Asia gets a new alternative fund for financing trade deals

Eurofin establishes a fund to invest in asset backed and structured trade finance transactions.
Eurofin, a boutique merchant finance company based in Singapore, is launching a fund giving exposure to structured trade-finance products. Christian Stauffer, managing director, says this is the first fund of its kind introduced in Asia.

Stauffer, former deputy group treasurer at Noble Group, founded Eurofin three years ago.

The trade finance fund launches in May with an initially modest target of raising $15 million in seed money, but Stauffer envisages the fund growing to as much as $100 million over the next three years. Current plans are to market it equally among Asian and European institutional investors such as pension funds, funds of funds and high-net-worth individuals.

The fee structure is 1.5% with a 20% performance fee. There is no high water marking but there is a hurdle rate of three months Libor. The fund will be managed in Singapore and will either be domiciled there or in the Cayman Islands pending the outcome of discussions about registration.

The type of products in which the fund will be investing includes warehouse financing, bill discounting and collateral managed transactions done out of Singapore, Malaysia, Vietnam and China. The managers hope to line up transactions that will commence in June.

The target return of the fund is 8%. Volatility will be low given the type of invested instruments and risks will revolve less around market risk than credit default, though normally even these defaults constitute less than 1% of the portfolio. There is a comparatively small degree of residual market risk inherent in interest rate movements for trade finance deals, because when interest rates fall, there tends to be a compression of margins.

As the fund grows the notional amounts will focus on smaller scale deals of around $10 million to $15 million for tenors of up to one year. Bigger ticket deals will be conducted via co-participation arrangements with institutions such as commercial banks. (Unlike banking institutions this fund is not allowed to issue documentary letters of credit).

The principals underlying the trade finance deals will be small- and medium-sized enterprises that have reduced access to institutions and encounter barriers to getting financing. Big trading companies are normally undertaking larger transactions, and these donÆt necessarily produce incrementally larger returns. The types of underlying trade being done by these second-tier companies are predominantly in commodities, raw materials and light manufacturing.

ôEurofin has a track record in originating and structuring trade deals and taking modest participations,ö says Stauffer, adding the firm has also participated in warehousing financings in Singapore and China, and has arranged receivables financing in sizes of $4 million to $20 million. It has also been involved in stockpile financing in the coal-mining sector in Indonesia.

The administrator and custodian has not yet been disclosed, but it is likely to be a UK bank well known for its Asian fund administration activities.

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