A research report – “Private Credit and the Trade Finance Opportunity” – from TXF intelligence highlights the increasingly important role of private credit funds in the trade finance market. Attracted by an estimated global trade finance gap of $2 trillion, private credit investors are playing a key role in supporting cross-border trade.
The report, produced in partnership with the Alternative Credit Council (ACC), an affiliate of the Alternative Investment Management Association, and Simmons & Simmons, provides an overview of the trends shaping the involvement of private credit in the trade and commodities finance market.
The research provides investors with data and insight on the risk and return opportunities in this market.
Key findings of the report reveal that:
• Corporates value the faster execution times, bespoke financing structures and strong relationships they have developed with private credit managers
• The private credit sector is evolving rapidly through the incorporation of technology, ESG and more sophisticated risk management practices
• Greater awareness among corporates is needed to help private credit fulfill its potential in the commodity trade finance market
• Many banks value the partnerships they have developed with private credit managers
• Alternative asset managers, banks and corporates are cautiously optimistic about the growth of the trade finance sector
“This report is a unique piece of research which should prove invaluable in understanding the increasing role of private credit in trade and commodity finance,” said Jonathan Bell, editor-in-chief and director at TXF.
“While the trade gap has gotten bigger over the past two years, largely because commercial banks have retrenched significantly from trade and commodity finance, the more nimble and flexible asset managers and funds are well-positioned to take further advantage of these opportunities. Interestingly though, the report also highlights that a collaborative approach between asset managers and banks could be one of the most successful routes forward.”
“Trade finance offers a significant opportunity for investors seeking assets that offer a differentiated and competitive risk-adjusted return. It can also provide borrowers with the tailored and flexible finance solutions they need to thrive and innovate,” said Jiri Krol, global head of the ACC. “For these reasons we expect private credit to become a larger part of the trade finance market, and for trade finance to be soon recognized as its own distinct subset of the burgeoning private credit universe.”
“Our report shows the economic appeal of trade finance to private credit investors is increasingly attractive as an opportunity,” said Jolyon Ellwood- Russell, partner at Simmons & Simmons. “Even so, the structures and solutions in trade finance and understanding the underlying flow of goods, money and documents can be complicated. Additional operational, logistical and documentary risks exist associated with the international trade and supply chain and these can be unfamiliar to private credit asset managers and their investors. However, the report demonstrates the determination and resolve of asset managers, investors and all participants in both the private credit and trade finance markets to collaborate and continue to transform the trade and supply chain finance markets into an investible transparent asset class.”
The research involved a quantitative survey of banks, corporates and private wealth managers/asset owners active within trade and commodity finance. The findings from this survey were then explored through qualitative interviews with survey respondents and asset managers.