Amidst tough global and local market conditions that the trade finance space has had to endure, it remains a fundamentally important aspect of the company to maintain continuously comprehensive due diligence procedures from both a client and investor perspective. In the Investor Relations space, there have been numerous queries from both prospective and current investors as to why returns have been consistently easing over the last couple of years, and there are a few reasons as to why this is the case. Although it may appear that the Investment Team isn’t changing the Fund’s strategy to fit volatile conditions, this is certainly not so currently.
Barak has always maintained the importance of keeping the Funds under management as transparent as possible…
The two biggest influencing factors contributing to this trend of decreasing returns have to do with the brisk growth of the Fund’s Assets under Management (AUM). As seen from the table above, the Fund has grown approximately 50% during 2015, and 285% over 24 months – from 2014 to the end of 2015. This strong growth plays a significant role in a variety of ways, but the major contributing factor has been the size of the deals on which the Fund has been paying out. That is, given the size of the Fund’s AUM, Barak is able to look at larger ticket-size deals (the average size of deals is currently at about USD 4 million, up from USD 1,5 million some 16 months ago) with more reputable businesses in sub-Saharan Africa featuring stronger balance sheets. Given this investment strategy, interest rates being charged to these counterparties have steadily decreased and returns accordingly.
Secondly, given this increased cash injection into the Fund, cash on hand has continued to increase, which has for some months’ performance created a cash-drag on returns. While the Fund is mandated to have at least 2.5% cash on hand and has traditionally been slightly above this mark, over the past year this cash position has been between the 8- 11% mark. One would certainly expect cash to increase once a Fund starts rapidly expanding, and although Barak management feels the current position is slightly too high, it is satisfied that the pipeline for the remainder of 2016 is strong enough to cover even further investments into the Fund. The forecasted annual returns for 2016 continue to be in the double-digit target, and management believe this is within investor expectations in testing conditions within the African investment space.
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Barak has always maintained the importance of keeping the Funds under management as transparent as possible given the activities that the Funds are involved in from a counterparty perspective. Obviously Barak cannot disclose the specific counterparty names for each of the transactions on its books, but it does disclose all of the trade information in its monthly Transparency Reports (available upon request). This, together with a strong track record of over seven years and two experienced fund managers that have been with Barak since inception, make for what amounts to a highly effective review of the Fund and the business, and the reason why we believe Barak continues to be an attractive investment for investors around the globe.