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Gemcorp Capital has entered the trade finance fray with a new fund that it hopes will help fill the “middle market” gap left open by banks that have shrunk their commodity finance lending.

The London-headquartered asset manager last week announced the launch of the Gemcorp Commodities Alternative Products Fund, an US Securities and Exchange Commission-listed vehicle that will lend directly to “commodity-linked” corporates and sovereigns.

Gemcorp joins stablecoin issuer Tether as a new, high-profile entry into trade and commodity finance lending at a time when some funds are facing headwinds.

Gemcorp, which was founded in 2014 and currently manages some US$1.1bn, is courting investors for the fund. The company says it will originate loans in developed resource exporters such as Australia, Canada and the US, as well as emerging markets.

Ticket sizes are expected to be between US$15 and US$40mn but the fund can “do bigger” for some clients.

“We believe that there are opportunities, not only for corporates in the middle-market region and maybe a little bit bigger than that, but also to sovereigns in emerging markets that need capital to help them manage their import demands,” partner and portfolio manager Ahmad Al-Sati tells GTR.

“We want to fill in the gap”, he says, describing the fund as “a private credit vehicle where we originate bespoke, proprietary deal flow, and reinvest it”.

“We want to be a good partner to our counterparties. We are a flexible, bespoke-type lender, and we will tailor our investments and strategies to the needs of the ultimate counterparty” within risk limits, he adds.

The fund will target companies and deals in agriculture, precious metals, industrial metals, critical minerals, renewable energies and hydrocarbons.

Gemcorp’s entry comes despite turbulence in the sector, with some well-known trade finance funds struggling, or shutting down altogether.

Late last year commodities-focused Kimura Capital entered voluntary administration, and investors are trying to force the Rasmala Trade Finance Fund into liquidation. In 2021 Barak Fund Management froze investor redemptions and later wound down two funds.

Elsewhere, banks and funds have also been stung by frauds carried out by borrowers, including the use of fake warehouse receipts, double financing of cargoes and fictitious deals.

Al-Sati argues that Gemcorp will be able to manage the risks of commodity lending because the firm already has experience both from its commodity trading and servicing business, as well as ongoing trade finance lending from its flagship fund.

“The job of a [commodities] servicer is to source, diligence, monitor and monetise the trade finance transactions globally, and has allowed us to basically mitigate risk and find better transactions and structure deals that meet our clients’ needs,” he says.

“We think that that gives us an edge in mitigating some of the risks associated with trade finance on the credit side of the transaction.”

 

Credit vs futures

For investors, Al-Sati says putting money into short-term commodities credit is more attractive than futures strategies, which he says are volatile and don’t generate income flows.

“We think trade finance – the ability to finance the movement of commodities from point A to point B – allows us to get exposure to certain commodities while not being exposed to directional bets or the volatility of the commodity cycle.”

Prices for many key commodities have stabilised after the volatility of the Covid-19 pandemic, but the outlook is uncertain due to slowing demand from China and uncertainties over possible US tariffs.

But Gemcorp is betting on the possibility of a “new commodities supercycle” driven by infrastructure investment and the energy transition.

“We think we’d be able to generate an absolute return, whether commodity prices go up or not,” Al-Sati says.

In addition to commodities-linked fixed-income investments, the fund may provide trade finance products such as physical commodity finance, pre-export finance, documentary credits and receivables financing based on bills of lading and warehouse receipts, according to an SEC filing.

The fund may seek “to a lesser extent” to invest in special situations, such as stressed or restructured debt of commodity-related corporates or sovereigns, the filing says, but will limit those investments to 25% of the fund’s value.

The new investment vehicle is structured as a continuously offered interval fund, meaning Gemcorp is obliged to offer to buyback 5% of the outstanding shares to investors at the end of each quarter, priced at the current value of the fund.

Al-Sati says the short-term and self-liquidating nature of trade finance means liquidity is readily available to fund the share repurchases.

The SEC filing notes that the fund “expects to hold these [short-term] trade finance securities until maturity and not trade them”.