Thu, Sep 3, 2015
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

Diamonds are a fund’s best friend says Steve Shafer of Covenant Financial

Monday, May 23, 2011
Opalesque Industry Update - Steve Shafer, Chief Investment Officer for Covenant Financial Services, LLC (“Covenant Investors”) says financially-stretched Americans and Europeans are selling diamonds and gems at depressed prices while the market remains firm for precious stones in China and the Middle East. This offers investors the potential for big returns that are uncorrelated to the financial markets. To take advantage of this opportunity Covenant Investors, a multi-strategy, multi-asset global macro investment management firm, is putting together a collection of large, rare and highly sought after stones that it intends to hold for a period of one to three years. Thus far the collection contains several unique gems including the “Yellow Rose,” a 77-carat yellow diamond.

“As a global macro manager, we can go anywhere and into any asset class to take advantage of market trends on behalf of our clients – even assets many people wouldn’t think to invest in. One of the trends we are seeing now is an enormous multi-generational transfer of wealth take place from the West to the East, and moving a small portion of our capital into diamonds is one of the ways we are profiting from this,” says Shafer, whose Oklahoma City-based investment management firm manages $275 million for institutions and high net worth individuals.

Typical of this trend is that western sellers, trying to preserve businesses or real estate holdings, are putting large gems up for sale at 50 to 60 cents on the dollar, says Shafer, adding that new members of the wealthy classes in China and Middle Eastern investors looking to diversify away from their reliance on oil revenues are especially eager buyers.

“It’s not only what you own, it’s how you own it,” Shafer says, explaining that a carefully assembled collection of topquality gems can be worth more to potential buyers than the sum of its parts.

The argument against investing in hard assets such as paintings and gems has always been the difficulty of selling them if there is a financial crisis. Shafer counters that while 5 or 10-carat “commodity” diamonds declined in value in 2008, demand for the highest-quality diamonds held steady. And, over the past year, auction prices for stones like these have appreciated. Moreover, as gems represent only a very small position in his portfolio, Shafer explains that this makes his investment relatively liquid.

“The market is not nearly as illiquid as people think because at the top of the market, you always have three exits—the retail market, auctions and the dealer market,” Shafer contends. Adding to the current allure of diamonds and other precious stones is fear of the weakening U.S. dollar. Investors are searching for “stores of value” that will hold their own in an inflationary environment, observes Shafer.

To any of his investor colleagues thinking about following him into the trade, Shafer advises not to ‘go it alone.’ “Unless a manager has significant experience in the precious gem market, the best thing for him or her to do, like Covenant, is to partner with a world renowned expert and dealer to advise in all aspects of the acquisition, management and liquidation of the position.”

(press release

About Covenant
Covenant is a multi-strategy, multi-asset global macro investment manager focused on protecting capital while generating targeted rates of return. As a fiduciary, Covenant is dedicated to delivering desired results at a low risk, low volatility, and with a high degree of liquidity. Covenant’s management of investment funds is notable for a highly active, tactical style that can be assisted but not replicated by quantitative tools. Moreover, continuous, monitoring of securities and trades ensures that every position is delivering results consistent with investor objectives. To learn more, visit www.covenantinvestors.com.
km

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Cliff Asness attracts $360 million as liquid alternative funds hold up[more]

    From Bloomberg.com: As U.S. stocks suffered their worst month in more than three years in August, Clifford Asness’s managed futures fund was able to profit. Investors are taking notice. The $9.12 billion AQR Managed Futures Strategy Fund pulled in an estimated $360 million in net subscriptions last

  2. Performance - Einhorn and Loeb's hedge funds both decline 5% in August, Some target-date funds miss in the market turmoil[more]

    Einhorn and Loeb's hedge funds both decline 5% in August From Reuters.com: Hedge fund billionaires David Einhorn and Daniel Loeb saw their main funds lose roughly 5 percent in August during a dramatic market sell off, two people familiar with their returns said on Monday. Einhorn's

  3. Opalesque Exclusive: When the SEC calls, fund managers need to get out of their own way[more]

    Bailey McCann, Opalesque New York: New pressure is hitting alternative investment funds from all angles. So far this month both hedge fund and private equity players have seen enforcement actions, and subsequent fines over fees, disclosures, and misleading statements. Citi one of the biggest

  4. Fortress hedge fund manager David Dredge says markets trouble on the way[more]

    From AFR.com: David Dredge of global hedge fund Fortress has built a career studying, predicting and protecting against the world's major financial crises. The recent convulsions in global sharemarkets are "just the beginning" of a painful adjustment as money drains from the emerging market economie

  5. North America - Puerto Rico agency plans talks with hedge fund creditors[more]

    From WSJ.com: Puerto Rico’s Government Development Bank is planning to begin confidential debt-restructuring talks with hedge funds that own its bonds as early as next week, said a person familiar with the matter. The parties are set to discuss a plan under which the investors would lend additional

 

banner