Trade Receivables – The Preferred Asset Class in Today’s Time
Trade finance assets have traditionally been ignored by investors because they perceive them as a complicated and unstructured asset class with multiple variations dependent on geographies, commodities or goods, and counterparty. But in recent years, this lesser-known asset class has drawn increasing interest as an uncorrelated investment with low risk and the possibility of high returns
- Short term: Even the longest exposures will typically not exceed one year. As result, asset velocity is high, permitting finance lenders to adjust lending rates in response to the market, thus greatly mitigating duration risk
- Diversification: Exposure to multiple underlying commodities, finished goods and geographies lends strength to this asset class through diversification
- Low Risk: Trade Finance has an average default rate of 0.02% across all vanilla trade finance products and trade finance lending is 5 times less risky than general corporate lending
- Low correlation to other asset class: In the midst of an increasingly volatile market, investors continue to favour solutions with low correlation of returns to traditional asset classes. Trade Finance funds correlation with MSCI World Index is approximately 0.23, and is approximately 0.15 with the iBoxx Investment Grade Bond Index.
- Competitive yields: Trade finance private-debt market investment has the potential to offer yields ranging between 50bps and 800bps above Libor for short-dated credit exposures of between 30 and 150 days.
