The collapse of Nant Whisky - a cautionary tale for investors - MGD
19 September 2017

John Barton

Director and - Chief Executive Officer

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“Investors losing millions of dollars, bar staff taking cash from the till just to get paid and a former cricketer dropping out of a high-profile marketing deal”

Sounds like the beginnings of a financial catastrophe, doesn’t it? That’s because it is. Those words string together the opening line of one of many news articles detailing the collapse of what was once ‘a darling of Australia’s boutique spirits scene’ – Nant Whisky.

 

The tale of Nant Whisky

Founded and owned by Brisbane businessman Keith Batt, Nant Whisky has been referred to as ‘liquid gold’. The small Tasmanian distillery took out two medals in the World Spirit Awards in 2015. Former Test cricketer Matthew Hayden even stood among the single malt whisky barrels as an ambassador for the brand.

In 2008, almost 900 investors were lured by the attractive returns offered through the Nant investment scheme, designed to fund the business and cover upfront costs. Simply put, investors were offered the opportunity to purchase barrels of whisky, which cost up to $14,000 each. Those barrels would then be stored in Nant’s bonded warehouse and after four years of maturation, Nant ‘guaranteed’ to purchase the barrels back, with investors receiving a generous return of 9.55% each year.

But that didn’t happen.

Last October, following reports suggesting Nant was struggling financially, publicly listed private equity group Australian Whisky Holdings (AWH) announced a takeover of Nant. However following an audit of the barrels as part of its due diligence, AWH revealed that 700 barrels that were purchased by investors had not been filled, were missing or had been quietly decanted, bottled and sold to the public, without the investors’ knowledge.

It is understood AWH has since pulled the plug on the takeover after discovering the full extent of the debt the business had accrued, Tasmanian Police have launched a criminal investigation into Nant and hundreds of Australian and international investors have been left thousands of dollars out of pocket. As for Keith Batt? According to ABC’s Background Briefing, he has maintained a very low profile and has been tracked down living in a $1.4 million home with river views in Hamilton, Brisbane.

Another interesting point to note about this failed investment scheme is that the promoters denied they were offering a financial product (the barrels would be classed as property instead). This means they were not required to issue a Product Disclosure Statement or apply for an Australian Financial Services licence. As a result of this, the Australian Securities Investments Commission is unsure they have the power to act in the case at all.

ABC RN covered the story of Nant in a 40 minute Background Briefing special – A whisky business. A worthwhile listen if you want to learn more about the failed investment scheme.

 

So, what can we take away from this?

Many investors are currently searching for new ways to invest their money and grow their portfolio, and understandably so. With interest rates sitting at historic lows, and likely to stay there for some time yet, there is a natural tendency for investors to chase, or at least consider, higher returns. While it can be tempting to jump on the bandwagon of the hottest investment trend, making bold claims about potential returns (as was the case with Nant), higher returns generally come with higher risk (the Nant investors learnt this the hard way). Yes, you could win big. But you could lose big, too.

One of the key take-aways from this story is rather than focus on the investment in front of you, turn your focus onto your overall portfolio. What role is a particular investment going to play in your overall portfolio? What will happen if the investment goes right? What will happen if the investment goes wrong? At the end of the day, no one can predict what is going to happen. But if you take a look at the bigger picture and understand as best you can the nature and level of risk associated with a particular investment, and how it could impact your portfolio, you can be prepared if it doesn’t work out as planned. No matter how comfortable you are with an asset or asset class, always consider the downside. You may want to consider seeking the expertise of a professional in the space to help you understand the different risks involved for a particular investment and how certain outcomes may impact on your overall portfolio.

Another takeaway is don’t rush into decisions. Do your research, absorb as much information as you can and do your due diligence so you know what you’re investing in. Before you purchase an investment, ask yourself…

How can I lose money with this investment?
How will this investment help me achieve my personal and portfolio objectives?
What’s my exit strategy?
Does this investment make business sense?
How does this investment affect the risk profile and return expectations of my portfolio?
How realistic is the expected return?

There is no secret to investing. Investment success takes a lot of experience, knowledge, patience, common sense and research. Investing is a long-term game so remember to keep your eye on the long run and remember – whisky has never been an asset class.

Disclaimer: This article contains general information only and is not intended to constitute financial product advice. Any information provided or conclusions made, whether express or implied, do not take into account the investment objectives, financial situation and particular needs of an investor. It should not be relied upon as a substitute for professional advice.