Can Trade Receivables achieve greater recognition to become a leading alternative asset class? – Part 2
Following last week’s introduction to Trade Receivables, here we take a closer look at their appeal to Private Equity, Hedge Funds, Family Offices, Pension Funds and Corporate businesses alike.
Taking steps towards a balanced portfolio
To maintain a balanced portfolio, a diverse range of assets should be considered and Trade Receivables stand out because of their low correlation with more traditional investment classes such as Equities and Bonds. Furthermore, they offer greater portfolio stability and flexibility by enabling rapid withdrawal when compared to other alternative investment tools such as Private Equity, Venture Capital or Real Estate.
The advantage of short term flexibility
A flexible investment plan enables a quick response to changing market conditions and short maturity assets hold a good deal of appeal. With an average tenor of 50 days, Trade Receivables deliver both on flexibility and a competitive, fixed rate of return.
Given that for most transactions the Supplier seeking liquidity is smaller and has a tougher access to credit than the large buyer, the asset is priced off the borrowing ability of the Supplier while the credit risk depends on the balance sheet of the Buyer. The yield therefore is much higher than the risk involved would justify.
Trusting in the reliability of new investment vehicles
When considering a new asset class, reliability is key to any investor’s peace of mind and Trade Receivables offer several reasons to justify their consideration: Each invoice represents an asset of intrinsic value and when it covers a repeat transaction with a regular corporate customer, then that invoice is a highly dependable asset.
While verification of the relationship is necessary to ensure the validity of each partner’s credentials, this process can be readily managed by an experienced team. Furthermore, trade credit insurance is put in place to track the financial health of customers, updating suppliers to ensure they can continue to trade with confidence, while also indemnifying them for the cost of goods or services delivered in the unlikely event of insolvency or default.
Get to know a trustworthy partner
When partnering with a specialist to invest in Trade Receivables, it is important to take the time to talk to the founding partners and consider their credentials. Do they have accreditation with a relevant industry body? Are they approved by a noted financial regulator? This type of due diligence represents an important fundamental step in making a new investment decision.
Convenient access to a choice of investment options
Selecting new investments can be time consuming and so easy implementation when you come to a decision is a considerable reassurance. Online platforms now allow access to Trade Receivable invoices directly on your laptop or smart phone. The selection of the most relevant invoice, the amount to invest and verification of the transaction can then all be conducted with a few taps of the screen via an online App.
Offering a short term return and a highly competitive yield that has a low correlation with more commonplace investments or with the market, the growing popularity of Trade Receivables as an asset class is hardly surprising. And while it may be some time before this alternative reaches the mainstream, discerning investors will continue to broaden their use of Trade Receivables as a reliable constituent within a carefully balanced portfolio.