And that’s my job here. It’s a long-term project, it’s not a get-rich-quick scheme; stable returns are the aim of the game.
It might sound overly simplistic, but when you buy a cask, you have to remember you’re investing into a cask of whisky. Look, nothing’s guaranteed in life, right? But it’s going to take a seriously unfortunate set of circumstances for that whisky to be less valuable over a five to ten year period. If we look at the banking crisis in 2007-2008, it was terrible for investments. I think the stock market lost 40% of its value and it took 1,400 days to recover. In comparison, whisky had its record growth that year – a 23% market growth for whisky. It’s very much an inflationary hedge, but it’s also a hedge against the economic uncertainty that we’re certainly living through again right now.
Whisky investors are coming away from the stock market because of the volatility out there
SM: We’ve seen time and again in periods of uncertainty, whether they’re pandemic or recession related, that alternative assets thrive. There seems to be no stopping whisky at the moment…
TW: I think it comes back to something I’ve already mentioned: you can’t go back in time and produce more whisky. Irish and Scotch whisky need to be matured for a minimum of three years before it can legally be bottled or consumed and even called whisk(e)y. There’s no corner cutting, that is going to take a period of three years. If we go back to the pandemic through that period, 2019 to 2021 production was down 40% because a lot of these distilleries were closed by the lockdowns. When you’re not producing whisky, that’s going to have an impact on the market, whether it means that companies buy younger spirit to blend and bottle, or they simply pay more for the spirit that’s already on the market.
We still haven’t seen the full effect of Covid in terms of the stock market negatively. But in fact for the whisky market, it’s actually a positive. I think we’ll see that play out over the next three to five years, certainly.
SM: When you counsel your investors, do you suggest that they diversify their investment across short, medium and long term propositions?
TW: It really depends on the individual, but absolutely. I mean, I go back to equities, right? When you balance a stock portfolio or a typical portfolio, you’d usually go 60% to 70% in equities, and 40% to 30% in bonds because they have an inverse relationship.
When it comes to whisky, it all depends on how long you want to be involved for. If an investor was to sit down and say, “Look Tom, I’m looking for a maximum here of five years worth of investment.” Then I’d certainly be leaning towards the Irish whiskey market and steering away from Scotch. But if they’re an open book and they want to build a portfolio for the medium to long term, then diversification between all markets is key because it’s a rule of thumb – and it’s probably an overused phrase – but diversification is key to any successful portfolio.
SM: And in terms of your typical investor, what kind of demographic are you attracting?
TW: It really does vary, because this asset class is becoming very attractive to every type of investor. Typically speaking, you’d be talking about your average demographic being someone coming up to retirement, looking to diversify away from their poor performing pension, or they’ve taken a big hit in the stock market and are looking to protect themselves from that. But now, I mean, we’re having inquiries come through and investors coming on board from people in university, students, people just starting out on their investment career, which is crazy. You never would’ve expected that a few years back.
Again, if we go back to 2007, a lot of the distillers would get their financing from the banking sector, which is not really possible now, so naturally cask investment has become more and more popular since then. Certainly, I think there are more and more companies in the sector and in the area now.
SM: Is the increasingly crowded investment space a potential issue for prospective investors? As you say, there are a lot more companies in the sector these days…
TW: It’s never ideal to have lots of competitors, but what it’s about is knowing your market and being different. With Tomoka, what we don’t do is just work with any distillery. There are many different factors and many variables that we look at with a distillery before we work with them. What we pride ourselves on and what we really try to do is work with distilleries where either we’ve got exclusivity or they have extremely low production in terms of the spirit they make – and, of course, the quality of the spirit.
We’ve also got the retail shop here, which gives us a physical presence in the City. We do the bottle side of the investment as well, which for me is a little bit more speculative than your cask, but you can also see a great return if you go for the right bottle.
Ultimately, cask is where I’d focus my portfolio as bottles don’t mature. It’s a distilled spirit whisky, so once it’s bottled it’s not maturing. If you bottle it at 12 years old, it will always be 12 years old. Whereas with a cask, as we discussed, the demand is going up, consumption is going up. But even if it doesn’t, a cask is still going to age. Every time a cask is bottled and consumed, your particular cask is then of a rarer vintage and is therefore more valuable. There are many different factors that drive the price of whisky casks
up and demand is just one of them.
The most exciting area right now is with Irish and American whiskey
SM: What areas of the cask market are you looking at and seeing significant potential?
TW: Most companies deal with scotch whisky, mature scotch, which you can get from stock quite easily because there’s so much of it on the market. But look, for me, scotch whisky is great and it always will be great. It’s very safe, it’s very secure, it’s very stable. But in terms of the compound annual growth of the demand and the increase in demand, the scotch whisky market is growing in terms of demand significantly less than other whiskey markets.
For me, the most exciting area right now is with Irish and American whiskey, particularly your Irish single pot still. If we go back to pre-prohibition, it was the most sold spirit on the planet and now it’s coming back with a vengeance. The Boann Distillery in particular is really exciting. It’s a family-run business that is redefining the meaning of a single pot still. They’ve got a very unique way of producing their spirit as well – they’re utilising nanotechnology in their production to remove impurities from the spirit. They were awarded the best new-make spirit in the world at the World Whiskies Awards in 2021, which was a first for Irish whiskey. Boann for me is a name to really keep an eye on.
In terms of American whiskies, we’re very excited about our exclusive partnership with Stowloch Whisky, which comes with one of if not the first fixed-rate return opportunity in the whisky sector. To be able to offer this certified buyback on a product like Stowloch is incredibly exciting. It’s a great armchair investment, because as we touched on before, the one downside to this asset class for me is the lack of liquidity. That’s the only factor that you look at and think, is that a red flag? Is that something I need to worry about?
You know, with a stock or a share, the funds are back in your account within three days. Whisky is not as liquid as that. If you want to exit from the market, we need to find you a buyer, especially if it’s not at the point where it can be sold to an independent bottler. That may take two, three, four, five, six weeks. But with the Stowloch product, that uncertainty is completely taken out of the market. It’s the first time I’ve come across a company offering that kind of scheme in terms of the buyback coming from the distillery itself. It’s something that I think is going to catapult Tomoka to the top of the tree.
SM: Well, let’s talk more about that now because it is probably your flagship offering. It’s quite unlike anything else on the market.
TW: So, Stowloch is a distillery in the Ozarks Highlands and it produces an American bourbon. What they focus on with their product and their story is that all of their products are heirloom seeds. There’s no GMO products in their spirit, whatsoever. It’s all made with organic products. The water is all filtered to be fluoride and chloride free, so it’s an incredibly pure product, and you can taste that when you taste its bourbon.
We’ve created an exclusive investment package with the distillery that, as far as I’m aware, is the only product on the market that comes with a certified contractually stipulated buyback guarantee from the distillery itself. Effectively Tomoka, with a broking agent, has exclusivity in terms of selling the product and offering it out to our investors.
To an investor, you buy the spirit new-make, it’s a minimum of a five-year hold. You hold for the five years and you get a fixed return of 25% over that period of time, and then at the end of ten years, it works out to 83%.
So look, is it going to yield the same higher rate of return as you’ll get in maybe Irish whisky over that point in time? Probably not. But to just have that risk factor effectively taking out of the investment.For me, a lot of investors are going to jump at that opportunity because it just becomes effectively a whisky fixed rate bond almost.
So yeah, you own the tangible asset, nothing changes in that context. You still own the cask, it’s still yours, but the distillery will buy it back off you at year five or ten. It’s just up to you how long you want to hold it. There’s $6,000 a cask and you get 10 years storage and insurance included in that. There’s no hidden pitfalls or hidden charges.
It’s the only whiskey product with a certified contractually stipulated buyback guarantee
For me, it’s a perfect diversification tool. If you’ve got exposure in Scotch and Irish whiskies already, well then the Stowloch product just adds a layer of diversification that negates the risk of the market, if you will. The uncertainty, the lack of liquidity that’s within the market, it’s no longer a concern with that particular product. Some investors may prefer to have the added element of risk and go for the higher rate of return, but a lot of investors will want this in their portfolio.
SM: I don’t know if there is a particular reason for this, but there seems to have been a distinct lack of availability of Japanese whiskey casks in the UK. Is that simply due to the fact that Japan closely guards its casks and you can’t get a hold of them here?
TW: You’ve hit the nail on the head. I think as far as I’m aware, we’ve had one small allocation of 20-25 casks coming from Japan. They certainly guard their casks. We deal quite heavily in their bottles and we’ve invested really well in Hibiki, for example. But the cask side of the market, that’s just very, very difficult to enter ultimately.
That may change because as far as I’m aware, changing Japanese regulations have prohibited blending the liquid with Scotch whisky, which may force them to open their doors to some investment effectively. So that could change in the coming years.
SM: Last question. Where do you see Tomoka in ten years’ time? Are you optimistic for your investors?
TW: I couldn’t be any more optimistic to be totally honest with you. Most importantly for me, it’s not just about seeing a great return for clients, but about protecting the capital and the money that they already have. And that’s what whisky offers, that safety blanket, that protection, and really guarding against potential stock market fluctuations.
Certainly over the next five to ten years, I’d like to think that Tomoka itself will be a titan of industry at the very, very top of the market. I think we’re well on our way there.
For more information, see tfandr.com
