Professional Jeweler Archive: The Discreet Tycoon

January 2002

Diamonds/News


The Discreet Tycoon

Many jewelers don't yet know Lev Leviev, though his share of worldwide diamond holdings, diversified investments and political contacts make him a force to be reckoned with


His Angolan mine holdings are what most U.S. jewelers know about Lev Leviev, if they know about him at all. But his Leviev Group is also busy securing mining rights to other diamond sources.

This past summer, for example, the company bought a majority stake in Namco, a Namibian offshore diamond mining company, and is now negotiating mining rights to locations in Botswana and Canada. The company also is exploring for diamonds in other areas around the world.

At press time, De Beers was expected to clinch a new five-year marketing contract with Alrosa, Russia’s diamond monopoly. But some observers say Leviev is a natural contender for a larger portion of Russia’s rough too. In fact, some experts say Leviev is emerging as a major new diamond pipeline and a very real challenge to De Beers.

Leviev has diamond polishing factories in several Russian cities, as well as Ukraine, Armenia, China, South Africa and Israel. In Russia, the factories process a sizable portion of the country’s diamond wealth.

Along with his high profile in the diamond world, Leviev is active in other business ventures. The Leviev Group has a multibillion dollar portfolio of diamond, real estate, oil, construction and clothing enterprises.

His Cut of the Business

Leviev, who lives in Israel, seems the antithesis of a larger-than-life figure. He is quiet and self-effacing – but also matter-of-fact and confident. Visitors to his Moscow diamond and jewelry factory get a dose of his style. In his soft-spoken manner, he tells of his company’s $2 billion in sales of cut and rough diamonds in 2000. He turns and asks a visitor to do the math on where he stands among diamond miners and manufacturers.

The first instinct is to compare his sales with those of De Beers ($4.8 billion in rough sales in 2000) or the worldwide estimate ($6 billion to $7 billion in rough sales). But it’s not that simple. Leviev is a major player in the rough he sells ($1 billion, he says) and in the rough he converts into cut and polished diamonds (also $1 billion).

Leviev’s cut diamond division, LLD (called LID until 1998), is reportedly the No. 1 diamond manufacturer in the world by value. And though he doesn’t wish to compete head-to-head with De Beers by selling rough on a large scale, his share of the rough diamond business puts him in exactly that position.

Leviev’s success in the diamond business can be attributed to connections, luck and chutzpah. He entered the diamond business at age 16 as a diamond polisher in Israel, opened his own company a decade later and became a De Beers sightholder in 1986. He was named Israel’s Outstanding Diamond Exporter of the Year in 1986 when his yearly exports tipped over the $23 million mark. He earned the distinction again in 1994. By then his yearly exports had reached $250 million.

Leviev’s turning point came when he relinquished his De Beers sightholder status by rejecting the preselected box of diamonds he was offered at a sight allocation in London. Since then, expansion has been rapid, in Russia and elsewhere.

More than Business as Usual

At the LLD offices in New York City, Leviev’s associates speak proudly of his business acumen. Leviev, 45, immigrated to Israel from the Soviet Union in 1971 with nothing. They also share the story of Leviev’s commitment to helping Russian Jews. In 1992, Leviev stood in line with other Israelis waiting to ask famed Russian Rabbi Lubavitsch for advice. Leviev overheard a man in front of him ask for a blessing to return to Russia and start a business. The timing seemed right; Russia was quickly shedding its mantle of communism in favor of capitalism. For an able Jewish businessman who knew the lay of the land, the language and the culture, new opportunities beckoned. Leviev’s heart sank when he heard the rabbi counsel the man not to go. The rabbi told the man he would lose his money by venturing into the minefield of emerging Russian business.

Leviev, then in his mid-30s, decided to ask the rabbi for the same blessing anyway. This time the rabbi offered different advice. “Go,” he encouraged, obviously recognizing the diamond manufacturer. “The opportunities for you are great; the horizon for business is limitless. But promise me when you ‘make it,’ you will do all you can to help Russia’s Jews.” Leviev understood the plight of Russian Jewry – oppressed for well over a century – and pledged he would. This promise of a mitzvah – a series of good deeds – he has since fulfilled (see “Mitzvah”).

His Secret: Diversify

Leviev’s success gave him his “quittin’ money” – a chance not to depend exclusively on De Beers’ diamonds. Though he maintains diamonds remain closest to his heart, by the mid-1990s he began to diversify. In 1996 he bought controlling interest in Africa Israel Investments Ltd., a real estate and construction company. He also bought controlling interests in shopping malls, an oil company and Gottex, a swimwear manufacturer.

He also bought Russia’s oldest jewelry and diamond factory, Ruis Diamonds Ltd. of Moscow, and secured a steady production of Russian rough aimed at strengthening the local cutting industry. Leviev faces competition from another local diamond manufacturer, Smolensk Cristal, which he says has a larger factory. “It is not always good to be No. 1,” he says, smiling.

Though he rejected his sightholder status, Leviev’s rise can be traced to the years when he depended on De Beers for rough. Leviev credits De Beers with maintaining market stability. But he doesn’t support De Beers when it comes to how it sells rough, particularly the Supplier of Choice strategy, which asks sightholders to create their own branding and consumer marketing plans to raise demand for diamonds. “It is creating more confusion and resentment among dealers,” he says.

Resentment isn’t new. He recalls the days when, as a sightholder, he met peers on flights to and from London. “On the way there I would hear complaints about how badly they were being treated by De Beers and how this time they would really face up to them,” he says. “But on the flights back I would hear them say, ‘It is not such a bad box after all.’ They were all afraid to lose their diamonds.”

Leviev says his company targets carefully selected big buyers, but that he doesn’t make the demands that De Beers makes. “We do not have the same policies,” he says. “We are not forcing anyone to buy; there is no pressure and we are flexible with our prices.”

Those flights to and from London taught Leviev a lesson. “I made the decision early that I would not fight to be a buyer.” He also learned “nothing is stable unless you have your own diamond mine,” he says. Leviev also saw that to maintain mobility in the diamond business, he needed a healthy supply of capital reserves, another reason for his diversified portfolio. “If you don’t have reserves,” he says, “you have to cave in at any price when you buy or you have to sell at any price, even at a loss.”

Who is Lev Leviev?

Many U.S. jewelers became aware of Russian-born Israeli diamantaire Lev Leviev for the first time during the initial days of the conflict diamond crisis. Leviev agreed to form a joint venture with Angola to market all of the country’s certified conflict-free diamonds. He also has major investments in Angolan diamond mining.

It wasn’t an auspicious introduction – Angola and its diamonds were so strongly connected to conflict. But Leviev says his diamonds are 100% conflict-free and are helping the Angolan economy.

Leviev is more than his Angolan business connections, Senior Writer Robert Weldon found when he visited Leviev at his factory in Moscow in September. Weldon’s goal was to gain insight into this largely unknown man who controls a significant percentage of rough and polished diamonds on world markets. In next month’s issue, Weldon will report on Leviev’s dealings in Angola.

Lev Leviev (left) sits with Israeli Prime Minister Ariel Sharon at a dinner in Moscow honoring Sharon in September. Leviev is politically active in Russia, has close relationships with businessmen and politicians – including President Vladimir Putin – and has brought together representatives of Israel and Russia.

Photo by Robert Weldon.


Visit to a Diamond Factory

Ruis Diamonds Ltd. of Moscow, a Leviev company, is Russia’s oldest jewelry factory, though its main purpose today is cutting diamonds. General Director Valery Morozov says about 1,000 employees work in the jewelry division, manufacturing traditional and contemporary silver and gold designs with natural gems and bohemian crystals. Production, aimed at the local market, totals $50 million a year wholesale.

An additional 1,000-1,500 people work in the diamond division, with sales totaling $250 million to $300 million per year. Called Ruis Diamonds, this division boasts a skilled labor force – a majority of the cutters and polishers have college degrees. Even so, labor costs are far cheaper than in Israel, says owner Lev Leviev.

During a tour of his factory, Leviev pointed out where diamonds are studied and marked for cutting as well as where proprietary technology determines yield analysis. Before and after the diamonds are cut, the color is analyzed and they are papered and bar-coded for exact tracking. “We are very much aware of what our customers need,” says Leviev. “When you can supply exactly what jewelers want, your return can be up to 25% higher because of efficiencies.”

Leviev says his company specializes in fancy cutting and high-end Ideal cuts of larger diamonds. His company cuts small goods and melee in countries with lower labor costs. Leviev adds that because the Russian economy is starting to take off, Russia remains the strongest market for his largest and best diamonds.

Ruis Diamonds also developed proprietary software that automates the cutting process. This allows the factory to operate 24 hours a day.

Leviev stresses that by providing his workers with the latest technology, he enables them to gain even greater efficiencies.

– R.W.

Lev Leviev examines a diamond in one of the thousands of diamond papers generated daily for export by Ruis Diamonds Ltd., Moscow, Russia.

Photo by Robert Weldon.


Mitzvah

Lev Leviev promised a rabbi who blessed his Russian business ventures he would perform a “mitzvah,” a series of good deeds for oppressed Russian Jews. One example is the Ohr Avner Foundation, named for Leviev’s father, which has founded over 62 Jewish schools and summer camps (he also created schools for Russian emigrants in Israel and the U.S.).

Throughout the former Soviet Union, Leviev supports a renaissance of Judaism. He is president of the Federation of Jewish Communities, the central organization for the over 300 Jewish communities in the former Soviet Union’s 15 republics. FJC, which has an office in the U.S., seeks funding and development for Jewish community causes in the former Soviet Union.

– R.W.

At the Ohr Avner school in Moscow, students are provided with the latest technical and educational tools. They are beneficiaries of major educational investments by Leviev and the Federation of Jewish Communities. The school started with 15 students in 1989 and now has 300.

– by Robert Weldon, G.G.


Copyright © 2002 by Bond Communications