Are large diamonds an investment vehicle? There’s a growing chorus of participants who say yes. The Wall Street Journal looks as some of the players in the market and provides us with some numbers on the nearly 40-1 ration of diamond industry versus diamond investment trades:
The advent of online venues for trading polished white diamonds has improved price transparency needed to enhance liquidity and make possible the launch of diamond investment funds, says Saul Singer, principal of London-based Fusion Alternatives, a money manager specializing in diamond investing. (Polished white diamonds are the most commonly traded for investment purposes and serve as a sort of diamond benchmark.)
Fusion plans to start an investment fund, either as a listed vehicle on the London Stock Exchange’s Alternative Investment Market for small companies or as a private equity-type fund. In March, Cayman Islands-based KPR Capital Ltd. created an open-ended diamond fund for investors willing to put up a minimum $250,000 in capital.
But investors should be cautious if they think diamonds will necessarily hold their value or appreciate. While Mr. Singer says increased demand in China and elsewhere has limited supply of some types of stones, he acknowledges that the diamond supply is dominated by a small, tight-knit group of diamond producers who carefully control supply, at times shutting down mines.
Others also caution buyers against acquiring diamonds solely for investment purposes. Ms. Wong of Sotheby’s says that polished white diamonds may hold their value, but that trading in these gems for investment purposes remains unproven, as the retail trade is much larger. Diamond trading for investment purposes hovers between $500 million and $750 million annually compared to about $20 billion overall, according to Fusion’s data.
Diamonds Hold Allure as Gem of an Investment (Wall Street Journal)