Throughout history, diamonds have embodied luxury and represented financial security. Meant to last forever, diamonds are symbolic of love and they seal unions to come.
And now, diamonds are set to become a part of the global hard asset monetary system, along with gold, silver and platinum, thanks to the efforts of firms including GemShares, which is pioneering the delivery of physically-backed diamond investment products to regulated exchanges around the globe.
Securitizing diamonds and building a transparent, liquid financial market around them is an idea that’s generated a great amount of interest for sometime, said Andrew Feldman, a partner at GemShares, which has been pondering diamond securitization for the past eight years. After all, diamonds are arguably the last, securitizable asset out there.
But figuring out how exactly to package diamonds for the financial markets has been a challenge, Feldman said, in large part because of the close knit nature of the diamond industry, on one side (which is dominated by family-owned businesses), and the financial industry—whose involvement has thus far largely been limited to credit and lending to diamond mining companies—on the other.
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“We are trying to bridge the two communities together to build product,” Feldman said.
GemShares recently patented a rules-based, objective pricing standard for diamonds, the GemShares Global Investment Grade Standard (GIGS) diamond. The standardized pricing mechanism is designed to turn these precious stones into fungible products, Feldman said, and allow investors to capitalize on price fluctuations.
“What we’re trying to bring to the table here is transparency, low cost and liquidity,” said Rich Keary, a consultant to GemShares. “We want to build a closer relationship between the financial and diamond industries and bring new distribution channels to the diamond industry.”
Today, the diamond industry generates around $60 billion to $70 billion a year, but traditionally, it’s been a very proprietary world, Feldman said, with businesses tending to be family run.