Alan Landau launches a series of diamond funds

Novel Asset Management hopes to raise $20 million for the first in a series of funds that will trade cut and polished diamonds.

Alan Landau, the former president of Marco Polo Pure Asset Management, is launching a new venture. Novel Asset Management is going to specialise in trading rare diamonds.

He’s close to the point of launching Novel Diamond Fund I for which there are currently commitments of $10 million, and he expects to raise a further $10 million before the fund closes to subscriptions at the beginning of October 2011.

The fund will have a two-year fixed life, and Landau plans to launch a new fund every six months, with the goal of operating three to four funds simultaneously within two years. The target for the first two funds is $20 million each and $50 million for each subsequent fund. It is a product positioned towards family office and high-net-worth investors.

In establishing Novel Asset Management, Landau has partnered with Novel Collection, a specialty coloured diamond trader, cutter and polisher based in diamond centres around the world such as New York, Antwerp, Hong Kong and Tel Aviv. That firm is run by Eyal Mashiah and Eliad Cohen.

When the subscription period is complete they will use the funds to buy cut and polished stones externally. No diamonds will be purchased from Novel Collection.

The new fund will buy diamonds of at least $1 million in value. There will be about 10 stones in each fund’s portfolio. So these will be the sort of elegant pink and blue diamonds that hedge fund managers buy for their mistresses, not the little white stones that they buy for their wives. Those stones have transparent pricing and the spreads are as little as 1-2%. The coloured stones the fund will trade in are more rare and are worth whatever a connoisseur will pay for them.

The premise of the fund is to use Novel Collection’s global purchasing and sales connections to trade in these diamonds at a profit, rather than a buy-and-hold strategy waiting for diamond prices to rise.

The fund’s fees are a 1% management fee and a performance fee (upon realisation) of 50% of the profits over a hurdle rate equal to an established diamond index. What that means is that the fund doesn’t collect performance fees on a general rise in diamond prices, but instead is calculated primarily on the manager’s ability to make an alpha-style return.

The diamonds will be held in safe custody by Malca-Amit and be insured for 110% of their value.

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