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Structured Trade Finance Fund

About the fund

What is structured trade and commodity fund?

  • Multi-trillion USD global lending industry
  • Short-term lending, usually 90-120 days
  • Importers/exporters and regional traders, especially smaller ones in developing countries, need to keep buying stock while waiting for payment. Structured trade finance bridges the gap
  • Most goods you touch/eat/drink/own have been moved with the help of trade finance
  • Lender has the stock as security on the loan, plus other pledged assets, and recourse to the borrower
  • Large-scale trades are dominated by banks

What is structured trade and commodity finance in Africa?

  • Severe lack of liquidity in Africa makes lending attractive
  • Demographic tailwind for food and staples
  • Primary goods have many potential buyers
  • Lending across many different countries is not practical for banks, although Barak does compete on many deals
  • Rapid trade growth. Demand for capital growing much faster than supply
  • Economic and Social Benefit possibilities are ever-increasing

The need for trade finance funding in emerging markets – bridging the gap

  • Today, up to 80% of global trade is supported by some sort of financing or credit insurance. Although in Developed Markets traditional trade finance funding from banks may be in surplus, this is far from the case in Emerging Markets globally, particularly in Africa. Globally, over half of trade finance requests by SMEs are rejected, against just 7% for multinational companies.
  • Barak launched the STF Fund in early 2009 to assist SME Companies in Africa to fill this desperate need, and in doing so create a wealth of prosperity and economic stability to certain parts of the region. The stark numbers for Africa speak volumes: the estimated value of unmet demand for trade finance in Africa us US$120 billion (1/3 of the continent’s trade finance market). Bridging this unmet demand is what the Barak STF Fund works towards on a daily basis.

Fund strategy

The Fund specializes in investing in short-term, self-liquidating structured commodity trade finance assets using Commodity-backed financial instruments.

Leveraging a Broad Transaction-Sourcing Network

Active Portfolio Monitoring and Market Analysis

Investing Alongside Established Market Participants

Active Portfolio Monitoring and Market Analysis

Constantly Growing Barak Deal Sourcing Presence Across the African Continent

Structured Trade Finance Fund Fact Sheet

All the facts

Performance Summary

Over 8 years of performance, Barak has produce superior absolute and risk-adjusted returns vs. emerging and frontier market indices.

Over 8 years of performance and the Barak STF Fund has continued to produce month-on-month positive, non-correlated returns.

Performance Statistics (February 2009 – March 2017)

  • For the last rolling 12 month period the STF Fund has produced a return of 9% compared with the negative returns of the Fund’s benchmarks; the MSCI EFM (excluding South Africa) and S&P Frontier Africa. The STF Fund comes in at a fraction of the volatility.
  • Consistently superior, risk-adjusted results with no negative months or years over 8 years of operations. Low volatility since inception of 0.1%.
  • The firm currently manages investor assets in excess of US$600 million, with the majority stemming from inflows into the Barak STF Fund. Investor appetite towards the asset class has been corroborated with further soft capital commitments of US$500 million, prompting Barak to look at the launch of an STF Fund II towards the end of 2017.

Anatomy of a Trade

Trade Example of a Regular Structured Commodity Backed Transaction.

Structured Trade finance links sellers and buyers of goods and enables the forward movement of goods in the supply chain.

  • Purchases a commodity outright from the trader at a discount and forward sells it to the trader’s off-taker at a fixed future price that incorporates interest and fees
  • Takes ownership of the commodity, which serves as collateral for the duration of the transaction
  • Is able to avoid market risk because the underlying commodities are bought and sold at a pre-determined price that does not move with the underlying commodity market price
  • Should the trader default, Fund holds the physical commodity as collateral that can be sold to recoup investment capital. The fund managers also look to other forms of security on a case-by-case basis to bolster the recoverability of loan for the investor

Economic and Social Benefits Impact Investing

The Fund provides businesses, traders and entrepreneurs with bespoke trade finance and working capital solutions that are designed to assist them in both growing their businesses and feeding the continent.

1.

Investment benefits

Direct asset-backed lending in Africa provides a meaningful way to diversify a portfolio by providing equity-like returns paired with the risk profile of senior secured debt

  • High fixed income-type returns with comparatively lower risk
  • Uncorrelated returns to other assets or markets
  • Attractive trading margins
  • Asset-backed lending secured by physical commodities
  • Shorter investment tenors providing liquidity benefit

2.

Social Responsibility

For many, social responsibility has become a critical principle of global investing, particularly in Africa. The more proactive practices of impact and community investing can provide benefits that purely philanthropic interventions usually cannot always reach

  • Major opportunity for Africa to provide for its own food security needs, and possibly other countries’
  • Top-down financing creates a natural chain reaction that empowers Africa to build up its own economy by stimulating demand
  • Promotes market liquidity in a large, growing market
  • Addresses social and market needs created by retraction of traditional financial institutions
  • Provides opportunities to local businesses overlooked by the banking sector simply due to their size.

3.

Environmental Impact

The generation of financial returns in emerging markets is increasingly being defined by not just monetary returns, but also impacts on the global environment.

  • The size and scope of Africa’s environmental problems are increasing, and impact financing is a vital potential solution
  • Agricultural and forestry account for two thirds of impact investments made in the past seven years
  • Barak has become increasingly aware of the impact that the funding to borrowers has on Africa’s land. Stringent due diligence processes to monitor this impact are implemented

4.

Conclusion: Impact Investing

Barak is proud of the work that is carried out in sub-Saharan Africa and the opportunities that have been provided with our funding. However, we are aligning our returns to the larger picture in Africa’s future.

  • Barak’s funding provides opportunities to local businesses overlooked by the banking sector simply due to their size
  • Impact investing provides borrowers with the opportunities to one day be purely self-sufficient by using innovative and efficient techniques to maintain community and environment sustainability for roll-over returns

Barak deal pipeline deployment vs. Investor inflows

What matters is the size of the fund in relation to its mandate or investment style. Trade Finance Funds worldwide operate in a unique investment space, and Manager Discretion is key to managing the size that a Fund can grow to. As Trade Finance Funds grow, so do the underlying deal sizes. This natural progression has seen Barak’s ability to get deals out of the door take slightly longer.

If, as seen in the case with the Barak STF Fund during early 2017, large investor inflows are experienced and the incoming amounts are larger than anticipated deal outflows, cash drag on performance is experienced until Fund utilization can be fully addressed. This has been the scenario for the STF Fund in 2017, and hence why the Investment Manager imposed a soft close on the Fund as at 30 June 2017.

The STF Fund will only begin accepting new inflows depending on the deployment of STF deals and ultimately addressing Fund capacity for the strategy. The maximum cash levels before this is reached is up to Manager Discretion, but will likely be in the 5 – 10% range of Fund AUM. This date will likely be end of Q3 2017.

The Fund Manager has started the process of implementing an investor queuing system, which will take into account all committed inflows received from interested parties. This queuing system is to ensure a fair allocation policy between investors into the STF Fund.

A fair queuing system takes two aspects into account; when a commitment was made, and if the commitment was made from a current or prospective investor. Transparency of Barak’s intended queuing system is priority for all investors, both existing and prospective.

The queuing system shall work as follows:

  1. Barak shall define the order of the queue when a commitment was made. This process is already in place.
  2. Preference to the investor queue will be given to existing investors into the STF Fund.
  3. Barak shall define how much each investor can add per round when capacity is available.
  1. To remain in the queue, each investor has to periodically confirm their commitment in writing that they want to remain in the queue. The Barak IR Team will make contact with each interested party in this regard on a monthly basis.
  2. If an investor does not meet their commitment from the queue, they will lose their preferred ranking based on earlier commitments.
  3. Barak may add new investors at the end of the queue if capacity allows.

For more information please contact investor@barakfund.com

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