HSBC and Allianz Global Investors (AllianzGI) will accelerate the creation of an investible market in trade finance to meet rising demand for ‘real economy' assets and help increase the availability of funding for trading companies.
Although banks collectively provide almost $10trn of trade finance to companies annually, the small secondary market for these assets - estimated at about $300bn - mainly comprises bilateral trading between banks. Trade finance contracts are typically short-term and self-liquidating, with default rates as low as 0.03%, but they aren't standardised and so can be hard for investors to price.
Now HSBC and AllianzGI have pioneered a solution to make trade finance easily accessible to institutional investors such as insurers, pension funds and family offices. This solution allows HSBC to wrap a range of customers' trade finance assets - from traditional products such as trade loans to structured solutions like supply chain and receivables finance - into notes that the newly-created Allianz Working Capital fund (ALWOCA) will buy and offer to AllianzGI clients later this year.
Notes structured by the Global Banking & Markets team at HSBC, work by pooling a selection of trade finance assets originated by HSBC's Global Trade and Receivables Finance business (GTRF) and selling them to a special purpose vehicle. These assets have different risk profiles and typically short tenors, such as 60-day Fixed Term Corporate Payables.
AllianzGI acts as portfolio manager for the special purpose vehicle selecting the transactions purchased. The SPV's assets are then wrapped into notes that ALWOCA will buy, enabling the fund to take exposure to trade assets through a securities format. This model can flex to fit the supply of suitable assets and buyer demand, with AllianzGI aiming to invest a large portion of its ALWOCA fund into them. ALWOCA is seeking to have a duration of below one year and generate returns significantly in excess of those available in public markets for the same duration.
HSBC and AllianzGI will initially use European corporate trade finance assets for their notes before expanding to include other markets as demand increases.