Clive Cowdery, the Resolution Ltd. (RSL) founder who made about $240 million buying and selling insurers, is betting on diamonds after prices rose five times faster than gold this year on surging demand from China and India.
Cowdery, 48, is among startup investors in Diamond Capital Ltd.’s $20 million fund that will manage a portfolio of the polished gems valued at as much as $400,000 apiece. Rajeev Misra, UBS AG’s securities business joint head, is also backing the London-based project, Diamond Capital said.
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LUXURY IS CYCLICAL
ITS PEAKING NOW
THIS IS NOT THE RIGHT TIME
2009 WAS BUT NOT NOW
“I’m conscious of the need to balance out my investment risk,” Cowdery said in an interview. “Something that is as non-correlated with financial-market movements as this fund was attractive.”
Diamond prices jumped 26 percent in the first six months as rough gem production failed to match surging demand from jewelry buyers in the swelling middle classes of China and India. That compares with 5.6 percent for gold, which reached a record $1,577.57 an ounce in May. Investors disappointed at bullion’s performance or the 4 percent advance in the MSCI World Index of stocks in the first half may still prove hard to sell on diamond funds.
“I’m not a great supporter of them, but I can understand why high net-worths find them quite attractive,” said Des Kilalea, an analyst at RBC Capital Markets Ltd. “You rely really keenly on the guy who is doing the buying to know what he is doing.”
Strategy Meetings
The new fund’s diamond trading will be headed by Rishi Khandelwal, who established a gem wholesaler and retailer in Dubai in 2006. He is part of a three-member board that will meet quarterly to set strategy, said Peter Langdon, investor- relations director for the fund.
Diamond Capital joins Harry Winston Diamond Corp. (HW) and Fusion Alternatives in planning funds to profit from soaring prices. Harry Winston said in May it proposes a $250 million diamond fund for institutional investors, while Fusion plans one backed by polished stones this year.
Supplies of rough diamonds, which are turned into polished gems, are forecast to remain flat in the next five years and will fail to match demand driven by China and India, according to RBC. De Beers, the world’s largest producer, said June 9 demand will surpass output for at least the next five years because of a lack of new mines.
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DEMAND CAN GO TO ZERO IF THE WORLD FALLS APART
IF WE HAVE A REPEAT OF 2008 - DEMAND CAN GO TO ZERO
AND THIS IS WHAT IS GOING TO HAPPEN AT SOME POINT IN THE NEXT 5 YEARS
Insurance Salesman
Last year polished gems advanced 17 percent, according to data compiled by polishedprices.com, while gold gained 30 percent. Prices advanced a further 2.2 percent in the past week to the highest since at least 2002, according to polishedprices.com data.
Diamond Circle Capital Plc (DIAM), the first publicly listed fund to invest in the stones, has plunged 54 percent since selling shares in 2008. The fund slumped as the financial crisis reduced investor appetite for its $1 million-plus gems. The first diamond investment trust, set up by Thomson McKinnon Securities Inc. in the 1980s, was wound up after a decline in the market, according to press reports at the time.
Cowdery, a former life insurance salesman, made his fortune by buying closed life insurance funds through Resolution Plc between 2003 and 2007. He sold the firm for 5 billion pounds ($7.2 billion) in May 2007, before the financial crisis, to Pearl Group Ltd., which was then headed by Punch Taverns Plc (PUB) founder Hugh Osmond.
‘City Personalities’
Cowdery declined to say how much he’s placed with Diamond Capital, which opened for minimum investments of $75,000 on June 13. It’s targeting $20 million and will stop accepting money on July 22, said Langdon.
Misra, 48, who joined UBS in 2009 as global head of credit at its investment bank after leaving Deutsche Bank AG in June 2008, said June 17 he was considering making an investment. He hasn’t returned calls since seeking further comment.
“We’ve got some strong support from some high-profile City personalities who like the concept and back the idea,” Langdon said in an interview. “Diamond prices have been increasing. There is definitely demand there for diamonds as an investment.”
The Diamond Capital fund seeks to be different from predecessors by trading the stones as well as holding them in anticipation of prices rising, Langdon said. The fund will lend stones from its inventory to jewelery retailers and allow them to sell the gems on its behalf at a profit. The advantage for shops is that they can offer a greater choice of diamonds, rather than be limited to what they can buy upfront.
Banker Customers
The arrangement will enable jewelers like Dominic Carr to meet the demanding tastes of his City of London banker customers who pay anything from 5,000 pounds to 100,000 pounds for the pieces, the store owner said.
“People like myself will have access to huge stock which wouldn’t normally be available,” said Carr, who has been in the industry for 25 years and has two shops on Liverpool Street. “The main thing is having an inventory of $20 million of diamonds within 48 hours.”
China has surpassed Japan as the second-biggest buyer of diamonds behind the U.S., where demand rose 7 percent last year, compared with 25 percent in China and 31 percent in India, according to De Beers.
Polished diamonds, like fine art or wine, lack fully transparent price data. They typically attract investors who are betting on excess demand and, unlike gold, haven’t traditionally been used as an inflation hedge. The new fund’s diamond holdings will be valued quarterly using prices from RAPnet, the world’s largest diamond-trading network, to determine whether investors make money.
Diamond Capital, which may expand the fund to $100 million within four years, will buy stones of between 1 carat and 5 carats, said Sanjay Khandelwal of Emdico. The family-owned business will help manage the fund’s gem inventory and invest a minimum of $500,000, he said.
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