Background: In the current market, several institutional investors and asset managers have short-term surplus cash/liquidity, with limited number of investment grade assets available in the market.
Currently, a portion of their surplus cash is invested in US Treasuries or lying idle in bank deposits earning abysmal returns (especially under new Basel guidelines, that penalises deposits from financial services industry, which are not considered LCR friendly).
Institutional investors and asset managers are exploring various avenues for deployment to improve short-term yield and reduce cash-drag.
Some salient features and prerequisites for them to explore any new asset categories are:
(a) Size: Ability to undertake large ticket transactions for individual obligors
(b) Diversity: Debt issuances from several obligors so that they can customise the portfolio as per their requirements
(c) Scalability: Ability to scale up the overall portfolio to a reasonable size
(d) Ability to identify individual assets and thus price the risk accordingly
(e) Structured for onward sale, like other debt instruments e.g. syndicated loans, bonds, commercial paper, etc.
(f) Standardisation: All investment structures should be in a standardised legal structure, which are acceptable to institutional investors
(g) Institutional investors want to focus on investment decisions with minimal incremental operation burden or heavy lifting
(h) Lastly, options for managing their portfolio post investments via hedging tools, like CDS, private insurance, etc.
Pinnacle Trade Finance can help institutional investors and asset managers explore short-term and self-liquidating trade finance assets, which can become an attractive asset class. Some of the consulting and advisory services we offer are:
1. Feasibility study
2. Sourcing of trade assets – different products, multiple obligors and scalability
3. Legal structures including transferability
4. Technology solutions/providers
5. Market maker role