Family offices, groups of investment professionals who manage a wealthy family’s finances, have been around for over a century, ever since wealthy dynasties like the Rockefeller, Martini and Agnelli families sought out objective wealth managers. The need for family offices continues to grow as the ranks of extremely wealthy families around the world increase. According to Forbes, in the last decade more millionaires have been created than ever before in history. Family offices have been and continue to be sought out because they are composed of an assortment of individuals with various professional skills who are then held responsible for the holistic management of the family’s assets, which can even extend beyond financial planning in some cases. Family offices have the grave responsibility of being at the absolute forefront of every development in the financial world and managing wealth as pedantically as possible to insure their client’s security. For this reason we feel compelled to introduce the concept of investing in diamonds.

True diamond investments are not for average or middle-high worth individuals. The diamonds that truly accrue wealth are entirely bought by people who are able to afford the most unique diamonds in the world, and have the liquidity to do so. Very few individuals in the world are liquid enough to spend millions of dollars on a diamond for investment. However, for those who have bought and sold fancy color diamonds such as Fancy Vivid Blue and Fancy Vivid Pink diamonds after holding onto them for at least 20 years, the returns have been indescribably high. Just see our analysis of the per carat increase of fancy color diamonds over the last 15 years that we researched (and as a bonus, we compared it to other major assets with which family offices are extremely familiar!) There are three basic reasons why fancy color diamonds are an excellent addition to the portfolios managed by family offices.

Direct Deals

There is a growing interest among family offices in doing direct deals rather than the traditional private equity and venture capital fund strategies of the past. The kind of direct investment opportunities that family offices are exposed to depend on the office’s financial and legal professional networks. Diamonds are just such an investment that fit into this category.

True investment diamonds are the ones that are only able to be accessed by the elite diamond traders of the world, who have first and exclusive access to the most incredible diamonds that are dug up in any of the mines in the world. Generally, those diamonds never even hit the public eye, but are bought and sold for enormous sums of money by motivated sellers and demanding buyers. Some diamonds even make it to the market via auction houses such as Sotheby’s and Christie’s, and these public platforms attract high net worth buyers as well. In these cases, unique and expensive diamonds are sold for hard-to-believe returns on their original prices, and diamond carat prices soar. These individuals add these diamonds to their investment portfolios with the guidance of fancy color diamond investment professionals such as us at DICE, and wait on a specially designed plan to resell at a later date. This is exactly the kind of direct deal that attract family offices. The most recent example is the Blue Moon of Josephine diamond which sold for an unbelieve $48.5 million.

The Blue Moon of Josephine Diamond, a 12.03 carat Fancy Vivid Blue diamond     Image credit: Sotheby’s

Alternative Investments

Family offices seek alternative investments with risk-adjusted returns. Alternative investments always sound attractive, but real investment professionals know that not all alternative investments are created equal. In fact, very few alternative investments are actually lucrative, simply because of the principles of supply and demand (like in the case of artworks) or because of devaluation of the investment (like in the case of a luxury car).

The truth is that diamond investments have none of the pitfalls of regular investments and only have different, better benefits. Fancy color diamonds never lost their value, and this is because of their extreme rarity in nature. Only 1 carat of every 1 million carats that are mined are fancy color, and within that ratio, even fewer are of the colors that command millions of dollars per carat (red, blue, and pink). In addition, fancy color diamonds can never wear out. No matter whether you would lock it in a safe or wear it as a piece of jewelry, a fancy color diamond will look exactly the same in 1,000 years as the day it was first polished from the rough. No other asset on earth retains its quality so completely. Diamonds are also a very important investment because of diamond cost. Per carat value is so high that diamonds are a perfect wealth concentration vehicle. The Asian market has learned this well in the wake of the recent stock market crisis in China. Immediately following, there was a huge upswing in fancy color diamond purchases as the people of means sought alternative investments to safely store their wealth that could not be affected whatsoever by the world economy.

Control Over the Investment

One of the key factors that make family offices so attractive to high net worth families is the control that the family has over their investments, which is much more direct than if they were to use a farther removed third party such as a bank. The family office and the family can work in tandem to craft the perfect portfolio that meets every need and requirement. Should the family choose to show an interest in one investment as opposed to another, the family office will naturally research the opportunity and make a recommendation. This concept fits in perfectly with diamond investments because of the concept that our founder, Yaniv Marcus, defined as ‘passion investments’. These are investments that are partially guided by emotions.

In the case of diamond investments, they are passion investments because the diamond that is chosen for the investment is chosen by the interest in the diamond color. Other important factors are market demand, whether it is a GIA diamond, its 4 C’s, and the diamond cost. However, the final diamond is chosen by the feelings that it stirs in the buyer. The family can choose their perfect diamond with the guidance of their family office and a diamond investment professional. A family office can help them with this with the right knowledge of the behavior of diamond prices and the trajectory of their demand in the short and long term, as well as a specialized diamond investment strategy that would determine the ideal time to sell or buy.

The Oppenheimer Blue, owned by the Oppenheimer family of Anglo-American plc and in their family for half a century and currently being sold for the first time       Image credit: Christie’s

Naturally, if a family office is interested in adding diamonds as an investment to their offerings, they would not be able to just jump into the deep end. It takes careful education and a significant knowledge of the diamond market to make a smart decision about this. Consult with us and we will help guide you and your clients to a diamond investment that will add a competitive advantage to their portfolio.

Got any questions? Please ask in the comments!