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Chris Del Gatto: “We provide capital to smart companies”

26 october 2020

chris_del_gatto_xx.pngChris Del Gatto, CEO & Co-Founder of DELGATTO Diamond Finance Fund L.P., a New York-based non-bank lender to the diamond and jewelry industry, started his career as a diamond cutter when he was just 17.

In his early 20’s, Chris went on to co-found a diamond wholesaling firm in fancy colors, and subsequently in 2001, he co-founded a company - a buyer of diamonds. After an offer from De Beers, he subsequently sold an interest in that company to a private equity firm in 2010.

It was then that Chris began to focus on the opportunity arising from the commercial banks rapidly retreating from the diamond industry.

The DELGATTO Diamond Finance Fund (DDFF), founded in 2018 is the first institutional class lender to focus solely on the diamond and jewelry industry globally. DDFF runs a collateral-based strategy that finances companies up and down the supply chain. The company’s clients include diamond mines, De Beers and ALROSA contract buyers, polished diamond traders, estate jewelry, colored stone as well as high-end watch wholesalers.

Here, in an interview with Rough&Polished, Chris elaborates on his company’s workings but also puts forth his opinion on the current situation in the global gem and jewellery industry; and how it will fare in the post-COVID times going forward.

Tell us about your background including where, when and how you entered the diamond industry? Was it a conscious decision or through a family business? What’s your story?

I was born in New York City. I had a cousin that owned a jewelry store and used to love hanging out in the back of the store when I was very young. I fell in love with the allure of diamonds almost immediately and with my father's encouragement, we decided that I would go to the GIA right after High School. Not a popular opinion to forego college, but he supported me and I’m forever grateful.

And what led to the formation of the company DELGATTO? Is it an ownership or partnership company? Please give more details about the company and its workings… for the benefit of our readers.

The DELGATTO Diamond Finance Fund, is exactly that, a Hedge Fund. However, as we have grown, we have created a Private Equity Structure as well this gives us the ability to pull from different pools of capital since the amount of funding that is needed for the trade is enormous.

Can you name a few of your current clients, if possible? Do you service all members across the gem & jewellery industry pipeline… globally? Please elaborate.

We are very serious about discretion and would never violate that promise to our clients. However, I can discuss a few things that have been released to the public. We have entered into an agreement with Blue Rock Diamonds, a quality mining company, this part of the business (rough), is a rapidly growing sector for us and we are financing several mines. ALROSA, who is a very forward-thinking company has incorporated access to our financing for their clients into their online selling strategy. We also finance directly from the IDEX trading platform, this reaches hundreds of companies from every diamond hub around the world. So we truly service throughout the entire supply chain, from the mines to the midstream, to many jewelry manufacturers and a growing number of retailers as well.

How differently do you think your company will service the G&J industry from the present lending Banks? Considering the current environment, is it possible for financing companies and pipeline players to explore means to jointly manage the diamond industry's evolving economic/regulatory condition to secure its continued growth? Your views?

I think the biggest difference is that we are diamond people. That means we are comfortable with diamonds, jewelry and even watches as an asset class. That’s a first for a lender! This means the experience with us is frictionless, we move quickly with an enormous amount of flexibility because we understand our clients' businesses. If you are a company that has an opportunity to buy a large piece of rough very quickly before the opportunity goes away, or a wholesaler that is re-cutting a large stone and wants to put it at auction, we get it and help you win the deal. Our clients see us as a partner, but we don’t take equity, it’s a much cheaper solution.

I believe that a corporatized and transparent industry could strengthen its bankability. So, can trade organisations like diamond bourses/exchanges give a helping hand on this aspect to the industry players? Will it be an added security to help you in your decision to lend to a company? Your thoughts?

Incorporating best practices and transparency in any business has a myriad of benefits, and that includes if you work with us. However, we make our decisions regarding approvals based on the viability of a company's business. We are not a lender of last resort, we do not lend for payroll and rent. We finance strategic purchases, we provide capital to smart companies that come across opportunities but either don’t have or don’t want to use all of their own capital. We turn away about 40% of the requests that we get, I believe our focus on strategic financing is the main reason we have had only one default with over 230 companies to date.

Can you comment on the current status of the global G&J industry? With the G&J industry being a luxury sector, how soon do you think it will revive from the consequences of COVID-19 impact? How do you plan to execute your lending business, going forward?

Before COVID, I felt that although the industry was going through a tough period, it was beginning to bounce back. I felt, and still feel that a hidden benefit from the banks leaving, particularly in India, was a renewed focus on margin and profit! I think the industry is still slowly moving in the right direction. COVID, however, was something that no one predicted, it has caused a lot of suffering, and arguably has set us back a year or two. The flip side, however, is that all crises accelerate already existing trends, and we’ve seen that with the increased focus and improvement of online sales and effective remote work environments. Necessity is the mother of invention and I do believe that COVID will eventually make the industry stronger. Without any other negative surprises, I think the industry makes a strong comeback in 2021. All of the data in recent history has shown us that within the luxury industry, diamonds & jewelry always are first to bounce back. I am, however, the eternal optimist.

Aruna Gaitonde, Editor in Chief of the Asian Bureau, Rough&Polished