Feb 3, 2024 - Business

The private equity fund that only invests in barrels of whiskey

Illustration of George Washington from a one dollar bill peeking out of a barrel

Illustration: Sarah Grillo/Axios

Some private equity firms buy alcohol companies, while others are teetotalers that avoid all "sin" deals. Then there's Cordillera, which is investing in the actual fermented fluids.

Driving the news: Cordillera last week announced that it's raised $62 million for a fund dedicated to buying and aging whiskey barrels.

Backstory: The Bay Area firm was founded 10 years ago to invest in niche, non-correlated assets. Or, as co-founder Chris Heller puts it, "off-the-beaten-path, weird stuff."

  • Early efforts included music royalties and litigation, although Cordillera likes to exit once others begin to enter. That led it to new areas like boating marinas and, more recently, barrels of whiskey.
  • "We had three different players in the spirits space point out to us an anomaly, which was that the aging curve for whiskey was particularly steep because the bourbon boom had caused demand to massively outstrip supply," Heller explains.
  • "So we ended up making a couple investments out of our second and third funds, and then decided it was worth a dedicated effort."

What to know: Most bourbon makers used to be vertically integrated, which meant they did the distilling, aging and distribution. Jim Beam, Jack Daniel's, etc.

  • But then came a new generation of craft brands that didn't have the money to build their own distilleries, and instead preferred to buy barrels.
  • Cordillera plays in that middle space, buying barrels from distillers, aging them, and then selling them to premium and ultra-premium brands.

The risk: It's been 17 years since "Mad Men" made brown liquor cool again, and there are some signs that demand growth is slowing.

  • In fact, Heller says he expects this to be his firm's only whiskey-dedicated fund, because the returns won't be as attractive in a few years.
  • Meanwhile, there also are some supply side worries that large, vertically integrated players could have a glut of shadow inventory that they'll roll into the market. Kind of like what happened when Seagram shut down in 1990.

The bottom line: Bottoms up.

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