Market survey – investing in trade finance assets

Interest in the trade finance asset class is on the march.

It is a movement that has gathered pace as both users and providers of liquidity have found themselves in the midst of a perfect storm. On the one hand, compliance and regulatory requirements have hamstrung banks’ ability to finance a growing global trade market, stretching the trade finance gap to $1.5 trillion. On the other, the tightening of spreads in traditional loan markets combined with almost a decade of low interest rates has led to a general compression of yields that has increased the attraction of trade finance assets to institutional investors.

Despite the self-liquidating nature of trade products and their low default and loss rates, the development of trade finance as an asset class for funds and investors is at a comparatively early stage.

The FinTech Committee of ITFA is pleased to bring to your attention a recent market survey entitled “Investing in Trade Finance Assets”:

TXF and EFA Group Market Report: Investing in Trade Finance Assets

In collaboration with EFA Group, TXF interviewed a total of 50 investors from more than 15 countries. The participating interviewees were senior managers working in pension and/or insurance funds, or for established asset management firms. They were asked their professional opinions and experiences in (1) affinity toward the trade finance industry, (2) management of their trade finance funds, (3) risk assessment and (4) industry outlook.

Francois Dotta, CEO of EFA Group says: “We wanted to get a deeper understanding into the factors that are driving investors to allocate into trade finance, as well as the reasons why they are not yet invested. And the insights we received make for good learning points that can help us further stimulate interest and investments in the asset class.”

Sean Edwards, Chair of ITFA adds: “This market development is significant for the ITFA membership and this is why it is the main focus on the recently established ITFA FinTech Committee. Having 77% of interviewees confirm that Financial Technology or FinTech will play a significant role in the development of trade finance as an asset class is a major proof point for the ITFA Board.”

André Casterman, Chair of ITFA FinTech Committee concludes: “This joint TXF / EFA Group survey is a first-of-a-kind. It is encouraging for transaction banks to witness that 78% of the 50 polled investors see trade finance growing as an asset class in the near term. There is no doubt about the potential for this asset class to develop. New FinTech trading venues such as those active in the ITFA FinTech Committee are already helping banks and investors meet up and transact.”

The findings of this report will be discussed at the TXF Amsterdam Trade & Commodity Finance conference on May 17-18. As well as a panel session on the topic, there will also be an intimate, invitation-only roundtable session featuring seasoned and new investors in trade finance.

Helping banks establish Trade Finance as an asset class is a market-level ambition that we will debate during the 2018 ITFA Annual Conference taking place between the 4th and 6th of September 2018 in Cape Town, South Africa. We look forward to debating “Trade as an Investable Asset Class” with you in Cape Town.