Novel Fund Targets Colored Diamonds

Jul 5 2011 | 9:11am ET

The newly launched Novel Diamond Fund I focuses on a novel asset: colored diamonds.

The Caymans-based, closed end fund—the first in a series from Novel Asset Management—focuses on gems with values of over $1 million.

Says Alan Landau, a fund director, “Out of 10,000 carats, only one carat is colored, yet there’s tremendous demand for these diamonds. At recent auctions, wealthy collectors and investors have set record prices for them, including the $46 million that a London jeweler paid for a 25 carat pink diamond. This was the highest price ever paid for a diamond.”

Although Landau expects colored diamond supplies to remain tight and demand to remain strong, supporting diamond prices for the foreseeable future, he says this is not the basis for the fund’s strategy:

“The fund is really a trading business, not a buy-and-hold investment company,” he said.

Novel Asset Management is part of the Novel Collection group, a specialty colored diamond trader. The fund will use the parent company’s supplier network to purchase polished colored diamonds then sell them at substantial mark-ups to the retail trade and diamond consumers.

Says Landau: “Through Novel Collection’s seven offices around the world, including in the major diamond centers of New York, Antwerp, Tel Aviv and Hong Kong, the fund will have access to diamond sellers and diamond buyers, and Novel Collection’s staff of over forty people worldwide has decades of experience trading in colored diamonds. We believe that the fund can generate substantial returns even in a flat diamond pricing environment by exploiting the wide spread between purchase and sale prices.”

The fund is accepting new investors during the three-month period ending October 1, 2011. Afterward, it will be closed to new investment. The fund will operate as a short-term private equity-style vehicle, buying and selling diamonds during its two-year term, and then liquidate its portfolio of diamonds and return all capital to investors.

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