Investor interest in trade finance is growing rapidly

Investment in trade finance assets has made a number of headlines in recent months, denoting the growing awareness of the benefits of such assets in the investment community.

The first crypto wallet that allows users to invest in trade finance assets from multiple markets will go live in October. Also Federated Investors launched the first sovereign energy trade finance fund in the world.

One solution taps into crypto investors to create more market capacity; the other opens investment to non-traditional players. These announcements are part of a wave of new initiatives and launches - Tradeteq being one of them - to broaden the array of investors in the trade finance world, increasing market capacity with the hope of solving the US$1.5tn trade finance gap. A few years ago, trade finance distribution was almost only conducted between banks themselves, so this progress has required thinking outside the box.

Since the implementation of Basel III regulations, banks have been drawn to the so-called “originate-and-distribute” model, whereby they offer an import or export loan to a corporate as primary lender, and then turn to other institutions to share the risk burden. And while the low risk profile of trade finance assets is well-known within the community, for years, private investors just didn’t seem interested.

It seemed as though it was a lack of awareness and education that made it difficult to bring these investors into the trade finance market - and the work achieved by the banking community to solve this knowledge gap has certainly borne some fruits. But these recent announcements suggest that what was really lacking was innovation.

In the white paper Technology for Transparency, Tradeteq argued that it was the lack of efficient channels to conduct such business that was blocking progress: neither banks nor investors had the right technological infrastructure to connect supply and demand. But the emergence of a number of new platforms in recent months shows that the innovation momentum is growing, and with it, interest from the investor community. Together, we are creating a rich ecosystem that will undeniably lead to the democratisation of trade finance asset distribution.