NN Investment Partners (NN IP) has launched the NN (L) Flex Trade Finance fund, offering institutional investors access to a conservative portfolio of short-dated trade finance loans which are sourced globally. With the launch of the fund, NN IP as portfolio manager partners with London-based Channel Capital Advisors LLP to enhance sourcing and pipeline management.
Trade finance allows institutional investors to enter a $15 trillion market that has been dominated by banks until recently. In many ways, asset managers can act as ‘shadow banks’ to facilitate trade where banks are hesitant.
The asset class is short in tenor which provides natural liquidity and which allows portfolio managers to react quickly to changing circumstances. The investment strategy focuses on well-rated loans that facilitate a specific sale of often essential goods, which are supported even under stressed market conditions. Strict investment guidelines ensure a highly diversified portfolio in terms of geography, sector and counterparties, without employing leverage. Portfolio construction is aimed at properly diversifying risk whilst still allowing for a robust analysis of each individual transaction on credit and environmental, social and governance (ESG) criteria.
NN IP assesses each transaction of the NN (L) Flex Trade Finance fund on ESG criteria using a specific framework for trade finance, and aligns each of these with the Sustainable Trade Criteria from the International Chamber of Commerce. In addition to this, NN IP applies proprietary policies with a focus on financing sustainable goods with positive social impact (encouraging responsible consumption) and restricting the financing of goods with negative impact (such as coal, crude oil and tobacco).
Suresh Hegde, Head of structured private debt at NN IP, said in a statementL “In the current low-interest-rate environment, there is growing demand for trade finance amongst institutional investors. Building on our 10-year track record in financing international exports, we have spent a considerable amount of time assessing the short-dated trade finance market. We are delighted to offer a strategy which allows institutional investors to benefit from the attractive characteristics of these assets in a robust and responsible manner, without adding undesirable idiosyncratic risk.”
The NN (L) Flex Trade Finance fund has a medium-term target return of USD LIBOR + 3-4 percent gross with a weighted average credit rating of BBB-/BB+, and an average maturity of less than one year. It offers institutional investors quarterly interest income distribution and monthly liquidity.
Fundeye recently spoke to Duccio Duranti, managing director at CFE Finance, a Swiss-based boutique investment bank that is active in the trade finance space.