Here is a Q&A from Paula Vance, chief executive of DeVanx Assets, about the growing use of red diamonds by wealthy clients as a portfolio hedge and what makes it such an attractive asset.

Here is an interview with Paula Vance, chief executive of DeVanx Assets, about the growing use of red diamonds by wealthy clients as a portfolio hedge and what makes it such an attractive asset.

"While certainly beautiful and precious, not all red diamonds are of investment quality. The best in reds have become a new asset class offering stable value appreciation and low volatility - an ideal inflation hedge and substitute for gold and other precious metals," Vance explains.

Vance has 25 years of experience in financial services and global banking environments, including stints at Credit Suisse and Bank Sarasen & Cie AG.      

Firstly, what services does DeVanx Assets provide? Who are your clients and where are they based?

We are alternative investment experts delivering rare mineral assets to our global client base of qualified UHNWIs, HNWIs, independent wealth managers, private banks, intermediaries and family offices.

We work primarily with carbon-based minerals including graphite, diamonds and silicon. Our alternative asset investment options include: Direct physical hard assets; rights exposure; basic private equity; and collective structures. In addition, we offer fee-based mineral services and support in four key areas:

1. Rare mineral consulting, which includes testing, research and analysis, and industry/market monitoring and reporting;

2. Rare mineral product development, which includes researching, standardizing, analyzing, modelling, structuring, packaging and supporting;

3. Rare mineral liquidity program access, which includes buying, selling, trading and marketing; and

4. Hard asset services, which includes handling, storing and insuring.

How big is the opportunity to invest in red diamonds? How much in dollar terms is the market worth?

We are focused on the top of the red diamond market or investment-grade red diamonds.  We provide our clients access to the top tier of the market – the investment-grade red diamonds.  We represent access to 82 per cent of all investment-grade red diamonds and package them into individual, multiple or collective open-ended red diamond asset investments.

While we cannot speak to the value of the assets previously released due to confidentiality,   we can say that we currently handle $300,000,000+ worth of rare investment-grade red diamonds.  There are so few red diamonds in the world, and even fewer investment worthy red diamonds, that we only release investment packages on an annual basis.  This year’s full set of museum-quality investment grade red diamond packages are due out in mid-November.

What is the process for investing in such an asset?

We consider accurate data collection and tracking as a very critical element in the successful investment in the emerging asset class of red diamonds.   We strive to provide clients: 

1.  Data, analysis and reporting: Getting valid information that informs the decision-making process. Education regarding the asset both in terms of historical performance and current market context;

2.  Fitting financial expectations with real asset performance: Determining where and how the assets fit in a client's portfolio and what they want the assets to do for them – how they need them to perform; and

3.  Purchasing investment-grade assets: The careful and informed selection of the assets themselves is critical to achieving the highest ROI.  Not all red diamonds are of investment quality.

Why are family offices and their ultra high net worth clients increasingly investing in red diamonds?

Investable red diamonds offer many benefits including lower risk, low correlation to the securities markets, inflation hedging, portfolio diversification, alternative asset substitution option (for gold and other precious metals) and a track record of solid performance. 

In fact, investment-grade red diamonds have never decreased in value – they’ve seen a steady increase in appreciation for decades.

We are seeing an increase in UHNW and UHNW investors requesting more "hold-in-your hands" rare and exotic mineral based hard assets through financial service advisors.  And more of these types of investors are contacting us directly. 

Where do red diamonds sit in a typical UHNW portfolio? What role do they have?

UHNW individual investors are making use of red diamond assets is a couple of ways: 1) To stabilize their hard assets by replacing gold and other precious metals with red diamond assets,  and 2) To ensure reliable returns by acquiring an extremely rare and scarce commodity forecasted to become more and more scarce given current mining and diamond extraction trends. Rio Tinto’s Argyle mine, which to-date has provided 85 per cent of all red diamonds, is closing its doors.

What's the typical return on investment for this asset?

This is an instance where size matters. Ninety-five per cent of all red diamonds are less than one carat, but any size over that sees a return as much as 15 per cent or more. On average, over the last ten years, investment-grade red diamond assets made up of stones in the 0.50 – 0.75-carat range, of strong color and clarity are returning stable value appreciation in excess of 12 per cent CAGR.

How liquid is it?

We improved the diamond industry’s typical investment return period of three to fives years to between 90 days and one year.  DeVanx offers an exclusive 5-Point Liquidation Program resulting in much shorter liquidation options for red diamond asset investment products. We have 90-day, six-month and one-year redemption plans representing the first opportunity for investors to make use of the rising value of red diamonds for more timely financial gain.

What evidence do you have that red diamonds are a robust investment?

Red diamonds are one of the rarest minerals known to man.  Besides being highly appealing physically, portable and financially performing, their rarity and scarcity coupled with favorable supply and demand dynamics make this assets an attractive investment option.

What is the biggest challenge for you in helping clients invest in this asset?

Our biggest challenge currently is responding to the growing demand for investable red diamonds and the need to service clients directly.  We started out eight years ago focusing on and servicing global independent wealth managers and private banks.  As more independent investors are taking charge of their own financial decisions, we expect to see more growth directly from HNWI and UHNWI, particularly entrepreneurs.

Do you have any measures which demonstrate how you have grown so far as a firm? Any targets for future growth?

We are a focused investment advisory boutique and we have no intention of becoming a behemoth.  We have a very experienced team of top professionals who take a measured and balanced approach to our micro market asset building, as well as our company growth.  Standardizing rare and exotic minerals that perform like other alternative asset classes takes time and a disciplined effort.  Each one of our clients deserve the highest level of service and counsel and that is what we deliver.  We are accountable to them and to each other.  What is most important to us all is to never lose sight of truly delivering on our company goal: delivering the best return profile for the least amount of risk.