Diversification into alternative assets such as collectibles and away from traditional stock and bond holdings is what investors have been doing to prepare for the market downturn. Retail investors can now put their money into alternative assets with relative ease thanks to tech companies such as Masterworks.
Many of these collectibles have been unlocked in the past few years, but one major market has remained difficult for tech startups to crack. Two women with experience in both finance and luxury fashion have founded a new startup called Luxus, which is hoping to bring in investors.
People have been trying to make gems an investable asset class since 17th-century Venice, which had done this with gold, and nobody could figure it out. She said that her background in structuring financial products informed her approach to founding Luxus.
The non-fungible nature of precious gems makes them a more effective way to market them than offering investors fractional ownership.
As a product person, I found the JOBS Act and Reg A+ to be very useful. Companies can raise capital in a process similar to an IPO but with less reporting requirements, meaning they can market their securities to a broader investor pool than in a traditional IPO.
A luxury and fashion professional with experience at Glamour Magazine as well as high-end brands Tod and Chanel, was one of the co-owners of Luxus. The first investment offering of the platform will be made later this month, pending SEC approval, and will feature a rare argyle pink diamond.
According to a document the company shared with TechCrunch, the diamond is valued at $400,000 and will be offered at $200 a share. It is launching the offering in partnership with Kwiat/Fred Leighton, which is handling the security and custody of the diamond itself.
Pink diamonds are super- rare, accounting for less than 1% of diamonds mined globally. Because of their scarcity, they have historically had a low correlation to traditional markets and have provided a stable return during periods of broader volatility and inflation.
The stone has returned 11.5% per annum from 2005 to 2020, beating both the S&P 500 and gold by more than 200%.
The company has raised over $2 million in pre-seed funding, which will be used to launch the company. The company beat out a golf company and a sneaker company in front of a panel of all-male judges to win the NBA Full Court Pitch Competition in February.
Brands will pay a small fee to list their assets on the platform, and LUXUS will charge a 50-75 basis point management fee to investors. The platform will have a feature that will make it a sales channel for jewelers.
Dana Auslander is the CEO of Luxus.
Retail investors, collectible lovers, and people who are fans of events like the Met Gala or the Oscars are similar to those who are participating in the coin. She said that institutional macro investors who want to invest in hard assets are a key demographic for Luxus.
As most of the gems have already been mined, the inherent scarcity of the product should drive up value. She said that the diamonds on its platform would have to be compliant with the internationally-recognized Kimberley Process to ensure they were ethically mined.
We're trying to create a new asset class just like Masterworks did, but we're really much more of a commodity. It is a little bit more like commodities, luxury and collectibles.
She explained that suppliers can be difficult to access and that another platform such as Masterworks hasn't already waded into the luxury gems market.
It is a very concentrated industry and there are deep relationships between me and Gretchen. We have some suppliers as investors, we have some other brands that we are lining up, and it is a very risk-averse private industry.
One of the main differences between Masterworks and Luxus is that Luxus plans to use a Series LLC structure, grouping assets for accounting purposes, rather than offering each gem as a separate entity. The holding period for gemstones is shorter than for artwork, at 18 months to three years, because the market moves much faster, she said, noting that the benefit to the Series LLC structure is that it allows for greater efficiency and speed.
In the next three years, five years, there will be substantial institutional demand, and we want to make sure that we are able to come up with a supply.
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