Diamonds – The Best Friends of Ultra Wealthy Investors By Tara Loader Wilkinson

Diamond Ring

The diamond industry is notoriously secretive. Some of the world’s leading diamond dealers are largely unknown, including Indian companies Rosey Blue and EuroStar, Israel’s Leo Schacter and Lev Leviev, and Russian-government-backed miner Alrosa. Their clients, who are among the wealthiest and most secretive individuals in the world, prefer to keep low profiles.

“The market is very un-transparent and revolves around a very small, closed community,” said John France, a jeweller in Milan who sells diamonds to the ultra wealthy.

Which is why it came as a surprise earlier this month when Ming Yin Chen (known as Tiffany Chen) revealed herself to be the buyer of what Christie’s auction house called “the largest and most perfect briolette diamond ever sold at auction.”

Chen, the multi-millionaire vice chairman of China Star Entertainment, a film production company, renamed the 75-carat diamond “The Star of China” after she purchased it for US$11.15 million in May, setting a world record for an auctioned briolette diamond.

Fifty-seven year-old Chen has a net worth of at least US$55 million according to data provided by Wealth-X, a research firm that tracks the ultra wealthy. Chen is married to Keung Wah Heung, the founder of China Star Entertainment, whose assets total at least US$110 million, according to Wealth-X.

Chen is part of a trend that looks set to stay in the current low-interest, turbulent financial climate. For an ultra high net worth individual, wearing your assets around your neck can make more sense than keeping them in the bank.

Worldwide diamond consumption is forecasted to surge by as much as 60% by the end of this decade, according to consultant Bain & Co. Demand for diamonds – bolstered by growing affluence in India and China – will push global sales to US$26.1 billion by 2020, a sharp increase from the figure of $15.6 billion in 2010. Sales of the most expensive diamonds are hard to track, but experts say demand is on the rise at the top end of the market, too.

“The appetite for one-of-a-kind jewels has been especially vigorous in recent years,” said Vickie Sek, director of the Asia Jewellery & Jadeite Department at auction house Christie’s. “Investors and collectors are looking for creative alternatives where they can store cash and remain portable. For this reason, diamonds and coloured gemstones have become alternative asset investments,” she added.

But as much as they love their diamonds, UHNW individuals are picky about their jewels.

“For UHNW buyers, quality reigns supreme. The most in-demand stones are large ones of top colour and clarity worth between US$5 million and US$10 million. For colourless diamonds, a DIF grading – the best in colour and clarity – is naturally prized, but stones of E or F colour and VVS clarity are also highly sought after,” said Sek, “For coloured diamonds, pinks and blues are the most desirable. UHNW buyers are looking for a colour grading of Fancy Intense or above.”

Brilliant Diamonds

She added that signatures by famous houses such as Cartier, Graff, Harry Winston, and Tiffany & Co. also add to the jewel’s value – if they are vintage.

Indeed, when it comes to the top end of the market, experts say the auction houses and private dealers are more successful than retailers, which typically attract aspirational buyers.

“The top jewels are sourced via diamond dealers, auction houses and private sales, but rarely from retailers like Tiffany’s or Harry Winston,” said Edward Alvarado, a director at diamond dealer Diamintel.

This is good news for diamond dealers and auction houses. According to data from Wealth-X, the world’s population of UHNW individuals (those with US$30 million in assets and above) grew 0.6 percent last year to 187,380, with a combined global wealth of US$25.8 trillion. Wealth-X forecasts that the growth of the UHNW population – particularly in countries such as diamond-hungry China and India – will accelerate.

Mindful of new streams of business, the diamond industry – dealers, miners, jewellers, and now fund managers – is growing apace. Bankers, fund managers, family offices and wealth managers, led by those in Hong Kong and Singapore, are increasingly advising clients to gain exposure to this physical asset class.

“Diamonds have outperformed more traditional investments like stock markets and gold, since the onset of the global financial crisis,” said Alvarado.

Well-connected new dealers are also coming to the fore. One such individual is John France, who left his job as a lawyer to set up a Milan-based jewellery broker, JF Diamonds. Having worked closely in his previous career with the top Italian fashion houses — Versace, Cavalli, and Armani — France understood the world of high-fashion jewels inside out. “My clients often lamented the difficulties of sourcing reliable suppliers of fabulous diamond jewellery. So I saw my opportunity to sit on the other side of the desk,” France said.

France sources some of the world’s most flawless diamonds and will frequently fly to visit his clients to help work through a design. His clients hail from the billionaire hotspots of Monte Carlo, Gstaad, Dubai and Moscow, where wealthy individuals have weathered the global crisis with barely a scratch.

The long-term appeal of diamonds is clear. The last 25 years have seen diamonds of a carat doubled in value, according to the Rapaport Diamond Index (RDI). Five-carat-plus diamonds are now 250% more expensive, said the RDI. Diamonds have shown steady growth over the last two decades, have a proven track record and have a limited supply against growing demand. On top of that, they look much better than a stock certificate.

A shining example of a secure and lucrative alternative asset, diamonds are becoming the investment of choice for an ever-increasing number of UHNW individuals.