Talk about liquid assets.
Goldman Sachs Group Inc. 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’s specialist-trading unit, pledged a secured interest in the wines, which are primarily from the Burgundy and Bordeaux regions of France, the filing showed.
Goldman Sachs’s 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, said four specialty lenders and attorneys. While investment-grade wines have outperformed the stock market over the past decade, the asset class has been prone to fraud, prompting billionaire 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, California, 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.
“I’d be reluctant to lend on wines predating 1982 because the provenance is hard to prove,” said Stephen Burton, the founder of Bordeaux Cellars Ltd.
Cader declined to comment through Seth Lapidow, an attorney at Blank Rome LLP, a New York law firm that represents him.
“While we do not comment on individual loans due to client confidentiality, we take great care to apply high standards of risk management and appropriately value any form of collateral on all loans,” said Andrea Raphael, a spokeswoman for New York-based Goldman Sachs.
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 Liv-ex 100 Fine Wine Index, an industry benchmark that reflects the price movement on 100 of the most sought-after wines that have an established secondary market, has increased at an average annual rate of 11 percent during the past decade through April, outpacing the 7.9 percent total return for the Standard & Poor’s 500 Index.
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, Florida, estimated that hundreds of millions of dollars in counterfeit wine are sloshing around in the vintage market.
Koch has filed seven lawsuits in relation to wine, according to Brad Goldstein, a spokesman for Oxbow. He 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.
“I’d be reluctant to lend on wines predating 1982 because the provenance is hard to prove,” said Stephen Burton, the founder of Bordeaux Cellars Ltd., a London-based firm that finances wine acquisitions.
Cader was the co-head of Spear, Leeds & Kellogg LP when Goldman Sachs acquired the closely held firm, ranked as the largest specialist on the New York Stock Exchange, for $6.2 billion in November 2000, according to data compiled by Bloomberg. He received Goldman Sachs stock through the buyout and raised at least $85 million by selling 1.1 million shares between January and October 2002, according to filings with the U.S. Securities and Exchange Commission.
After leaving Goldman Sachs, Cader bought stocks through an investment vehicle called ACNYC LLC. He joined a group of former Spear Leeds executives who bought the Tampa Bay Rays major league baseball team, and he also invested in Quench LLC, a Venice, California, company that supplies DeLeon Tequila, a premium brand that sells for as much as $825 a bottle, according to records filed with the California Department of Alcoholic Beverage Control.
Goldman Sachs’s banking unit filed a notice in August 2010 with the New York Department of State disclosing that it had entered into a credit agreement with Cader backed by his securities account at the firm as well as his interests in 15 Goldman Sachs investment funds. He added collateral several times, most recently in May, when Goldman Sachs amended the notice to say the loan was also now secured by 14,985 bottles of wine, including a bottle of Burgundy produced by Domaine de la Romanee Conti in 1929.
Cader’s private philanthropic foundation held wine with a book value of $1.93 million as of Nov. 30, 2011, according to the most-recent available tax filings with the U.S. Internal Revenue Service.
Cader was sued in April by hedge-fund manager Warren Lichtenstein, the chairman of New York-based Steel Partners LLC, who claimed Cader helped wrongly inflate child support payments for the mother of Lichtenstein’s 5-year-old daughter.
Lichtenstein and Annabelle Bond were engaged to be married but broke up amicably in 2007, and she now dates Cader, the lawsuit says. Bond and the daughter she had with Lichtenstein are now living in Cader’s home in Hong Kong, according to the lawsuit.