How Investors Can Harness the Power of Trade Finance for Sustainable Growth

Trade finance facilitates global commerce by providing short-term credit solutions — such as letters of credit, invoice financing, and supply chain financing — to bridge the cash flow gap between buyers and sellers. To help institutional investors access this asset class more efficiently, Raistone offers Raistone Platform Solutions (RPS). This innovative platform streamlines operations and strengthens risk management, making it easier for investors to tap into trade finance opportunities and optimize their investment strategies.

Leverage technology and expertise for successful investing

Banks, asset managers, and hedge funds increasingly recognize trade finance as a lucrative asset class that offers consistent high risk-adjusted returns and diversification benefits. However, effectively managing trade finance programs poses challenges that these institutions often struggle to address.

The complexity of evaluating and managing risk in trade finance requires a deep understanding of trade dynamics, counterparty risk, and the intricacies of short-term lending in the context of international commerce. Banks and asset managers must traverse issues such as credit risk, political instability, and fluctuating commodity prices, which can impact the underlying trade transactions. Without the right expertise and operational infrastructure, managing these risks can be daunting.

Access to high-quality trade finance opportunities can also be limited, with many institutions struggling to source and evaluate the most attractive and secure deals. Institutions face challenges in scaling these programs efficiently, especially when balancing the need for due diligence with the speed of capital deployment required in short-term trade transactions.

This is where the value of specialized platforms and expert managers becomes clear. Institutions that partner with experienced trade finance providers or utilize cutting-edge technologies to streamline sourcing, underwriting, and risk management can significantly enhance their ability to tap into this asset class’s full potential. These platforms facilitate transparency, advanced risk analytics, and access to a broader range of trade transactions that were previously out of reach for many investors.

For institutional investors, addressing operational and risk management challenges is key to capturing the high returns and diversification benefits trade finance extends, while safeguarding against the potential pitfalls that come with the complexities of global trade and finance. With the right tools and expertise, trade finance can be a high-reward asset class that delivers consistent performance, robust returns, and valuable portfolio diversification.

Increase yields and growth potential with Raistone Platform Solutions

Raistone provides technology and asset administration to institutional investors enabling their access to the receivables and payables asset class. Raistone Platform Solutions is a comprehensive and customizable trade finance back-office set of technology and supporting services which empower investors to quickly implement working capital solutions for their customers.

RPS is designed to streamline trade finance operations by utilizing Raistone’s legal framework, technology, operations, and risk management. It reduces the investor’s overhead costs, shortens the time to revenue generation, and presents a scalable and flexible solution for their customers.

Recent developments in the trade finance space have underscored the importance of maintaining a solid foundation built on strong operational processes and compliance. At Raistone, we’re committed to upholding the highest standards through well-documented procedures, a dedicated enterprise risk management team, and independent risk assessments.

Our focus on thorough background checks, internal field exams, and working with a leading auditor ensures that we provide reliable and secure services to our clients. We also take a careful, thoughtful approach to product and technology development, ensuring that everything we offer meets the highest quality standards. This disciplined approach is why we continue to be a trusted leader in the industry, committed to supporting our partners and clients with confidence and reliability.

Low risk, high stability investments

Understanding the factors that influence asset performance is key to navigating investments. Whether dealing with productive or nonproductive assets, various economic, political, and social influences shape their financial outcomes.

One of the most compelling aspects of trade finance is its relatively low risk profile. The transactions are often self-liquidating, meaning that repayment is tied to the completion of a trade cycle. Collateral is typically built into the structure, such as the underlying goods or receivables.

Nonproductive assets carry higher risks due to their market sensitivity, whereas productive assets allow for diversification and active management, helping to reduce risk and protect purchasing power. Additionally, trade finance transactions are short-term, often lasting between 30 and 180 days, which limits exposure to prolonged economic volatility. These factors make trade finance less susceptible to market downturns compared to other asset classes such as equities or real estate.

Competitive returns on trade finance

Despite its low risk, short duration, and uncommitted nature, trade finance presents competitive returns relative to other fixed income instruments. Investors can expect a yield pick-up of 2% to 4% over comparable liquid investments for similar or like credit. All-in yields vary greatly for the asset class — depending on factors such as credit quality, structure, and geography — but typically fall in the low- to mid-teens.

Productive assets can provide a hedge against inflation by offering income that adjusts with rising costs. Nonproductive assets may not have the same protection against the erosion of purchasing power during inflationary periods. These strong returns are partly driven by the essential nature of trade. Businesses need liquidity to sustain operations, making trade finance a non-negotiable aspect of commerce.

Trade finance diversifies investment portfolios

The longer an investor holds productive assets, the more potential they have for long-term growth through income generation and appreciation. Meanwhile, nonproductive assets may not yield the same growth or income over extended periods. In times of economic uncertainty, nonproductive assets such as gold are often in demand. However, these assets lack income potential and can be volatile when market conditions stabilize, as seen in the aftermath of the COVID-19 pandemic.

Trade finance investments are largely uncorrelated with traditional asset classes such as stocks and bonds. This lack of correlation can contribute much-needed diversification to your portfolio, helping reduce overall risk. Additionally, trade finance spans industries and the globe, allowing investors to access opportunities across various markets, further enhancing diversification.

Resilience in economic cycles

International trade is a fundamental driver of economic activity. While it can be influenced by geopolitical and economic events, trade finance has proven to be quick to recover. During times of economic ambiguity, the demand for trade finance often increases as businesses seek liquidity to navigate challenges. This countercyclical nature adds an additional layer of security for investors.

Productive assets tend to be more resistant to economic downturns, generating income and preserving value. In contrast, nonproductive assets often depend more on consumer sentiment and disposable income, which can make their value fluctuate during recessions.

Stay ahead with Raistone’s cutting-edge trade finance platform

Raistone understands the evolving needs of institutional investors and the critical role that robust operational processes and cutting-edge technology play in driving success within trade finance. With our customizable platform solutions and strong focus on compliance, we enable our partners to improve their operations, reduce costs, and accelerate revenue generation. Whether you’re looking to enhance working capital solutions or tap into the lucrative receivables and payables asset class, Raistone is here with the tools and support you need.

Ready to access the full potential of your trade finance operations? Contact us today to learn more about how Raistone can help you optimize your investments and grow.

About the Author

Nimo Rijhwani, Vice President of Platform Sales at Raistone, works to expand the reach of Raistone Platform Services (RPS), which connects asset managers with innovative financing solutions. With over 20 years of experience in finance, asset management, and sales, Nimo has raised more than $4 billion throughout his career and is passionate about building strong, lasting partnerships. His work focuses on bringing steady returns and diversification to asset managers through Raistone’s comprehensive trade finance solutions. Nimo is driven by a commitment to personal and professional growth, and he values the collaborative culture at Raistone that empowers teams to tackle complex challenges together.