Covenant Financial Buying Diamonds as Hedge Against Inflation

Covenant Financial Services LLC, a hedge fund based in Oklahoma City, is betting that demand for precious gemstones in China and the Middle East will boost prices for the assets in three years.

Covenant has been building a collection of “large, rare and highly sought after” stones, including the 77-carat Yellow Rose diamond, to bolster its $275 million of assets, the company said in a statement released today.

The fund has been buying diamonds since November as a hedge against inflation and as an alternative to gold and oil, said Covenant spokesman Will Thompson in Atlanta. Gems account for less than five percent of assets, he said.

“One of the trends we are seeing now is an enormous multi- generational transfer of wealth take place from the West to the East, and moving a small portion of our capital into diamonds is one of the ways we are profiting from this,” Steve Shafer, Covenant’s chief investment officer, said in the statement.

Americans and Europeans are offering diamonds at 50 cents to 60 cents on the dollar in an attempt to preserve businesses or real estate holdings, Shafer said. The fund is buying the stones to keep for one to three years, he said.