High-net-worth investors may love to wear diamonds — but will they buy them for a portfolio?

Author Erin Arvedlund
Erin Arvedlund is Pensions and Investments' enterprise editor based in New York. Prior to joining P&I, Ms. Arvedlund was most recently a business columnist at The Philadelphia Inquirer, launching her "Your Money" column in 2011. On May 7, 2001, Barron's published Ms. Arvedlund’s article "Don't Ask, Don't Tell: Bernie Madoff Attracts Skeptics in 2001." Her deep-dive investigation questioned Madoff's scheme, his demand for investor secrecy and his "enviably steady gains." That early work in covering Madoff laid the foundation for her first book, Too Good to be True: The Rise and Fall of Bernie Madoff, was published in August 2009. Arvedlund also wrote a book on the Libor scandal, Open Secret: The Global Banking Conspiracy That Swindled Investors Out of Billions, published in September, 2014, covering how the London Interbank Offered Rate (Libor), a primary benchmark for short-term interest rates around the world, had been manipulated by major banks across the world.
Jul 20, 2023
2 months ago
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As he does every year, last summer Les Kravitz was hiking the Colorado mountains with his brother, a wealth manager with UBS. Along the way, his brother told him about the May 2022 launch of a new asset class — an investable diamond via Diamond Standard. Kravitz was intrigued.

Diamonds “to me represent class, love, beauty, purity,” says Kravitz. “It’s a precious possession.” But he recalls asking himself, “How could I fit this into my alternative-asset portfolio?” He’d come across private equity, venture capital, real estate, commodities and collectibles — including art, antiques, wines and, of course, cryptocurrency.

Today, Kravitz and his family office are investors in diamonds as a counterweight, through Diamond Standard’s coins and bars.

“They’ve created a new asset class and a way to invest," he said. "They’ve solved a number of problems. No. 1 is price discovery, plus liquidity and transparency."

Diamond Standard coins and bars “finally unlock diamonds as an asset, and because most investors simply can’t hold physical commodities, we remove that hurdle,” said Cormac Kinney, founder and CEO of New York-based Diamond Standard.

Each coin is worth roughly $5,000, while each bar is worth $50,000 — although prices update weekly.

There’s a blockchain use case as well: Each coin and bar have a unique identifier on the blockchain, creating an electronic title.

“There’s no confusion about it being a security or a derivative or a commodity," Kravitz said. "It’s actually an electronic receipt of a piece of an actual diamond."

INFLATION HEDGE

Anthony Baranello, who runs his own Florida-based family office, traded oil and gas for 30 years. Two years ago, “I saw inflation percolating with the printing of all this money inflation, and I hunted around for inflation hedges” such as gold and crypto. Gold prices have climbed steadily to $2,000 an ounce currently, in part due to rising global central bank buying, according to the World Gold Council.

Other than its coins and bars, Diamond Standard launched a fund as well, with plenty of risks in the fine print. The fund is unlisted and has 2% management fees annually and a costly 0.45% expense ratio, according to the tearsheet.

Baranello found Diamond Standard coins and bars “easier to understand, with lower carrying costs” than gold. As for owning crypto, “I got the math behind it, but I like having the bar or the coin in my hand.”

Given his experience with volatility in petroleum markets, “I’m battle-hardened by that," Baranello said. "I’m not afraid to try some of this stuff. The more I read, this is a unique product."

Diamond Standard has created its own spot market for the gems, although its business is hampered by the lack of a diamond futures contract and almost zero institutional ownership in the asset class, other than family offices and hedge funds.

Trades average within 1% of the spot price on Bloomberg, according to the company. A Diamond Standard Coin is "marked to market" daily and trades with tighter spreads than loose diamonds, which can be 20% to 40%, through an auction house, pawn shop or jeweler, said company founder Kinney.

“We buy certified diamonds every day,” he said, and every bar’s contents never change.

“When you buy diamonds as jewelry, you are price takers. You never know if you’re getting a good price or not,” Baranello explained. Diamond’s founder has created a formula that standardizes diamond prices, which Baranello called “a game-changer. Yes, I could buy shares in diamond mining companies, but this really stands alone.”

Author Erin Arvedlund
Erin Arvedlund is Pensions and Investments' enterprise editor based in New York. Prior to joining P&I, Ms. Arvedlund was most recently a business columnist at The Philadelphia Inquirer, launching her "Your Money" column in 2011. On May 7, 2001, Barron's published Ms. Arvedlund’s article "Don't Ask, Don't Tell: Bernie Madoff Attracts Skeptics in 2001." Her deep-dive investigation questioned Madoff's scheme, his demand for investor secrecy and his "enviably steady gains." That early work in covering Madoff laid the foundation for her first book, Too Good to be True: The Rise and Fall of Bernie Madoff, was published in August 2009. Arvedlund also wrote a book on the Libor scandal, Open Secret: The Global Banking Conspiracy That Swindled Investors Out of Billions, published in September, 2014, covering how the London Interbank Offered Rate (Libor), a primary benchmark for short-term interest rates around the world, had been manipulated by major banks across the world.