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11 october 2010

Amid the international economic crisis many people have a need for investing their free cash. Among the many tools they have investment diamonds appear to be of certain interest. Viktor Logunov, Marketing Advisor to General Manager of Brillianty ALROSA, who is also one of the organizers of the Quintessentially Diamonds Project, told Rough&Polished about the intricacies of this sophisticated market.

Could you briefly outline the history of the world’s investment diamonds market?

Historically, it seems to me correct to skip the talk about investment diamonds and speak instead of diamonds as a convenient means of savings furthermore closely related to the well-known redolence of family values - here I mean both the diamond as a gift and the diamond as a legacy. Plus demonstration of one’s social status. In this context, the history of diamonds dates back to such a distant past that it has already got entwined with legends, rumors, romantic and bloody stories. In fact, this is of course a paradox, a phantom of the human mind, born out of collisions of passions and high feelings. I suspect there is a large share of randomness in the exclusiveness of the diamond, but it is not so much important any longer for us today, for we have long since moved from a purely rational world to a world dominated by empirical life motivations, and I cannot say that I do not like it ... I think it is right and it should be this way.

Coming back to investment diamonds, let us agree what we have in mind under this term. I propose the following definition: investment diamonds are diamonds of such weight and quality characteristics, which in the long-term and if possible in the medium term permit to maintain and / or increase their absolute value independently of fluctuations in the world’s virtual financial markets, fashion trends and other temporary changes. In this sense, we keep up with De Beers: investment diamonds are those diamonds that are forever. The fact that not all diamonds are forever is another matter but this is also obvious.

What were the numerical parameters which characterized the global market of investment diamonds in the pre-crisis 2007 and mid-2010?

This market is not characterized by demand volumes but by supply volumes. Investment diamonds, whether as certified loose stones or set in jewelry pieces always find their clients; this is the question of time and frankly speaking that of a seller’s greediness who can wait for years for a maximum price. According to figures published by pace-making diamond-mining companies, about 5% of the total traded volume of diamonds are sold at tenders and auctions - that is where large-size rough is traded. I do not think that this proportion is changing essentially from year to year, so in general these 5% can be viewed upon as the share of raw materials used to manufacture investment diamonds.

How can you describe the product range of investment diamonds? Is it more than three carats? Five? Ten? Or does the boundary run irregularly along the weight spectrum depending on quality parameters? Or depending on price? Fancy colors?

That’s a good phrasing ... It is quite like you say: the boundary runs irregularly along the weight spectrum depending on quality parameters and price. I would add: and depending on the forecasts of changes in prices in the medium and long term. But I would rather keep clear of calling a diamond less than 5 carats in size an investment diamond. In my opinion, the benchmark of optimum characteristics for an investment diamond starts from 5 carats, VVS / H, Triple Excellent. And I am still very cautious in my attitude to colored diamonds despite that personally I like them more than "clear-water" gems. Color is a category more pertaining to fashion and taste reflecting a short-term trend in terms of investment. Not so long ago, all went crazy for black diamonds - where are they now?

What are the places where the largest number of deals involving investment diamonds is made around the world?

They are where there are greatest concentrations of rich people - in the U.S., Middle East, Japan and Europe. I would like to note that we are not talking about mass products and even about goods for the well-heeled middle class. Basic public information on diamond sales is usually related to these groups, but we're talking about those rocks, the owners of which prefer to stay incognito.

What are the main types of deals with investment diamonds: are they private and made tete-a-tete, or through brokers, stores, auctions, brokerage firms, mutual funds?

This is a very delicate business. So, of course, they are made tete-a-tete. It is quite another matter that often to take a decision about purchasing an investments diamond a person feels the information shared by the manufacturer or owner of the stone is not sufficient. An investment diamond is after all not bought only by an impulse of one’s soul, so to speak. This is an investment based on expectation to keep its value or even increase it. And in this sense, the role of investment consultants who make up the portfolio of their client and manage investment risks is great. That is, it boils down to a certain “seller - buyer - investment adviser” triangle producing a scheme which is the only way to take a truly competent decision.

What kind of difficulties one may run across while selling investment diamonds for money?

Generally there are none. Payment terms are a matter of agreement, and the formula "goods - money" has never been canceled.

How does the market of investment diamonds in Russia look like? Who are its main players (Leader, ALROSA, etc.)?

There is no such a market in Russia. There is demand, but it is satisfied mostly by foreigners. I think there is no point in explaining why: the legislation of the Russian Federation does not encourage people to demonstrate their wealth and spending.

As for the ALROSA - Leader project, to my mind it was a singular attempt to put on-stream VIP sales, which require leisurely business lunches, joint ocean fishing trips and almost "family-level friendship". Such sales are not like wholesale deals. Within this scheme there should be a link that works in close contact with diamond miners, major rough dealers and diamond and upscale-jewelry manufacturers; this liaison should have an opportunity to communicate confidentially with the appropriate clientele and be a credible expert to investment consultants. This is a kind of marshalling yard which couples the interests of different parties. This is a client-dedicated service facilitating inflow of investment finance into the diamond sector.

That is what was meant, when in London a new project was discussed with the managers of the world-famous concierge service, Quintessentially.

What kind of project is this? What is its essence?

The essence of the Quintessentially Diamonds Project is to create a company that offers services to wealthy clients to inform them about the supply situation in the world market, as well as extend full support in acquiring unique rough  diamonds, processing them into polished diamonds, and, if the client desires, in producing exclusive high-end designer-styled jewelry.

We speak here about truly unique samples of rough diamonds of 50 carats and above in size having higher than average clarity and color. These rocks do not lose in value even in times of severe economic perturbations, while in periods of economic growth and development they add in value annually, which makes them a great investment tool.

Future customers will be able to make use of services offered by Quintessentially Diamonds not only to buy diamonds, which subsequently can be used to create exclusive jewelry, but also for reliable and profitable investments. An original business model within this project, which, of course, no one is going to disclose beforehand, will contribute to turning diamonds into a marketable acquisition.

Within this project it is planned to take part in auctions to buy diamonds for customers initially through partners, but in the long term - directly. The existing contacts with manufacturers and dealers of rough diamonds in such countries as Angola, Sierra Leone, Congo, Namibia, etc., will also be engaged.

At the company's disposal there is a vast network of contacts, both among accredited auction participants and among diamond dealers and diamond manufacturers, which allows us to offer customers a most unique selection of diamonds; this is impossible when customers get in touch with other companies due to their relatively limited offering.

Contacts among the best diamond cutters in Russia and around the world allow meeting any of the customer's wishes in terms of stone processing, as well as achieving a maximum value of diamonds received as a result.

I would also like to emphasize the "correctness" of the chosen moment for organizing this kind of business. The misbalance between the declined economy in western countries and increasing demand for diamonds indicates that people having idle cash (those who are attributed to ‘high net worth individuals’ by Merill Lynch Wealth Management and Capgemini in their annual World Wealth Report) feel hasty to convert virtual dollars into gold and diamonds – the centuries-proven "real currency."

Vladimir Teslenko for Rough&Polished