Michael Bleby
5 September 2008
Johannesburg — DAVID Linsley wants Nelson Mandela to make money for him. The "Madiba Diamond" is the first in a collection of stones that Linsley's Sirius Investment Management will build up into a diamond-based investment fund.
The stone is impressive. It is a rare, 24-carat black diamond cut from a 76-carat piece of rough found in Kimberley in 1985. The stone got its name in 1996 after owner Len Sacke showed it to a visiting President Mandela and asked permission to name it after him.
Linsley, a partner in Guernsey-registered Sirius, will not say how much he paid Sacke for the stone, but says it will be part of a fund comprising stones worth more than $1m each that will come to life next year.
The fund, says Linsley, will have an annual return of 15%-20%.
He is betting on rising wealth in countries such as China, India and Russia to support growth in demand for these top-end diamonds.
Such large and coloured stones are, as New York-based Martin Rapaport, owner of the world's largest online diamond-trading platform, puts it, equal to Ferraris and Rolls-Royces in the car industry.
This is what Linsley wants.
"It's got to be the top end. That market is growing," he says.
Linsley's diamond fund is the latest in a number of ventures designed to make money from diamonds. In July, a company called Diamond Circle Capital listed a similar fund on the London Stock Exchange. Whether it will make money or end in tears for overeager investors, however, remains to be seen.
Previous attempts -- such as a rush for investment diamonds that began in the late 1970s and crashed in the 1980s -- have failed. While many factors were at play then, a key reason was the lack of a widely accepted benchmark for diamond prices.
In comparison with that time, there is better knowledge about prices now. People outside the industry are starting to rely on measures such as Rapaport's pricing index, or a rival index published by Antwerp-based website polishedprices.com.
Nonetheless, investors remain wary. Diamond Circle Capital initially set out to raise $400m in an initial public offering, but postponed it suddenly in July. It has since listed with a smaller market capitalisation of $75m.
One concern is liquidity. In comparison with a global diamond jewellery market worth an annual $75bn, the total value of such high-end stones is tiny.
"If you're doing a fund which is targeted, if you target at too narrow a range of rough or polished, it inevitably creates a bubble," says Charles Wyndham, the chairman of polishedprices.com.
" There aren't that many of these stones knocking around. If you base a fund on much more bread-and-butter type articles, for example, 1-carat and 50-pointers, then what you're doing is investing in the commodity. If you start investing in (top quality and colour stones), you're investing in the halo of the commodity and not the commodity itself. You're burnishing the halo, but with this comes huge potential for downside."
The current focus on diamond funds comes at an odd time.
"The middle market in diamonds is in big trouble. The middle-class luxury wallet is gone. People are paying for their mortgages if they can hang on to their house," Rapaport says. The top end of the market is not immune, either.
Wyndham, who also oversees sales of stones mined from Lesotho's Letseng mine, completed a tender this week.
"The market has definitely softened. Apart from the Letseng tender, we tendered some spectacular polished, including a spectacular emerald-cut diamond. It got a reasonable price, but in comparison to what prices were being paid even six weeks ago, it's a clear indication that the market has cooled."
But people like Linsley are counting on a structural change in wealth redistribution to the world's growing economies to buoy up demand for top-end stones.
He is not concerned about a bubble or slump in prices similar to that seen in the 1980s.
Be the first to Write a Comment!
Copyright © 2008 Business Day. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.
AllAfrica aggregates and indexes content from over 125 African news organizations, plus more than 200 other sources, who are responsible for their own reporting and views. Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica.
