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For centuries, companies and their banks have financed the payment terms under commercial contracts – with this risk traditionally sitting either on corporate balance sheets or with the bank.
Constraints on bank capital and increasing economic activity, however, have created a funding gap estimated at $5trn (£3.84trn). Yet, at the same time as this, financial technology and market standardisation has allowed external investors to access the area of trade finance and help bridge this shortfall
The opportunity for pension schemes is significant, with trade finance assets offering an attractive risk-return profile and a potential alternative to short-dated credit and cash – with these additional returns generated through the complexity premium of trade finance rather than additional risk.
Trade finance also offers low correlation to traditional asset classes as well as low volatility and significant downside protection as evidenced in the most recent market downturns. Trade finance is also an important means to achieve the UN SDGs and can provide an attractive opportunity set for investors to target ESG impact.
This Webinar will examine the asset class in more depth – looking at how trade finance works; the way the asset class can serve as a diversifying, ultra-short allocation within pension scheme portfolios; and assessing how such assets can fit within a pension scheme’s broader portfolio.