Alternative fund manager Abacus Capital’s Hogi Hyun is stepping into the crypto world to bring investors a blockchain and tokenised investment grade diamond investment opportunity.
Abacus was established in Singapore in 1996 and has some USD1 billion in assets in special situations and private equity investments in commodities, natural resources and mining. It also has a family office fund platform.
Hyun’s new venture, the D1 Coin, is based on the physical delivery of an initial 1,500 investment grade diamonds from Alrosa, the world’s largest diamond miner. The diamonds will be used to support the new asset-backed token D1 Coin.
Hyun explains that the launch is a confluence of two initiatives. “As an asset manager, we are looking at the application of blockchain to the asset management industry and secondly, we have been looking at how to create an investable asset class for diamonds.”
Diamonds, whether pedigree – for example the the Koh-I-Noor in the Queen’s crown which dates back to the 1600s - or loose diamonds that have been bought and sold for engagement rings and jewellery, with price data back to the 1960s, have enjoyed 5 per cent appreciation per annum.
Hyun says: “We have funds in physical gold bars and in mining but we have been looking at diamonds for a long time, and while some diamond mines are publicly listed, actual diamonds are not.
“It was a challenge and, from a fund management point of view, it is quite a fun challenge to see how you can make diamonds an investable asset class.”
The issue of blood diamonds or conflict diamonds is avoided through the firm’s sourcing exclusively through Alrosa whose mines are in the Russian Far East, a long way away from the Congo or Sierra Leone.
The Alrosa provenance continues through the supply chain, the cutter and polisher and into the vault. The initial order for 1,500 diamonds is happening shortly with a price ticket of USD20 million and the hunt is on for investors.
“We are hoping to return better than the historical 5 per cent annual appreciation in prices as the supply/demand characteristics of the industry are positive: one new diamond mine is discovered every generation, roughly every 30 years, existing mines are depleting, while demand is growing steadily within China and India, who are ultimately displacing the US as the largest consumers of diamonds. There is a good impetus for a price increase and if we can create a new asset class out of diamonds it is also positive for prices,” Hyun says.
The structure of the investment is based on blockchain at three levels. Hyun wanted to analyse the blockchain application for the asset management industry.
Blockchain is the ledger that was created to support bitcoin and that records how many bitcoins have been issued and who they were issued to.
“It’s a history of the investor transactions, and in asset management we have that too, but we also need to do a second ledger because our portfolio of assets is more complicated since each asset is different and not fungible.
“So, we now have a double ledger system, but because each diamond is unique so has a different price, we need the ability to not only identify each diamond but also track its provenance.”
Firms such as De Beers and Everledger are in the process of using blockchain applications to track diamonds from the day they have been mined throughout their lives.
Within Hyun’s token there are three levels of ledger: the owners; the portfolio and the individual asset.
There was no need to produce an asset backed token per se, but Hyun says that as a firm they were interested in testing the market to develop other tokens.
“They are cheaper and easier to trade than funds,” Hyun explains. “You can trade bitcoin 24/7 on any one of 200 exchanges and you are not stuck with the usual fund administrator route for subscriptions or redemptions. If you cash in a PE or hedge fund, you are probably looking at 30 to 40 days from redemption to get your money, but settlement is 10 minutes on a crypto exchange.”
The firm is targeting two demographics as potential investors in the token. The first is existing holders of bitcoin or Ethereum who are ready to diversify out of highly volatile crypto currencies into something more stable that offers long term investment returns.
“A lot of wealth was created in crypto currencies and a large number of unintended millionaire and billionaires were created who never thought they would have this type of wealth and they are looking to lock something away.
“Psychologically these early adopters who are married to the concepts and the technology of crypto have an almost religious ‘true believers’ approach and want to remain in the eco system.”
The second demographic is family offices; investors who are not exposed to the crypto markets and are fearful of volatility and want something that gives them an out. To overcome this, the D1 Mint token will be exchangeable into physical diamonds.
“There will be two levels of liquidity for the D1 Coin: through trading the token on an exchange or physical liquidity where you can cash out and take home a diamond,” Hyun says.
The firm will charge a few per cent to purchase the diamonds, get them certified and put in the vaults.
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