Erik Jens, the Global Head – Diamond & Jewellery Clients – AMRO BANK N.V. comes armed with professional experience in banking, financing and investments. He has specialized in private wealth management solutions, investments in hedge funds, private equity and real estate industry; and has served as director/advisor to various hedge funds and private equity funds at Fortis, which later became ABN AMRO.
Erik Jens has also held various senior executive positions at Fortis MeesPierson in banking and investment services in the Netherlands, Belgium, Switzerland, Netherlands Antilles, Ireland, United Kingdom, USA and Asia.
In an interview with Rough & Polished, Erik Jens speaks about the global gems & jewellery industry, expressing immense confidence in its future; and reiterating that sufficient finance is available for companies, which show good performance and maintain transparency.
Some excerpts:
Your optimism at the ‘Diamond Financing Summit‘ in Mumbai was contagious and brought much cheer to the participants. What’s the reason behind the enthusiasm? More so, when other bankers, barring one saw a rather gloomy scenario?
First of all, I’m a ‘posimist‘, that is ‘positive‘ and ‘optimistic‘. Every threat offers an opportunity. Every challenge creates strength. I sincerely believe the financing of a niche like the diamond and jewellery industry has a great future now all industry stakeholders including the banks are starting to speak the same language realising that change is there to stay and that issues need to be tackled rather than just talking about it. Music to my ears after being somewhat lonely the last years in my quest for transparency, innovation, sustainability in order to create a bankable sector again.
Do you think the global gem & jewellery industry will pick up momentum in the near future? The major Chinese market is still slow; no sign of EU improving; while Middle East & US seem to be the only sustenance? In fact, US too is unpredictable given the political situation there. Your views?
Well the diamond and jewellery industry is there already for many centuries. The problem is that everybody just looks at the day of today and tomorrow and seldom take some distance and look at longer trends. All research reports tell us that the diamond and jewellery industry has become more cyclical like other consumer and luxury sectors. Also, the boom in China basically covered up the underlying trend of overproduction and stockpiling and lead to high and not sustainable prices. Now the market is adjusting and demand is at lower levels, creating room for lower prices which will make diamonds more attractive to buy. After all, this is not a game of volume and turnover, it’s about profitability. Also with lower prices one can make interesting margins, provided you manufacture at the right yield with the right product. Innovation is key in that matter. The story on the millennial is overstated. First of all, they are not the big spenders on consumer durables yet. They rather spend their money on travel and other type of experiences. After accumulating some wealth however, they will spend money on luxury goods including diamond jewellery for sure. However, the product must be clean, provenance transparent, modern and cool, and different from what their parents liked and bought. That requires a thorough understanding of the needs of the new consumer wherever in the world they are. I’m happy to see that our clients and stakeholders like Diamond Producers Association for instance, are working on these themes.
As a banker and market watcher, what’s your opinion about the current Indian G&J industry? Will it boost itself and be back to its robust self soon, having faced numerous challenges in recent times? The recently concluded Signature IIJS seemed to foretell good times soon. Do you see ‘light at the end of the tunnel’?
As I said I am a ‘posimistic‘ person and as Winston Churchill said: ‘Never let a good crisis go to waste‘. The industry is going through a healthy correction with a good sense of realism, de-leveraging, optimisation and derisking. Of course, the demonetisation impact came on top of it all, but again that is only a short-term impact which in itself is also cleaning up certain practices in certain areas of the industry. I believe strongly in India, its sheer opportunities. Just like in China we see the development and growth of a new middle class. That in itself will continue to boost growth and thus demand for luxury goods including diamonds and jewellery.
Having catered to the global diamond industry for many decades and seen the ups & downs of the industry, what’s the bank’s general philosophy in financing the industry? Does it go tandem with the strategies of the financial sector? Or, any specific strategies formulated for the diamond industry, given the diamond business is rather unique?
The diamond industry is different indeed, but at the same time that is also the challenge. Why should finance practices be so different from the commodity industry? I keep on repeating this! Yes, the product is not a commodity, far from it, that makes it different, but finance practices should not be different from commodities, so we as a bank look at more asset based financing, more secure lending. Keep the mystic but get rid of the mystery. We have optimised and derisked our portfolio and geographical footprint in the last few years and we are happy were we are now, steady as we go. We are open for good business in all our locations and we invite other banks and financial institutions to join us in supporting the industry. One should never forget that you need to know this market, inside out. It’s a niche with global connectivity of which you need to be part of to understand to manage your risks very well.
For the readers’ benefit, can you take us through the challenges within the financial/banking sector while assessing clients in the G&J industry. And of course, how the Funding Banks benefit with good returns by financing a niche industry like G&J industry.
What I said earlier, the challenge is the fact that one needs to understand the flow of goods and the flow of funds. Same for your counterparts and your clients’ counterparts. Thus ‘KYC‘, Know Your Customer, but also ‘KYT’, Know Your Transaction. Finance takes place on receivables, inventory and is provided as working capital. Also, goods itself are small and relatively easy to move around. In for instance factoring or commodity business that is not the case and in case of insolvency or distressed clients you have easier access to the underlying goods as collateral you can work out. In diamonds that’s different although I still don’t see the need to have all your polished goods in your own custody. With modern techniques, our clients could have the polished goods for instance in an independent vault with goods registered with 3D technology and certificates. When a buyer comes in goods can be quickly delivered, or part of inventory shipped in and out during the day, creating sufficient buffers to finance. Thus, more asset based!
