Talk about liquid assets.
Goldman Sachs accepted almost 15,000 bottles of fine wine as loan collateral from a former high-ranking executive, according to a regulatory filing last month. Andrew Cader, a former senior director at Goldman Sachs’ specialist-trading unit, pledged a secured interest in the wines, primarily from the Burgundy and Bordeaux regions of France, the filing showed.
Goldman Sachs’ move stands out because private banks that lend money to wealthy clients against assets such as artwork and real estate have been less willing to extend loans backed by fine wines, four specialty lenders and attorneys said.
While investment-grade wines have outperformed the stock market over the past decade, the asset class has been prone to fraud, prompting billionaire William William Koch to file a series of lawsuits to deter counterfeiting.
There are a lot of very highly valued wines here, said David Parker, the head of Benchmark Wine Group in Napa, Calif., adding that the collection cited in the filing had an estimated market value in the low-seven-digit dollar range. The Bordeaux are all first growth and other classified-growth and the Burgundies are all grand cru and top premier cru.
The designation first growth is the top ranking in a classification for wines from Bordeaux, based on the chateau that produced the wine. Grand cru and premier cru are used to designate the top Burgundies, a system based on the vineyard in which the grapes were grown.
Cader declined to comment through attorney Seth Lapidow.
With the U.S. government clamping down on proprietary trading at investment banks, firms have been building up private banking operations to help replace lost revenue. The ultra-rich clients of these banks, who hold collectibles such as art and wine, have sought to borrow against the assets after they have appreciated in value and interest rates have been stuck near record lows for more than four years.
The downside of the asset class has been the risk of being cheated. Koch, the founder of Oxbow Corp., a closely held commodities marketing and mining company in Palm Beach, Fla., estimated that hundreds of millions of dollars in counterfeit wine are sloshing around in the vintage market.
Koch won a fraud lawsuit two months ago in which he claimed a consigner sold him 24 counterfeit bottles of wine from France’s Bordeaux region, including many purported grand crus that cost him tens of thousands of dollars.
This wouldn’t be a regular thing with Goldman, said Stephen Burton, the founder of Bordeaux Cellars Ltd., a London- based firm that finances wine acquisitions. It wouldn’t be made available to the general public, that is for sure.