The International Trade and Forfaiting Association (ITFA) has acknowledged that banks alone will be unable to fully address global demand for trade financing and that there is a need to advance the evolution of trade finance as an asset class for alternative investors such as asset managers, insurance companies and pension funds.
A report published by the Alternative Credit Council (ACC) and international law firm Simmons & Simmons at the end of last year – Private credit and the trade finance opportunity – claimed that private credit investors were already playing a key role in supporting cross-border trade and that corporates value the faster execution times and bespoke financing structures developed with private credit managers.
At first glance, trade finance is a no-brainer for private credit. It is a multi-trillion dollar asset class based on the flow of physical goods and services, making it less susceptible to financial market volatility. Default rates are generally lower and the time to recovery in case of default tends to be shorter than for other credit products.
However, trade finance assets historically have struggled to scale as investors find them complex, trusted quantitative benchmarks are hard to find, and there often is not the necessary infrastructure to process them properly.
Even
