This article was originally written by Jane Hanson for Forbes and published on April 25, 2023.
Elizabeth Taylor once said, “Big girls need big diamonds.”
Dana Auslander agrees. The veteran hedge fund executive is shaking up the investment world, creating a unique new asset class that sits at the intersection of finance and luxury, and gives all women the opportunity to actually own diamonds. Big diamonds.
Launched last year, the all-women founded LUXUS is the first SEC-qualified alternative investment platform that allows any investor to purchase luxury jewels – previously only accessible by the uber wealthy – through fractional ownership.
Making Luxury Accessible to Everyone
Simply put, rather than owning shares of a publicly traded company, LUXUS enables the ordinary investor to now own shares of a publicly traded diamond. Like a rare, 5 carat, D-Flawless Kwiat diamond, for example. Here’s how.
Auslander’s team identifies macro trends (like colored diamonds) in the high-end gem space and partners with brands who may have a valuable gem in inventory or who may be able to procure one directly from a mining company. LUXUS prices the gem and securitizes it, creating a financial instrument that can be split up and sold to investors. The company files with the SEC and “IPOs” the gem, much like a company would IPO. The total value of the gem is divided into shares, which can be purchased by any investor.
For example, the diamond mentioned above is valued at $400,000, but is being offered to the public in the form of 1,600 shares at $250 each. Shares will ultimately be tradable in a secondary market and after a few years the diamond will sell back to the private market – a built-in private equity exit on the back end.
An Attractive New Asset Class
Owning fractional shares of diamonds can be an appealing alternative investment option for the mainstream investor. First, unlike cryptocurrency and NFTs – which SEC Chairman Gary Gensler has described as the “Wild West” and “lacking proper regulatory compliance” – investing in securitized gems is highly regulated. The platform is governed by FINRA and the SEC and all assets have certificates from the Gemological Institute of America and the International Gemological Institute, attesting to quality and valuation.
Second, precious metals, like gold and silver, have long been used as hedges in times of inflation and market volatility. And now diamonds are performing the same role. “Over the past 3 years, large, investment grade diamonds of flawless clarity have significantly outperformed the SPX (the S&P 500 Index) and gold, demonstrating their value as an inflation hedge,” Auslander shared last month during the launch of the company’s third IPO.
And finally … bragging rights! “I want people to be able to say, ‘I own this Tutti Frutti by Cartier from the 1930s or I own this pink diamond from the Argyle Diamond Mine,’” Auslander said. Interestingly, the Argyle Diamond Mine is closed and there will be no more pink diamonds mined from the earth- ever again. Scarcity like this makes owning rare gems, even fractional shares, that much more valuable and desirable.
Capital Markets as a New Sales Channel
Luxury jewelry brands are eager to participate in the securitization and fractional sale of their gems for several reasons. First, it provides a low-risk way for the brands to be perceived as innovative and “tech forward.” Many attempted a foray into the world of NFTs with less than stellar outcomes.
It also allows jewelry brands to reach a much larger audience – effectively using the capital markets as a new sales channel. This is particularly appealing to brands who have been struggling to compete against the larger conglomerates, like Sotheby’s and Christie’s, and to those brands who have felt the sting of the significant decline in Asian tourism. Chinese consumers purchase about one-third of the world’s luxury goods. And while in 2019 almost three million Chinese tourists visited the US, that number sank to less than half a million last year.
While LUXUS’s first three IPOs were diamonds, Auslander has plans to offer shares of different luxury products to investors in the near future. “We’re starting with gems and jewelry, but we want to go into other asset classes – all assets that are considered passions and pursuits.” She mentioned wine, rare watches, classic automobiles and branded jewelry could all be on the horizon. “We plan to launch a new asset during Fashion Week – a necklace that was worn by a very famous person to the Oscars in 2022.”
Auslander is offering women the opportunity to invest in something they can both see as a viable investment and love as an asset class, the way men love watches. “At first, everyone looked at me like I was crazy,” she said. “And now that LVMH has snuck into the top 10 companies in the world, and luxury is outperforming healthcare and big tech, LUXUS is getting a lot of attention and respect.”