Diamonds are forever–unless you buy a fraction of one and sell it for a profit. Fintech investing platforms offer fractionalized shares in everything from comic books to Picasso paintings, and a new startup is now adding another asset to the mix by securitizing rare diamonds and gems, though fees can be steep for retail traders in these alternatives.
Luxus launched Wednesday and plans to sell 2,000 shares of its first piece, a pink Argyle diamond valued at $400,000, for $200 each, pending SEC approval this month. Founded by former Blackstone managing director Dana Auslander and Gretchen Gunlocke Fenton, a former accessories editor at Vogue and Glamour and public relations executive at Chanel, Luxus is the first fintech platform to specialize in selling shares of precious gems and jewelry.
Auslander spent seven years at Blackstone before leaving in 2008 to oversee marketing and investor relations at Harbinger Capital Partners, Philip Falcone’s hedge fund, which shrunk from $26 billion to less than $10 billion in assets during the Great Recession. For the last decade, she advised other hedge funds and began collecting jewelry as a hobby, befriending her neighbor Gunlocke Fenton on Manhattan’s Upper East Side. The duo raised $2.5 million in pre-seed money from investors including designer Veronica Beard and Auslander’s former Blackstone colleagues, and committed to start Luxus last summer.
“It seemed like a really obvious gap that needed to be filled, and no one was really doing it,” says Auslander, the startup’s CEO. “We believe that there is tremendous demand from retail investors, because we’re dealing with things that are a natural resource. They’re a commodity, they’re a luxury asset and they’re collectibles.”
Luxus partnered with New York jeweler Fred Leighton to acquire the 0.54 carat diamond mined from the Argyle Mine in Western Australia, which produced more than 90% of the world’s supply of pink diamonds before it closed in 2020. Data from brokerage firm Australian Diamond Portfolio shows that its class of “fancy vivid” pink diamonds appreciated in value more than fivefold from 2005 to 2020, or 11.5% compounded annually, outperforming the S&P 500’s 7.3% annualized gain in that span.
Investors chasing those high returns will have to make some sacrifices in liquidity and fees compared with simple stock trades. Luxus will hold the gem for at least a year, and Auslander expects to sell most assets within 18 months to three years after an offering closes. Shareholders will pay management fees on the Argyle diamond of 0.75%. Once the diamond is sold, investors will pay a performance fee of 20% on any profits exceeding an 8% annualized gain, according to its offering prospectus.
The transaction-based model is similar to fractionalized art investing platform Masterworks, which scored a $1 billion valuation last October and sells shares of iconic works of art, charging a 1.5% management fee and 20% performance fee on all profits. Another startup called Rally also allows investors to buy shares of collectibles like vintage sports trading cards, comic books, sneakers signed by Michael Jordan or a 1980s Lamborghini. Rally doesn’t charge fees to investors, but it makes money by charging a listing fee to the original owner of its assets.
So, why would any retail investor buy shares of a collectible they will never physically own? Auslander says there’s an emotional connection individuals feel with collectible assets–plus, the potential for a return on investment.
“When I discovered that Reg. A [a regulatory provision that eases the disclosure requirements for certain securities] was available for real estate and for baseball cards and sneakers, I said why not do this for precious gems and jewelry?” she says. “I have a great personal affection for this asset class. The aspect of an emotional investment is very, very obvious to me, as I think it will be to a lot of women.”