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October 23, 2019  

Diamond Merchant Offers Financing Vehicle

A well-known figure in the diamond industry is marketing a fund that offers financing to manufacturers and dealers of fine jewelry.

Chris Del Gatto, chief executive of an online jewelry exchange called I Do Now I Don’t, formed DelGatto Capital of New York earlier this year to launch DelGatto Diamond Finance Fund. The firm this month raised $100 million from a large family office.

The fund originates secured loans to “midstream” diamond businesses — that is, those in the supply chain between mining companies and retailers.

“Due to tightening capital restrictions, commercial banks are leaving the middle-market segment of high-end diamond and other jewelry businesses,” according to DelGatto Capital’s pitchbook.

Indeed, annual loan volume in the sector has declined from $17 billion in 2013 to less than $9 billion today. And it’s projected to drop to $4 billion by 2020. DelGatto Capital says it’s “uniquely positioned to . . . fill this lending gap.”

Although Chris Del Gatto lacks experience as an investment manager, the offering could get a good look from investors hungry for alternative-credit strategies that are uncorrelated to financial markets. Earlier this year, gem merchant Diana Shvartsman began marketing a similar strategy under the label Select Diamond Fund via her Elmas Trading of New York.

DelGatto Capital is running the family office’s money in a parallel separate account. Meanwhile, the firm believes the strategy has the capacity for up to $1 billion. The marketing campaign is targeting credit-focused hedge fund managers seeking higher-yielding investments at a time of historically low interest rates.

DelGatto Diamond Finance Fund writes short-term loans with balances of no more than 70% of the value of the collateral. In each case, the manager will take possession of the collateral and store it in a secure facility. Interest rates on the loans are 15-20%.

DelGatto Capital pegs the size of the market at about 15,000 small and mid-size businesses worldwide.

Chris Del Gatto, a licensed gemologist, hired Andrew Lucas to fill the role of chief operating officer at DelGatto Capital. Lucas, a quantitative investment manager, previously ran an options-trading vehicle called Lanesborough Alternative Strategies Fund.