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Peter Harper: Hello and welcome to the Three Pillars podcast. I’m Peter Harper, the managing director and CEO of Asena Advisors. If you’re not familiar with the business, we’re a multifamily office advising foreign family offices and private clients on US direct investments in mergers and acquisitions. In this episode of the Wealth Management series, we’ll be discussing investing in diamonds with Anna Cisecki. Anna, it’s great to have you here with us.
Anna Cisecki: Hi, Peter, thank you so much for having me. As you have said, my name is Anna Cisecki and I am the executive director of Australian Diamond Portfolio. We are a specialist diamond brokerage based in Sydney, Australia, and we work with investors to buy and sell rare physical colored diamonds. We started the company about eight years ago now, mainly with the mission to really make rare colored diamonds accessible to all investors. Firstly, by providing education and transparent market information and really to empower investors to better understand diamonds as a hard asset class and then also by structuring an end to end solution that makes it easy to buy, store and eventually resell them.
Peter Harper: That is awesome. And so Anna this is this was a topic when I was getting ready in preparing for this session, I was really excited. I mean, as an Australian, I think Australia is known for having these quite rare, colored diamonds that can have stratospheric prices. The marketplace for those type of stones versus traditional diamonds, how are they differentiated? And then how should someone who’s looking at alternative asset class like rare stones start that process and educate themselves and think about investments generally?
Anna Cisecki: Yeah. Well, with the start of that question in terms of looking at your traditional white diamonds and your colored diamonds, they’re they’re actually two completely different markets. Perhaps we should talk about first what actually constitutes a good investment in this space? Or What actually is an investment diamond when we talk about it. Again, because it is actually quite a broad market. Just like when you’re looking to buy shares or buy a property, there are myriad of options. And contrary to popular belief, no matter how hard the industry tries to convince you that all diamonds are rare, this is really not the case. For example, if you were to go to buy a traditional white diamond, even a very big and flawless one, the reality is that if you try to go and resell that diamond a few years later, you’ll be lucky to get back half of your money. To be considered for investment, you must really be looking at a diamond that that does in fact have intrinsic rarity. Traditionally there are three main color categories of diamonds that are looked at for investment that meet this rarity criteria and those are pink diamonds, yellow diamonds and blue diamonds. Now, while diamonds come in all colors of the rainbow, the ones that really weren’t enough trade to have an investment market will fall into this pink, yellow or blue category.
Anna Cisecki: You can get color diamonds that that could be considered more rare, for example, like pure orange or pure purple. But they’re really not enough of them out there to have a really robust secondary trading market. And of course, when investing in any asset class, you always need to consider your exit strategy as well. In terms of considering the pink yellows and blues for investment, I’ll talk a little about all three of these, but by far the best investment opportunity in the market now lays in blazing pink diamonds for a number of reasons. Firstly, they have a very unique supply profile in the sense that they are a finite resource. Most people aren’t aware that almost 95 percent of all the world’s pink diamonds come from one single source, which I’m sure you’re aware of is the Argyle Diamond Mine in WA, which is owned by Rio Tinto, and this mine actually ceased production in November of last year. Every mine has what’s called it’s mine life after which it’s no longer economically viable, and Argyle started production in the early 80s and has now simply reached the end of its mine life and the point of exhausted supply.
Anna Cisecki: So by the end of this year, when the last of the Polish pink diamonds from Argyle are released, there will be no more new Argyle pink diamonds coming onto the market, which makes the implications for and the opportunity now for investment quite quite unprecedented. Argyle was at one point the fourth largest producer of diamonds in the world. However, the vast majority of those rocks were industrial gems used for things like cutting tools and laser machines. Only five percent of Argyle production is what’s considered gem quality ore or good enough to use in jewelry. And of that, five percent, only one in 10000 is pink. So, hopefully that gives you a better idea of the type of rarity we’re talking about. When you walk down the street, you’ll see 10 jewelry shops, and all of them will have hundreds of white diamonds in their windows. But you would really have to go to a specialist place to be able to have a look at a pink diamond.
Peter Harper: I know with diamonds, you have clarity -you have all these different ways that you rate the normal white diamonds, the guys that are selling them tell you that they’re, you know, they’re superior. Is it the same with pink diamonds or are you focusing on the same things Is it just the fact that it’s a pink diamond mean that it’s a good thing?
Anna Cisecki: No, no, no. Absolutely not. Just like not all properties are a good investment. Not all pink diamonds are a good investment. With whites, you’re looking at what you call the four Cs, your carat weight, which is the size of the diamond. Your clarity, which is the presence or absence of inclusions or imperfections within the stone. You’re looking at the absence of colors, so you actually want it to be as clear as possible from that perspective. And then the quality of the cut, how the diamond is proportioned. You look at those same things in a pink, but with a very different weighting given to them. With the pinks, 90 percent of the value is in what we would call the quality of color. So the brighter, the more vibrant, the richer the pink, the more valuable the stone will be. You want to make sure that you’re looking for stones that are really very bright and beautiful. Even as a layperson, looking at – looking at a pink diamond that might be, very brownish and dull and unattractive or looking at a vivid, vibrant stone that has almost a fuchsia tone to it, you’ll always go for the one that’s most attractive.
Peter Harper: How does that then equate to value. I mean, in the current market, what is a half carat pink diamond that’s got, got good medium color grade. What type of value would have diamond like that trade for?
Anna Cisecki: Well, it’s interesting, in terms of a half carat diamond – in a white diamond that wouldn’t be considered a very large size, but in a pink that’s actually huge. Less than 0.6 percent of pink diamonds are over half a carat.
Peter Harper: So what is the average size of a pink diamond?
Anna Cisecki: 90 percent of them are below 0.2 of a carat. So it’s, you know, only 10 percent of them are over 0.2. So you’re actually talking about very, very small stones. But it’s the rarity of color, really, that’s the key to it. So in terms of asking about the price of a pink diamond, if it was a very, very light pink color, it could be as little as, in half a carat, it could be as little as $100000, but it could very well go up into the the million dollars plus. If it’s a very, very vibrant pink or a red.
Peter Harper: I’ve got to think with what you’re saying about the Argyle diamond mine. How are you seeing that impacting prices today, or is it not, but you think there is a major opportunity to buy and hold now given the the reduction in supply?
Anna Cisecki: Yeah, absolutely. Well, on the back of the Argyle story, we’ve seen incredible sustained price growth in pinks over the past 10 to 20 years. All categories of investment picks have appreciated it on average 10 to 15 percent in terms of annualized returns and some of the top categories of pinks have done even better. Up to 25 to 30 percent per year, like we’ve seen over this past year since Argyle closed.
Peter Harper: That’s phenomenal. I mean, I think if anyone was looking at those type of annualized returns in their share portfolio, they’d be punching the Moon. So I mean, how do you then, Anna, take this – from what I understand there is a huge amount of those diamonds that exist in the market, it’s just that they control supply and demand You know, De Beers still control, you know, huge quantity of the world’s white diamonds. How do you take this and construct a portfolio or assess how people should be deploying capital into diamonds as an investment?
Anna Cisecki: And, well, it’s interesting that you mention you mentioned De Beers, they actually did have a monopoly over the diamond industry up until about the 90s and absolutely with the control of supply, they were able to very much, control pricing. Rio Tinto that owns Argyle actually was quite instrumental in in changing that dynamic, so De Beers still controls a very large, large proportion of the industry. But it’s a minority now. You have several other mining companies that are in this space. And it really is now much more subject to the traditional forces of supply and demand. And that’s why we’ve seen, for example, over the past year with the COVID pandemic and lockdowns, demand for your traditional diamonds has decreased significantly with the extended global lockdowns, reduced spending ability.
Peter Harper: In turn, you’re seeing price adjustments, right? You’re saying, due to COVID, less people looking for diamonds. You’re in your track pants, and so people are less worried about…
Anna Cisecki: Hard to find someone to propose to from your living room couch.
Peter Harper: Then is it a buyer’s market for all types of diamonds or if people are collectors of rare stones, then they’re collectors of rare stones. Are they less concerned about putting it in / setting it into some piece of jewelry than say someone who’s traditionally, buying white diamonds?
Anna Cisecki: I mean, with the with the investment stones, while you are able to wear them, the reality is most investors are putting them in a safety deposit box. The pinks, unlike the the whites, they’ve shown excellent stability and consistency of performance, including since the start of COVID, and there’s a few reasons why they’ve done so well. Firstly, the pink diamonds and colored diamonds in general really are not influenced by the speculative moods of equity markets that create major short term fluctuations like what we’re seeing with the white diamonds. There’s no options. There’s no futures. There’s no short selling. It’s not a highly leveraged market. And the absence of these factors, which can lead to significant levels of added volatility in financial markets, helps protect investors from those kind of market risks. And we’ve actually seen a bit of this in the past as well when the GFC hit. When financial markets are doing well, we typically see investment, pink diamond prices grow nice and steady. And in times of economic slowdown or recession, unlike with other asset classes, we don’t see prices fall. If you look at the performance of of pinks and blues over the period of the worst of the GFC back in 2008 and 2009, prices remain steady back then.
Peter Harper: You actually view them as an alternative asset that you think performs stable in a market downturn?
Anna Cisecki: Absolutely. One of the main reasons that our clients look at pink diamonds are to diversify their portfolio and insulate themselves from the risks in an economy.
Peter Harper: When you’re thinking about portfolio construction and I understand, okay people are buying these, they’re investment grade stones, putting in a safety deposit box. What’s the sort of minimum that someone wanted to get into rare stones and invest with you, what would be the minimum you would say that you should be thinking about investing to start?
Anna Cisecki: In order to get a diamond of sufficient rarity and beauty. You’d be looking at starting at about twenty thousand dollars, so that would be considered an entry level. Pink diamonds are actually quite quite accessible and you don’t need to be a millionaire to to get into the market.
Anna Cisecki: It’s always going to be a trade off between color and size. If you’re looking at something with a stronger, more vibrant color for a particular budget, you’ll be looking at a smaller size than a stone that would be a lighter, more kind of a baby pink look. For $20000 you are looking at something that’s a nice what we call fancy pink; the best size really to start with from investment would be around 0.15 of the carat. You can also look at stones that are smaller, but the demand in the market is really for stones above above 0.15 carat.
Peter Harper: I imagine, given the rarity of pink diamonds that that the demand would obviously be higher than the available stock in the market. How hard is it for someone who doesn’t have someone like yourself to connect with to even find the pink diamond to purchase?
Anna Cisecki: Well, they’re certainly not abundant on the market. You can, with a quick Google, I’m sure, find a number of pink diamond sellers from which you could purchase a pink diamond, but it’s really important to do your homework and work with people that you trust.
Peter Harper: This would be my big concern: it’d be one thing to find someone, but then to have someone to actually assess a stone from an investment grade purpose, very different to having someone who says, “Okay, I’ve got a pink diamond. It’s very pretty and you can put in a bit of jewelry.” I mean, how do you find that? You know that in the marketplace, there is a major difference between, from a professionalism standpoint, people’s representations about value. I know this from my own experience when I went and I was looking for a new ring for my wife and only a number of years ago I went through this process and it scares the absolute bejesus out of me because I’m sitting there and thinking, this guy is absolutely going to take me for a ride, right? I think it’s a stressful experience. What is something that someone can look for that’s coming to this for the first time? What should they be focusing on?
Anna Cisecki: You want to work with a company that has that has a history specifically within this space and that can make the actual process easy for you from the beginning to end. And that’s really what Australian diamond portfolio was about when we first launched it. Besides the actual education at the start of the process, the way we work with our clients is that they’ll give us a budget and we will then recommend the best stone that we can find on the market at that particular time for them and present it to them in a full formal proposal, explaining not only the details of the stone, but also what the historical performance of that stone has been and what we expect that stone to do in the future. As I said, even a layperson, when they’re looking at a diamond can appreciate the various features of it that you’re pointing out and then verify that independently themselves by looking at other options that may be available to them as well.
Anna Cisecki: Once the stone is acquired, you want to make sure that you’re actually acquiring the physical diamond that you’re not buying into a potential hypothetical pool of diamonds somewhere. That is one of the things that certainly needs to be looked at. Then ideally, you’re working with somebody that will also help you store, insure, and most importantly, resell the diamond for you at the end, because that’s something that most companies will not do. We’ll be happy to sell you a diamond, but not resell it for you down the road. So that exit strategy is something that’s very, very important to to consider.
Peter Harper: That’s my biggest takeaway from today. As I’m hearing you, well a couple of major takeaways. I was not aware about, you know, Argyle diamond mine sort of running out of supply. As someone who is focused on investments, they’re going to understand how that would have an impact on prices. And then I think the other thing is having a clear pathway or framework with a dealer to be able to buy in and out positions makes complete sense, right? If you don’t have a counterparty on the other side of the trade, you’re never going to have liquidity in the asset. Well, two things before we finished up you chat to investment folks and wealth management people, they’re obsessed with inflation. Has there been an increase of interest in pink diamond as a hard asset, as a way of hedging against inflation?
Anna Cisecki: Absolutely. Because they are so truly limited supply. They absolutely have inflation protection qualities. And that’s one of the reasons why the increasing demand for them has pushed prices up so much over the last 15 to 20 years.
Peter Harper: And that’s awesome. Then, Anna, what is the coolest and most expensive diamond that you’ve ever had the ability to wear, see or trade?
Anna Cisecki: The coolest diamond it was this absolutely incredible red diamond. Red diamonds are the absolute pinnacle of the pink diamond family, and red is the most rare color of diamonds in the world. I had the opportunity to hold this incredible pure what you call Pigeon’s Blood Red Stone. It was worth $4 million, and I have to tell you it was. It was absolutely sensational. That was certainly the highlight of the stones that I’ve seen. Even as someone that looks at diamonds on a daily basis, you can always appreciate when you see something that’s that’s truly one of a kind, so rare.
Peter Harper: That’s awesome. I always love hearing nice stories. When you meet someone who’s an absolute expert and specialist in something, it makes me happy when I get to see them smile and talk about things that are cool in their line of work. So, Anna, this has been extremely informative. I’ve enjoyed the discussion very, very much. Any of the listeners, if you are interested to learn more about the diamond trading or investing in rare diamonds, if you head to our website, Asena Advisors.com, there’ll be further information on how you can contact Anna and the Australian Diamond Portfolio Group team in order to get in-depth advice about rare and precious diamonds. So, Anna, thank you very much for joining once again.
Anna Cisecki: Thank you very much, Peter. It’s lovely speaking with you.