Why Invest in Trade Finance
Trade Finance is a Promising New Asset Class
ALPHA GENERATION- Market Neutral and Absolute Return Strategy
UNCORRELATED RETURNS- Low to negative correlations with major market indices
DIVERSIFICATION- Reduces reliance on traditional return drivers
FLOATING RATE- Total returns are positively correlated to US LIBOR
SPECIAL STATUS- Trade stimulates economic growth and as such governments and organisations (WTO/G20) recognise trade debt to receive preferential treatment (Paris Club)
LOW RISK AND RELATIVITY- Majority of trade finance transactions are collateralized and also self-liquidating. Money is lent against identifiable transactions and repaid from their proceeds with short term maturity profile. Very different from corporate debt.
Investment Process & Risk Management
1
Stringent Investment Process
- Extensive Due Diligence process including but not limited to business model, transactional flows, financial analysis, market checks, on-site & legal due diligence
- Compliance & KYC screening supported by 3rd Party Systems and Service Providers (e.g. S&P and Worldcheck)
- Credit Risks Evaluation
- Approval Procedure (Credit Risk Committee → Unanimous decision)
2
Execution Process
- Negotiation of Legal & Security Documentation
- Obtain relevant legal opinions
- Ensure documentation is duly executed and conditions precedents are met
- Liaise with 3rd party service providers for smooth execution
3
Transaction Monitoring & Management
- Regular covenant monitoring
- Transaction flow monitoring
- Periodic credit & counterparty review