Will diamonds become a retiree’s best friend?August 24, 2022
By Gregg Greenberg
"If diamonds are forever, then why aren’t they found in more retirement accounts?
Less than 2% of the $1.2 trillion of gem-quality diamonds are currently owned by investors, let alone specifically held in IRAs or 401(k) accounts. One would think a gemstone like a diamond would make the perfect cornerstone of a retirement portfolio, where longevity, conservatism and inflation resistance are priorities.
Nevertheless, while gold and other hard assets are commonly found in retirement accounts, diamonds – literally the hardest asset of them all – remain a rarity. That’s primarily due to the historical difficulty in finding a standardized way to trade diamonds and other gemstones.
Diamond Standard is trying to change that situation by offering a fund that invests in fungible diamonds using standardized groups of diamonds that it calls coins and bars. The Diamond Standard Fund is targeting an initial capacity of $500 million, and working with wealth managers, high-net-worth investors, family offices, IRA platforms and institutional investors.
InvestmentNews caught up with Cormac Kinney, founder of Diamond Standard, to find out why he believes diamonds will soon be a retiree’s best friend.
InvestmentNews: How does Diamond Standard enable investors to add diamonds to retirement accounts?
Cormac Kinney: Diamond Standard created the world’s first regulator-approved diamond commodity. Every coin is equivalent, so you can trade them easily at a market price that’s available on Bloomberg, for example. But most IRA accounts cannot hold commodities. We created the Diamond Standard Fund as a convenient solution — it trades and stores the commodity for the investors, with third-party administration, audit and custody. We already have investors on several IRA platforms, and this has driven the growth of the fund’s AUM, and the overall demand for diamonds as a newly unlocked asset class.
IN: Why would an investor want to own diamonds virtually as opposed to holding — or wearing — the real thing?
CK: My wife advises that you do both! She is an influential jewelry designer named Mimi So. Actually, about 10% of the Diamond Standard commodity owners take delivery, meaning that they store their beautiful coins and bars at home, perhaps in a sock drawer, but hopefully in a safe.
But most investors don’t want the effort or risk that comes from holding diamonds at home — they want an asset they can store and sell easily. Selling your jewelry is a painful experience, where you may be offered pennies on the dollar. With a commodity, like the Diamond Standard Coin, you trade near a liquid market price. The Diamond Standard Fund is even more convenient but charges a fee for taking care of the trading, audit and custody.
Most importantly, the new diamond commodity allows investors to benefit from the building of market demand for a $1.2 trillion asset class that was previously inaccessible. While investors hold 15% to 32% of precious metals, including gold, silver, platinum and palladium, that share is only 1% for diamonds, representing significant growth potential. Those with a long-term horizon have an opportunity to allocate in the early stages, before institutions.
IN: How have diamonds performed as an asset class relative to stocks, bonds and gold?
CK: Since August 2020, when we first announced the Diamond Standard, diamonds are up 46.05%, with the S&P 500 up 26.24% and gold declining 12.91% during that same period.
IN: How do they fit into an overall retirement portfolio?
CK: As investors move closer to retirement, their risk profile should become more conservative. Hard assets should be an element of retirement allocations, as they are not a liability on a company balance sheet, such as a bond that can default, or stock in a company that can go bankrupt. In addition, with current inflationary pressures, hard assets are doubly important as a hedge versus many other assets. Commodities are in a super cycle, where prices generally remain above the long-term average for many years. Finally, diamonds have had nearly zero correlation to other assets, so they are an ideal asset for diversification.
Several RIAs have told us that they plan to allocate 1% to 2% to diamonds. In terms of what percentage of their overall retirement portfolio investors should allocate to diamonds or hard assets, they should consult with their financial adviser.
IN: What is next in terms of product development and the future of investing in diamonds?
CK: Now that diamonds are being financialized, we expect to see all the same vehicles and venues for gold to be created for diamonds, such as spot trading on exchanges, futures, options, exchange-traded funds, sales and trading at banks, and margin and lending. We are currently working to launch a spot marketplace and the futures and options, and the Diamond Standard Index is now listed on Bloomberg.
In the longer term, we expect diamonds to be added to the commodity indexes, like S&P. That will trigger automatic allocations by any pension, endowment or sovereign wealth fund that allocates to commodities. That growing demand should benefit the early investors the most, specifically more patient retirement holdings."