Diamond futures, diamond funds to debut on investment horizon

Diamond futures and diamond funds may prove to be an institutional investor’s best friend if recently announced proposals prove successful.

RENO, NV - 

In a presentation to the World Federation of Diamonds and the International Diamond Manufacturers Association Wednesday, Rapaport Group Chairman Martin Rapaport Wednesday unveiled his plan for a completely price-transparent diamond-futures market.

If the prospect of diamond futures isn't a success, a number of diamond funds are also on commodities investment menus.

Advocates hope the initiative will bring greater clarity into pricing in the diamond market, now considered one of the most secretive of the world commodities sector. Consumers will benefit from more buying power.

The Financial Times reported last week that Icap, Cargill, the London Metal Exchange and the Chicago Board of Trade are also involved in the diamond-future discussions.

Although the Rapaport Group had not posted Rapaport's presentation on its website by Mineweb's deadline early Thursday, the National Jeweler Network reported that the basis of a diamonds-as-investments market would be monthly diamond tenders, scheduled on begin on September 17.

The cash tenders will include high-quality round brilliant diamonds ranging from 1.01 to 1.19 carats which have diamond-grading reports from the Gemological Institute of America and HRD, the coordinating body and official representative for Belgian's diamond sector. The Rapaport Group--which provides an online diamond trading network as well as a diamond news service-will further guarantee the tenders, according to the National Jeweler Network.

The Rapaport Group would not buy or sell stones, but instead facilitate the process under the regulations of the U.S. Commodity Futures Trading Commission (CTFC). The process would be open to anyone to buy or sell, including consumers, who would be charged 5%. Sellers will be charged 3% while trade buyers or resellers wouldn't be charged to buy.

Rapaport said cash-settled, diamond futures index would allow diamond companies to sell good based on a set price from the index. "These tenders allow us to have a systematic way of discovering prices that are totally transparent. That means we can create a future markets based on the index from the CFTC," he said.

Benefits to the diamond industry would include cash-market liquidity and diamond-leasing programs, along with increased consumer confidence, Rapaport asserted.

DIAMOND FUNDS EMERGING

Diamond funds, the latest alternative investment, are planned to make their debut in Europe, Canada and Russia, as institutional investors seek niche, potentially high return investments.

Stephan Wrobel, partner at Diapason Commodities Management, recently told the Financial Times that some pension funds and other institutional investors have already bought diamonds.

On June 18, Diamond Circle Capital said it hopes to raise $400 million in an IPO for the "first diamond fund" to be listed on the London Stock Exchange. The company hopes to build a diamond portfolio with a minimum investment of $1 million per stone. The portfolio will include white and rare colored stories.

Wrobel, whose Diapason is helping to raise money for the diamond fund, said the Diamond Circle Capital venture will make it easier to invest in the market, while its listed structure will provide investors with liquidity.

The diamond fund will have an annual fee of 2% and is chaired by Rupert Cottrell, Chairman of Dawnay Day Carpathian.

The date of the diamond fund IPO is July 10, 2007.

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