Codiam is the brainchild of Mahyar Makhzani and Philip Baldwin. They met at Bulgari, where Makhzani was MD of Switzerland and Eastern Europe, Baldwin of the UK. ‘Bulgari was diversifying into handbags, fragrance, this sort of thing and we weren't convinced by that as a strategy,' Baldwin tells me, a sharp figure sipping espresso in the Knightsbridge Mandarin Oriental. ‘We began toying with the idea of setting up a fund investing in coloured diamonds: there is too much homogenity in the white diamond market. Certain companies own such a large proportion of the market that there is rarely a flood or a dearth of stones; supply is relatively controlled.' The highest quality coloured diamonds are, however, a limited resource. Of the 110 million carats of diamonds mined each year, only 2000 will be cut and polished coloured diamonds, and a handful of those are of investment quality. Since there are risks involved in the process of cutting and polishing a diamond, Codiam does not handle rough stones. Instead the partners purchase finished stones, and use their expertise both to buy well, and to add value to the diamonds they acquire.
‘It is a different way of investing. You cannot optimise a stock by setting it prettily. But with diamonds, if you are able to match a pair of stones, you may increase their value by around 40 per cent. If you then set the pair either side of a different coloured diamond, and tailor the piece to a certain market, you have the potential to really make a profit. The skills needed are not something you can buy out of a book. Between us, Mahyar and I have 50 years of experience in the business. I was apprentice to my father and making jewels for the Sultan of Brunei at the age of 16. Mahyar is also an excellent auctioneer. Beyond that, we have a network of high net worth individuals round the world whose tastes we know and whom we can approach with the appropriate thing.' Baldwin is keen to stress the subtlety of selling stones. ‘If you trumpet all over the place that you have a seven carat red diamond, then you will blow prices up, and you can burn the market for a stone. If you hawk it round to all and sundry, it becomes less exciting. It loses its sparkle.'
Makhzani and Baldwin began by working with private individuals, some 18 months ago. The returns on these early investments were promising, with clients making an average return of between 25 and 35 per cent, and up
to 75 per cent on some stones. Heartened by this early success, they launched Codiam in September. The targeted fund investment is $100 million; they currently have just over $15 million. ‘Codiam is different from many other collectible funds in that the 20 per cent performance fee is only taken if a diamond is sold and the capital is realised. The stones are so individual that you can't put a price on them; you never know how much they are worth until they are sold. It's a bit like investing in a Picasso.'
James Picton, an equity research analyst who focuses on diamond companies at BMO Capital, concurs. ‘It is a very rarefied field. The best ones are real collector's items, museum pieces. But their value is subjective - what one man doesn't like, another may consider excellent. The investment boom in diamonds in the 1970s gave diamonds as assets a bad name, but coloured diamonds are a different market. It is partly their rarity, partly their attraction. Novelist Evelyn Anthony, when he was shown a collection of coloured diamonds at De Beers, said "diamonds entered my heart that day." They are very beautiful, very sought after. And a limited resource.'
John Calleija is an Australian diamond expert, based on the Gold Coast, who recently opened his first Bond Street store. He specialises in pink diamonds, most of which come from the Argyle mine in northern Australia. It is the biggest diamond mine in the world, and responsible for 90 per cent of the world's supply of pink diamonds. Of these, only a handful are investment quality pink diamonds. In the bandbox-beautiful Calleija store in London, Kelly Starling shows me some of the tiny, glitteringly beautiful jewels. ‘Stones from the Argyle mine are very distinctive: they are small, but with a very intense colour. Diamonds from the other main source mines in Africa are bigger, with lighter colour.'
Each year the Argyle mine produces around 60 to 80 pink diamonds. For one month they are available to view, and then, at the end of September, they are bid for at silent auction. Calleija, and his clients, will acquire stones, and then set them. ‘Interest in coloured diamonds is relatively new,' she continues. ‘But then 10 years ago people didn't really know they existed. It was when Ben Affleck gave JLo one for her engagement ring that the public started to become aware of them. At the same time as demand is rising,' she continues, ‘the supply is in doubt. The surface pipe that has been mined in Argyle is running out, so they are having to dig deep, and are not sure what the results will be.'
Nicole Marais at David Morris makes the same point: ‘Demand for coloured diamonds is increasing as supplies are falling. De Beers closed three diamond mines in Africa in 2006 and the Argyle mine in Australia is ceasing open-pit mining this year. The newest mines in Canada and Russia are not producing much in the way of coloured diamonds, so we expect prices to rise.' The Argyle is predicted to run out by 2018. So, while the likes of Calleijia and Morris think of the stones first as beautiful objects to be worn, they also see them as pieces whose value will, over a 10-year period, increase. Starling adds: ‘The items your wife loves and wears are also a tanglible investment. A diamond one of our customers bought four years ago for £10,000 is now worth £17,000.'
And what of the credit crunch? Over the past few months, banks have not been lending sufficient money for the diamond polishers to buy the number of stones they would normally work on, so there will soon be fewer cut stones available. Regarding investment into his fund, Philip Baldwin comments: ‘Now is not the easiest time to raise money, and it is taking longer to set up than we anticipated. That said, people are pulling out of conventional investments and looking for innovative things to do with their money. Moreover, diamonds have intrinsic value; they are not a piece of paper; they are transportable wealth. Perhaps it has made our buying power a little stronger, but fundamentally this is such a unique, specific commodity, that the prices of the important pieces have not gone down.'
James Picton puts it perfectly. ‘People are bowled over when they see a collection of coloured diamonds. Yes, they are tangible, but so are white diamonds, and they have been hit. Coloured diamonds offer more than that. If the Mona Lisa came on the market now, she would fetch a decent price. It is a similar thing. If I had that sort of money, I'd be looking at investing in the fancy coloured diamond market.' - Rebecca Newman
