Harry Winston Diamonds look to expand its operations internationally with an investment fund
Diamond investment funds stretch to Australia
By Aaron Weinman
Investors aim to raise funds for the Australian arm of a USD250 million diamond asset fund.
Australian investors are to be given the opportunity to invest in a new venture by Canadian retailer, Harry Winston Diamonds and Zurich-based advisor, Diamond Asset Advisors (DAA).
The USD 250 million Diamond Asset Fund 1 (DAF 1) will be managed locally by Melbourne-based investment banking firm, Bristow Shaw and Company, which aims to raise up to $30 million here in Australia.
The partnership between Harry Winston Diamonds and DAA, formed in May this year, is raising funds from institutional investors to purchase diamonds, and to attain direct exposure to the wholesale market price of polished diamonds. Access to USD250 million capital would also allow Harry Winston to expand internationally.
Michael Shaw, managing director at Bristow Shaw & Company is enthusiastic about the prospects of DAF 1, which he believes is an excellent chance for Australians to invest in diamonds.
“If we can get four institutions in and the balance from high net-worth parties, this would be a good achievement and great opportunity for us,” Shaw said.
Shaw has modest aspirations for investment; his desired target should account for 10 per cent of the fund’s total expected size.
“We are in the process of raising between $25-$30 million for the Australian leg, which will in essence purchase and hold polished diamond stock on consignment for Harry Winston,” Shaw said.
According to Shaw, the fund will be offered in a private placement to qualified investors, and aims for a return of 12 per cent per annum net to investors.
According to the arrangements finalised between the two parties, Harry Winston will source diamonds with the same characteristics found in Harry Winston jewellery, a portion of which will come from its existing inventory.
The diamond fund will then purchase the diamonds and consign them to Harry Winston Diamonds, which will then act as custodian, using the polished diamonds in the manufacture of its jewellery.
The price paid to replace any polished diamonds that are sold by Harry Winston will be used by the investment fund as a yardstick to determine the market value of the diamond fund.
When a diamond is sold, Harry Winston will pay the fund the prevailing market price as determined by its cost to replace the diamond thereby providing liquidity to the diamond fund.
The first allotment of diamonds, valued at USD100 million is expected to be raised later this year, with the outstanding USD150 million due over the course of 2012, subject to market conditions.
For some people diamonds are increasingly being recognised as an alternative investment, creating a new type of ‘consumer’ in the diamond trade. Essentially, this partnership hopes to entice diamond investment by giving potential investors an opportunity to buy diamonds, access to a marketplace and the ability to track fluctuating prices accurately.
According to DAA, the future demand for diamonds is expected to exceed global supply, leading to increased prices. The existing mines are beyond capacity while the cost of production continues to grow. Currently there are no new major mines in the short-to medium-term, which take seven to ten years to become operational.
Despite the dwindling supply, there’s growing customer demand in Asia, with China now the second largest market for polished diamonds. Likewise, US and European diamond markets are rebounding as the regions begin to emerge from recession. This strengthening consumer demand, matched by that of investors, is only expected to further propel diamond prices.
The demand for diamonds in the Asian market has prompted Shaw to seek investors from China as well as Australia and New Zealand.
“Whilst we are exclusively acting to raise funds in the high net worth/sophisticated investor and smaller institutional space in Australia, we are also seeking funds from suitable selected Chinese and Asian investors,” Shaw added.
Because the fund will have the opportunity to purchase Harry Winston’s current inventory, the growth of the fund is expected to continue without disturbing market pricing.
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Posted September 06, 2011