Funds don't want to replace Banks
One of the stand-out issues raised in the first session was whether or not trade finance funds can – or should – replace banks.
Moderated by Aidan Applegarth, managing director of trade and financial services consultancy Bankingwise, speakers David Frye, CEO of multi-funder platform Levantor, Dave Skirzenski, CEO of Raistone Capital, and Ulla Fetzer, client portfolio manager at NN Investment Partners seemed to be in agreement that the trade finance pie is big enough for everyone, and that all players, from funds to banks and fintechs, have different roles to play.
“We don’t want to take over the relationship part,” says Fetzer. “We are not replacing an originator or replacing a bank. That’s not our intention. We are looking for solid, stable assets that we want to invest in on an ongoing basis.”
“For a while, it looked like banks were going to exit the trade finance space because of Basel III,” says Skirzenski. “But they’ve certainly have been partnering more with fintechs now, and getting back into the space. However, banks will always stay within their box, which is generally investment grade clients that they have a relationship with that they can cross sell to.”
Banks’ role as funders for trade finance funds was also discussed.
“There’s a very natural balance in the funding that we source between banks and non-bank investors,” says Frye. “It’s very key that the core of the funding comes from banks that are relationship driven. That’s really the role of the bank, we need that relationship anchor. But at the same time, we need funders that are not relationship driven, who have that ability to take a view on risk.”
Trade finance Funds are not mainstream yet
Although trade finance can offer an illiquid position in a volatile market, lack of understanding about what the asset class actually is continues to dissuade investors, according to the panellists.
“It’s definitely still a learning curve for a lot of non-banks coming in figuring out exactly which bit of the market that they want to play, what the appropriate yield expectations are and what the level of risk that they’re taking is,” says Frye. “It’s about getting comfortable with the instruments, and looking at the underlying cash conversion cycle – all the things that trade banks have been doing for centuries. However, once they do, they find that this is a very attractive asset class.”
“For some investors, the asset class is still relatively new,” says Fetzer, “But I do think that trade finance funds are here to stay and that we will see more funds and more inflows into this asset class.”
Despite recent fraud cases, trade finance remains an attractive asset class for investors
The last year has seen numerous allegations of fraud emerge at large commodity and energy trading companies. International banks have been quick to review their appetite for risk – with some pulling out of the sector entirely.
The second session, which covered the investor perspective, brought together Martin Opfermann, senior portfolio manager at Allianz, Dale Galvin, founder and CEO of Deliberate Capital, and Daouii Abouchere, head of ESG and sustainable finance at Channel Capital Advisors, to discuss the impact of recent scandals on investors’ willingness to put money into the market.
For Opfermann, the benefits still outweigh the risks.
“There’s nothing wrong with the asset class, but there are a few things wrong with the way people are approaching the asset class,” he says. “From what we hear, the institutional investors have not really been affected by the recent fraud cases; it was mostly the banks. Managing concentration risk is nothing special to trade finance, it is something that you need to manage for any asset class. There’s a compelling relative value in terms of risk return.”
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