Yaniv Marcus, Managing Partner, YAD Global Advisors Ltd & Founder, Diamond Investment & Intelligence Centre (DICE) began his career in the investment community as a Certified Financial Planner (CFP) as well as a Portfolio Investment Manager (CIM). He was also certified as a Derivative Trading Supervisor (Options & Futures).
Yaniv also explored other global investment and trading avenues and opportunities, before landing on his real passion - diamonds and precious gems. He joined the Gemological Institute of America (GIA) becoming a Graduate Diamonds (GD) certificate holder and a Graduate Colored Stones (GCS) certificate holder.
Yaniv's next venture was 'DICE', which was born out of his need to inform and assist investors and offer clarity and vision so that they can get the most out of their diamond investments.
Here, in an Interview with Rough&Polished, Yaniv Marcus throws light on various nuances concerning 'Investments', with special focus on investment opportunities in diamonds, both whites and fancy coloured ones.
Some excerpts: -
As a financial expert with investment background, what prompted you to focus on the gems and diamond sector? How did you foresee opportunity in this field, given that though diamond was considered an investment vehicle for ages, the current scenario had many other investment vehicles to compete?
Other than my strong belief in Divine Intervention which is part of what led me in this direction, my start in this field can also be attributed to the financial crisis of 2008. I was a financial adviser and as part of my daily research, I had begun noticing that the tiny niche of fancy color diamonds was showing strong price appreciation despite the fact that financial markets were weakened and many commodities were losing market value. The alternative investment world also started losing ground for investors in tandem, and this gave rise to a need to look elsewhere for value outside the usual wealth creation vehicles. Out of sheer curiosity, I began to track the prices of commodities and different types of alternative investments (including white diamonds) as well as certain stocks and market figures for comparison purposes. As the data about certain fancy color diamond prices came to light, I took note of their prices at those points in time, and went back in history collecting more fancy color diamond price data points. I started a massive collection of data about fancy color diamonds, sifting through publicly available price records and even consulted with high profile fancy color diamond dealers in order to begin an official, organized record of sorts. The data that I discovered was so incredible that it was clear that this path was my future. The impressive added value that specific types of fancy color diamonds can present is now the information that I try to disseminate in the financial realm and my mission is to eliminate the lack of organized information on fancy color diamonds as an investment class.
Can you please walk us through your company and its activities right from inception till date? How many years has DICE been in the consultancy market and how many clients has DICE serviced till now?
The concept of the current activities was born in 2012, and has evolved from various forms and shapes into where it is today and it continues to evolve according to the market. The objective is really to help investors acquire the best fancy color diamonds for their portfolios at a reasonable price with the superior potential of value appreciation. We accomplish this through a variety of services that we have always and will continue to offer, including diamond investment education, seminars, consultancy meetings, professional appraisals, authentication, disposition, and so much more. All of our clients have expressed their admiration that we are the first to succeed in condensing all of the necessary data and tools for diamond investments into one entity. We build our client base the hardest way. We build trust over time.
Can you spell out briefly the 'services' offered by DICE for the benefit of our readers? Any new ones in the offering?
DICE services all of the clients’ needs from the research stage to the acquisition and liquidation stages and beyond. We educate, authenticate, enable and manage portfolios for those who wish, and also work with institutions, funds, family offices and NGOs to make the very best diamond investments. We have recognized the gaping needs that have remained unanswered for so long in this arena and work tirelessly to address every possible query that arises. We recently introduced our services to financial institutions and investment funds, in providing thorough market analyses, monthly research and reporting to allow these companies to successfully invest in the real asset.
What is your general client profile... are they across the board? Your consultancy service to High Net Worth Individual (HNWI) is spot on. How did this idea come about? Did you see more potential here?
Our general client profile is not across the board, although we have successfully advised investors of an interesting range of budgets. However, the general trend is that wealthy individuals are more likely to seek out and ultimately invest in diamonds. This is generally the case because wealthy individuals are the ones who acquire high end jewelry to wear and enjoy. When they are suggested to acquire similar pieces but with the investment approach, all of a sudden they take a step back, and suggest we speak to their financial advisors.
There is a psychological switch between jewelry to be worn and enjoyed and acquiring the same pieces but with an investment approach in mind, and this is where our work begins. Not every diamond is an investment diamond. Investing in this asset class means that most investors already have an investment portfolio that has stocks, bonds, maybe real estate and perhaps also alternative investments. Diamonds should only be a means to diversify the existing portfolio and this is why lower net worth individuals are usually not advised to partake, among other reasons.
As a certified financial planner, my training is to educate investors to diversify. The most suitable clients are HNWI as well as some institutions and investment funds because a proper investment diamond will start in the $100,000-$500,000 range. This is a balanced range for value creation and liquidity, which is also something of importance to investors. A non-traditional investor in diamonds may be a university endowment fund that has several hundred million dollars and a long-term approach.
In fact, some already invest in unique works of art as an alternative investment vehicle since they are not looking for a quick exit, but rather a long-term capital appreciation. Fancy color diamonds are no different than works of art. HNWI and similar investors have the most potential because they are the most readily available to invest the necessary funds in a diamond that will yield higher than normal ROI over time.
Give us more info on your education division and its equation with the company YAD Global Advisors? How useful will it be to the investing community on the whole?
The investment community thrives on education and information. HNWI and their advisors alike need to intimately understand an investment before actually proceeding. A financial advisor will not advise his client to invest in something they themselves do not understand, so reaching these advisors is almost as crucial as reaching the ultimate investors. Therefore, our education division has participated in various family office events as a presenter, both alone and as part of a panel, discussing diamonds as an investment vehicle.
The Diamond Investment & Intelligence Center (DICE) focuses more on education and helping investors invest in already polished fancy color diamonds and large colorless diamonds. In order to have a balanced approach to the whole diamond industry, YAD Global Advisors helps to balance that service in other areas. The name YAD is an acronym for the words Yahalom, Almaz and Diamond, the name for diamonds in all the major languages. YAD Global Advisors helps investors invest in diamonds with opportunities throughout the diamond value chain: mining, rough and polished diamonds, as well as through alternative vehicles such as diamond fund creation and management. YAD would hire the asset manager, who would be a diamond dealer, and be the bridge between them and investors.
Both DICE and YAD are meant to act as the gatekeeper for investors, ensuring that all activities are in their best interest. Education is so crucial to this formula because up to recent years, the diamond industry was opaque, and not even willing to be transparent. However, despite the fact that it has become more transparent when it comes to valuation, for example, there is still quite some ways to go before the information is inculcated into the canon. The investment community wants and needs more transparency, and as we move forward, this becomes a reality. Currently, already 5% of global high quality diamond supply is consumed by the investment community, but it is being done covertly. In addition, price manipulation by banks on currency and LIBOR, and the nature of diamonds as priced truly based on supply vis a vis demand, leads them to be a very interesting financial product. The diamond sector will eventually become on the scale of gold and silver, with similar liquidity, and we will lead the way to educate the public as to how to get involved at the head of this movement.
As an investment consultant, we understand that it would be ethical for you to protect your clients as well. What's your next initiative focused on in terms of protecting potential investors, given the challenges faced by global diamond industry?
Ultimately, we exist to protect our clients and potential investors, and this is our priority when recommending any course of action within the diamond industry. This industry, like many others, will never be able to have complete transparency due to the nature of the asset. The art world works in the same manner. There is no price list for works of art, yet annually billions of dollars are spent investing in this asset class.
Now, there is an emerging investment movement in luxury watches, collectible cars, rare whiskies, and even musical instruments as alternative investments, all which tempt potential investors and all subject to pitfalls of their own. The diamond industry has been facing challenges since the third quarter of 2014. However, if we focus on the investment area of the industry, it is actually thriving and growing exponentially due to informed individuals who understand how rare and unique certain diamonds are. Any investor knows that rarity dictates the increased financial worth of an asset.
I always refer back to works of art simply because currently it is more understood and practiced. Diamonds are no different from works of art in that their rarity dictates their value. However, we want to prevent fraudulent acts that get global press and can hurt the diamond investing sector. We will protect our clients by ensuring that they only invest in diamonds with real potential, and assist and educate them in those decisions. However, that is not enough in the long term, which is how the idea for our next initiative was born.
The global diamond industry is currently in dire straits and it has led to an increase in fraudulent activity in unexpected places, especially because of the opacity under which the industry still operates. Like many other industries and sectors, the diamond industry needs an independent body who will represent investors, and will ensure the highest level of ethics.
In consequence, in the last few weeks we have been in discussion with several leading industry participants from both the investment community as well as from the diamond industry to create that self-governing body, which has been named the Global Diamond Investment Council (GDIC). Its objective would be to uphold transparency and integrity of the diamond investment sector. All of its members will be bound by a code of conduct and the highest ethical standards to eradicate all fraudulent activities for good. Feel free to peruse the GDIC’s mission statement, goals and activities. We encourage any entity wishing to shape the industry into new heights to contact us and be part of this initiative.
How comfortable do you think an investor should be while investing in diamonds, given the current uncertainties? What are the crucial factors one should be concerned about while investing? Your thoughts please.
An investor can only be as comfortable as he or she is informed, especially considering the uncertainties. However, the facts remain that if we look back to the financial crisis of 2008, while the majority of financial assets and investments took a nose dive, rare fancy color diamonds increased in value.
I outlined this data in detail with illustrations on my website in an article called “Fancy Color Diamonds Remain the Top Wealth Concentration Investment Vehicle”. When there are times of uncertainties in the market, investors are looking for those real assets to hold and protect their capital, and diamonds can fill that need. Some crucial factors to consider include trust, concentration, and value.
Investors should work with individuals and companies who will have the investors’ best interests in mind. There is an astounding amount of cash sitting on the sidelines because investors are not sure where to place this money. In the meantime, this money is losing value. One of the great characteristics of diamonds that becomes a crucial factor for investors is movability. If there is political unrest for example, an investor cannot really liquidate his real estate i.e. uproot a building and take it with him - but he can with diamonds. Obviously, we can also look at liquidity and say that diamonds are not as liquid, true, but it really comes down to balancing security and time horizon.
Finally, fancy color diamonds are the world’s largest holders of wealth concentration. It is also a fact that fancy color diamonds have financially performed much better than other assets such as gold, platinum, and oil over a long period of time. Some fancy color diamonds have also performed much better than most global indices and major global corporations. This data is reassuring information for people looking at the security of such an investment. Only once an investor informs himself or herself better and sees the facts for themselves should they take action and diversify.
Diamond per se as an investment vehicle is not completely understood by a potential investor, especially due to the many qualities, price aspect, etc. How does one go about it, besides taking the help of a consultant or broker?
I always advocate to investors to do their own research. Obviously, working with a trusted individual or company who works in the investor’s best interest is key, but an investor should do his or her own due diligence from various third party sources and come to their own conclusions. Then they should go back to the consultant or financial advisor and start getting into details, such as amount of capital available to invest in diamonds, time horizon, objective of acquisition (will it be liquidated in a few years, or passed on to heirs). It should be taken into account for their overall financial planning. Always go for the rarest diamonds. Learning about diamonds is important but it is most important to understand them from an investment perspective when doing research for this purpose. Ask as many questions as possible from as many reputable sources as possible.
Now with fancy coloured making a splash on the scene as an investment vehicle and also overtaking whites, the scenario is become more difficult to decide for a first-time investor in diamonds. What precautions should he take and how should he go about building his portfolio?
In the same way as with other investments, an investor should never attempt to time the market. A possible scenario is that you will buy diamonds at a time where prices are spiking, they will have some sort of “correction” or “bump on the road”, but over a longer period of 5-10 years ultimately perform better than other investment vehicles due to their rarity. Other possible scenarios may occur as well when you are building your portfolio. Over time, investors from the diamond market also get more knowledgeable and understand rarity, making better choices about which diamonds to choose based on which diamond supply is running out more than another.
Depending on the amount of capital available, an investor may choose to buy the largest single diamond possible, or may want to buy several diamonds that can be liquidated more easily via various methods. If the investor is planning his estate, and has several children, it might be easier to buy a diamond for each family member rather than buy a single diamond, which the family will have to liquidate in order to divide the proceeds to all the members.
Regardless of the approach, a first-time investor should remember the most important factor of all, which is time. The key in fancy color diamond investments is the long-term time factor, meaning that these kinds of investments are meant for a buy and hold strategy and not for quick turnover, so this can only be done in a portfolio with the flexibility to tie up significant funds in the long term. The most important precaution is to make sure that the amount of money that is being tied up in this investment is feasible.
In your opinion, are whites losing out on the rarer coloured diamonds in recent times as potential investment vehicle? Or, are flawless whites still the favorites, followed by colour diamonds?
To make investors understand the answer to this question in their own language: white diamonds are the ultimate liquidity vehicle due to strong supply and constant demand, while fancy color diamonds should be used for capital growth.
In white diamonds, there are also those that can be considered an investment with capital growth due to their own rarity. We consider the following white diamonds with all of the following characteristics as potential investment vehicles: Round Brilliant shaped diamonds, D-F color, F-VVS2 clarity and 3EX, None, characteristics. The basic reasoning for those specific qualities is as follows. Round brilliant is the most in demand shape and therefore more liquid. D, E and F color are the top tier for color, and the same is true for Flawless through VVS2 clarity. Some may argue that VS clarity is also rare, but we prefer a more diligent and stricter approach.
Up until just a few years ago, not many were aware of fancy color diamonds and therefore white were the favorite. But as investors get more knowledgeable and more informed, they learn about fancy color diamonds and their rarity, and see how their value has grown compared to white diamonds over the last 20 years.
At times, an investor will first buy a colorless diamond as an investment, and once he or she appreciates this new asset class, they upgrade and move to fancy color diamonds. Regardless, fancy color diamonds as investments are slowly gaining traction at the expense of white diamonds in the investment world.
Are caraters the best bet to invest vis-a vis small diamonds? Do you see price rising in the future, irrespective of size? What steps should a small investor take before parking his money in diamonds, even the small stones? As price volatility is a major concern, according to you how has diamond price stood up in the last decade, and what is the percentage price rise during that period?
To be honest, there is no right or wrong choice of diamond. This question can be approached in various ways like any other investment.
For example, at times where the economy is not so great, but consumers still want to buy jewelry, they will prefer to buy less expensive jewelry. In this case, small diamonds like 0.30 carats with SI1 or VS2 clarity are more affordable and that will create a demand peak for these diamonds. Depending on their supply, we may see an increase in price for those diamonds rather than the larger and rarer 1 carat size and above, which would therefore create a better return. This is a possible scenario but it is based on consumer and commercial goods rather than a pure “investment grade diamonds” definition, which is based on rarity and a longer period of investment time horizon. Those two kinds of diamonds differ in every way from their size, color, and clarity to their price. Overall, after 2008, there were both good years and more challenging years for diamonds. If we look at the general picture, then prices have kept up with inflation for white diamonds, which does not really justify investing in them.
Before an investor potentially invests, they really have to analyze diamonds in several classes over time, and then see how they performed over time in order to deduce their viability. Price volatility should be looked at in the same manner as the stock market. Those investors with a long-term investment approach should not be looking at prices on a weekly or even monthly basis, but rather look at it after several years and as they need to re-balance their portfolio, begin looking at liquidity factor and be patient for the right time.
According to recent media reports, Italian banks including major lenders Intesa Sanpaolo, Unicredit, Ubi Banca, and Banco Popolare missold diamonds to their clients. Is there more to this fiasco? Your thoughts please.
Unfortunately, there have been many instances where individuals and companies mislead consumers into thinking they are buying an investment. And that might be true with the nature of the diamond they are buying, but since they are not aware of prices, they may never be able to recoup their initial investment. That is why the banks missold the diamonds, and it is a shame because it taints the name of investment diamonds for the industry as a whole.
Many boiler rooms have emerged over the years, especially in the UK. The authorities have closed them down and prosecuted the culprits yet they cannot help investors recoup their investment since it is an unregulated asset. The best that can be done to keep scams like this from recurring is to create a governing body in conjunction with diamond bourses around the world and educate both the industry and investors alike about how everybody can benefit if we work together.
There is no reason that banks cannot be the agents of investment diamonds as long as they are doing so transparently. However, there is no excuse for the behavior that these institutions exhibited and this type of approach can be and needs to be eradicated for good. It is only with organized and responsible education about diamond investments that they can be a standardized part of the market for good, and DICE and its new initiative looks forward to enabling the world to do so.
Aruna Gaitonde, Editor-in-Chief of Asian Bureau, Rough&Polished
