LONDON — For some, diamonds may be forever, but for a clutch of fund managers here, the precious rocks are more of a short-term bet.
Asprey’s chairman John Rigas and two former Bulgari executives this week will officially unveil an investment fund that aims to make a profit buying and selling fancy colored diamonds, the rarest and most expensive rocks on the market.
The Sciens Colored Diamond Fund is a joint venture between Sciens Capital Management, of which Rigas is chairman and chief executive officer, and two veterans of the high-end jewelry industry, Mahyar Makhzani and Philip Baldwin.
“You can hold our entire fund in the palm of your hand,” said Makhzani, co-founder and joint managing director of the fund, and a former managing director at Bulgari. “We are a tool for investors to put their money into assets that are a little bit different.”
He said it was Harry Winston himself who got him thinking seriously about fancy-colored diamonds. Makhzani was in the office of a major Indian dealer in the Seventies, and he remembers Winston telling him that colored diamonds were the most precious thing the jewelry industry had. “But few took them seriously then,” he said.
During an interview at the elegant Sciens offices overlooking Berkeley Square, Makhzani and Baldwin said the fund will reimburse clients 100 percent of their investment, and is aiming for returns of 25 to 30 percent per year after a three-year period.
The fund is looking to do a first close around March, and the repayment schedule will be three to five years after closing. The partners would not confirm the amount currently in the fund, but said $150 million is their target investment.
The prices of fancy colored diamonds have not dropped for the last 37 years, since their prices began being recorded, according to the partners. “Their wholesale value has gone up an average of 12 percent year-on-year,” said Baldwin, co-founder and joint managing director of the fund, and also a former managing director at Bulgari. “No other asset class has performed in the same way.”
Makhzani and Baldwin originally started a colored diamond boutique fund in 2008, but said the joint venture with Sciens, the New York-based alternative asset management firm and the investor behind Asprey, gives them a corporate backbone and links to the financial world.
Rigas said he was attracted to the idea of a colored diamond fund for a number of reasons. “Asprey can help the fund by selling to clients who are interested in fancy colored stones. Our master jeweler can even set the stones,” he said. “And it’s an unusual asset class: The value has to do with scarcity, perception of beauty, and elements of art. And the colored diamond industry is very opaque; You have to know what you are doing — because you can be fleeced.”
Other investors in the new fund include family offices, private banks and high net worth individuals. The partners said they are beginning to see interest from pension funds and other financial institutions.
Makhzani and Baldwin invest only in polished rocks that weigh at least one carat and have a natural intensity of color that sets them apart from other diamonds. The word fancy refers to an intense natural color, and the more deep and intense the color, the more precious the stone. Colored diamonds — fancy or not — make up just .002 percent of all the diamonds mined annually.
“We are after the very small, subcategory of intense colored diamonds,” said Makhzani, who also served as group managing director of Gianni Bulgari’s jewelry firm, Enigma, from 2004 to 2008.
In addition to buying — from cutters, dealers and auction houses — and selling the colored gemstones, Makhzani and Baldwin said they will add value to the fund by creating matching and complementary sets of stones, in a bid to offer buyers rare opportunities.
Makhzani admitted that while Sciens may be the only colored diamond fund, there was no shortage of competition for the stones: “We are in our infancy compared to companies like Graff and Moussaieff, which can go out tomorrow and buy a $30 million diamond,” he said, referring to the two Bond Street jewelers famous for their use of colored stones.
Over the past 18 months, Sotheby’s in Geneva has established benchmark prices for fancy colored diamonds. In May, a cushion-shaped fancy intense blue diamond ring of 7.64 carats sold for $8 million, setting a new world auction record price per carat for a fancy intense blue diamond. Next month, the auction house plans to auction a fancy intense pink 24.78 carat diamond in Geneva with a pre-sale estimate of up to $38 million. The stone, purchased 60 years ago from Harry Winston, is coming to market from a private collection.
“I cannot comment on whether or not these diamonds are a good investment,” said David Bennett, chairman, Europe and the Middle East, Sotheby’s International Jewelry Department. “What I can say is that over the last 30 years fancy colored diamonds have mounted in value very quickly, and there are lots of buyers out there for the very finest, purest stones.”
Bennett said one of the market drivers is the scarcity of these stones. Indeed, the price range is huge among fancy colored stones: The rarest — fancy red — are $3 million a carat, while the more common fancy yellows range from $20,000 to $60,000 a carat, according to Sciens’ data.
But there are those who believe these fancy-colored diamonds don’t belong in a fund. Some analysts argue that because fancy colored diamonds are not commoditized products like gold or copper, it’s difficult to put a price on them, and their value is solely dependent on the right buyer wanting them — and trusting their provenance.
“How do you value these stones? As a buyer, you have to believe the person who is selling them knows more than you, and you have to trust them,” said Peter Davey, head of mining research at Ambrian Partners in London. “With that in mind, how are investors going to properly value this fund?”
Makhzani would agree: “This is a trade based on trust and relationships. We are offering investors a categorized investment, and we will work for them to sell these stones the right way, based on all of our experience over the years,” he said.