A recent article at this website, entitled "'Alternative Alternative' Investments: Super-Specialized Asset Classes Attracting Attention," piqued my interest.

The article reported on a meeting of the New York Hedge Fund Roundtable which attracted "a capacity crowd of curious financial professionals, underscoring the surging interest in alternatives in this anti-equity era, no matter how obscure, illiquid or opaque the asset class may be."  The asset classes in question were wine, art and stringed instruments.

In a way, I was relieved that diamonds were not listed on that meeting's list of "alternative investments", but then diamonds - and diamond investments - are neither obscure nor illiquid, and certainly not opaque.

Cynics in the investment world have described the market for polished diamonds as fractured and opaque, and have warned that investors might wind up shouldering higher costs related to storage, insurance and other transactional expenses than they’re used to paying in more popular parts of the commodities marketplace. Despite growing interest from investors, most financial advisors have steered clear of diamonds due to their lack of expertise and understanding of pricing and value models.

At the same time, gem and jewellery market makers have been slow to offer diamonds as a commodity for investment, perhaps because of the large profit margins that are earned through the retail market , or perhaps because they prefer not to speculate on the future value of their stock-in-trade. The various diamond bourses around the world continue to restrict access through membership, making it difficult for outsiders to buy diamonds at wholesale prices.

Over the past 30 years, the prices of polished diamonds in all sizes, and particularly in larger sizes, have continued to rise, as the demand for gem quality diamonds has consistently outstripped supply. There is an industry-wide consensus that the mines cannot keep pace with the future demand for polished diamonds, and consumer demand for diamond jewellery in Asia, South America and Eastern Europe, is expanding and will continue to grow, even in a depressed global economy. A recent CNBC report cited 10-12 per cent annual growth in the demand for diamonds in China and India.

Between 1999 and 2011, the value of 1 carat diamonds increased by 64.4 per cent, and 3 carat diamonds by 144.9 per cent. From 1982 to 2011, the increase in value of 1-3 carat investment-grade diamonds increased in correlation with the United States Consumer Price Index, proving them to be an efficient hedge against inflation and deflation risks. In dollar terms, they also outperformed gold, sterling, the Euro and the Swiss Franc over the same period. But are diamonds sufficiently transparent to make them a desirable and reliable financial instrument for investors?

How to invest

Martin Rapaport, a respected industry spokesman wrote in his CNBC blog "How to Invest in Diamonds": "You need to connect with an expert that can give you direct access to international dealer prices and markets. You also have to confirm the quality of your investment diamond through independent third party grading and expert confirmation. It is important that you establish a relationship with a trustworthy investment diamond expert that can advise you about timing, ensure quality control and handle your transactions."

Diamonds are routinely sent for inspection and grading by reputable independent laboratories such as the Gemological Institute of America. The GIA’s Diamond Grading Report defines the diamond’s four c’s: carat weight, colour, clarity and cut – and shows the stone’s cut proportions and any flaws. Only the top 1 per cent of polished diamonds are considered worthy of investment, weighing 1 carat or more and of superior cut. These diamonds are laser-inscribed with the GIA grading report reference number – it's unique “ID number”. This standardised grading system not only enables investors to confirm their stones are of unimpeachable quality and will hold their value, but it also equips them to compare the market price of their diamond with that of similar stones.

In recent years a number of diamond market price lists have been published on the internet, including the RapNet weekly list, IDEX Online and PolishedPrices.com. While these lists provide benchmarks for different types of diamonds, they are usually sold at a discount or premium price. One platform where investors can track the actual wholesale purchase prices of diamonds in real time is the Waldman Diamond Company's online portal. When we launched our Waldman Diamond Investments division, we simply opened up our existing internet portal, which we use to service our global jewellery clients, to brokers and investors looking to buy and sell diamonds at wholesale prices. Suddenly investment diamonds are no longer obscure, illiquid or opaque!

Not only can you see each stone's GIA diamond grading report, but our team of expert gemologists let you choose your diamonds. We will work with financial advisors to match the investment profile of each client, finding the most appropriate diamonds to suit their investment budget, strategic objectives and diversification requirements,

So now perhaps this alternative asset class ought to be on the table for investors, since diamonds are more romantic than violins, more transparent than paintings, and more liquid than wine!

Alexander Waldman is Founder and Executive Chairman of the Waldman Diamond Company. The Waldman Diamond Company Group developed interests in mining, manufacturing and trading.