Despite a number of high-profile initiatives launched in 2013, alternative financiers have yet to make a serious dent in the commodities space, according to speakers at the Structured Commodity Finance conference.
Delegates and GTR heard that despite the stress felt by banks since 2008, the non-bank lending space hasn’t nearly reached its potential. There are only six or seven primary lenders of note in the field, with only one or two secondary lenders. Combined, Christian Stauffer, the CEO of Eurofin Asia, an asset manager, estimated that their assets would total less than US$10bn.
A panel of non-bank lenders active in the commodities space attributed this to the difficulty it is to manage funds in the trade finance sector, compared with standard private equity and infrastructure funds.
Gary Isbister, the COO of Barak Fund Management, told the conference that a trade finance fund “requires more intervention” and is more intensive to run. It requires expertise, which is often hard to come by.
Furthermore, investors are still relatively wary of investing in trade finance over other securities, given the relatively low returns and complexity of the product. James Parsons, portfolio manager at BlueCrest Capital, a hedge fund, said that investors are often confused as to the structure and processes of a trade finance product.
The same applies to ratings agencies, which Parsons claimed “struggle to understand trade finance”. Therefore, the lack of rating can also act as a deterrent for potential investors.
Last year marked the first in which banks seriously looked to tap the capital markets for investment in their trade and commodities portfolios. BNP Paribas launched its Lighthouse platform, which sold just over US$130mn of commodities loans to institutional investors. Later in the year, Santander and Citi combined to launch Trade MAPS, which secured more than US$1bn of secondary investment in a portfolio of trade finance loans.
However, speakers considered these to be relatively small fry, with Stauffer describing them as “the elephant delivering the mouse”. The panel expect there to be more collaboration between banks and alternative lenders going forward, with banks more likely to approach funds to lend to clients in situations they deem to risky, rather than banks participating on deals the funds have originated themselves.