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Chenavari’s Trade Finance strategy

Commodity-based lending with risk mitigation

Chenavari, one of The Hedge Fund Journal’s ‘Europe 50’ managers, is one of the most astute and eclectic credit managers in Europe. As of 30 November, it manages assets of USD 5.2 billion, including a seasoned multi-strategy credit hedge fund that has a proven ability to navigate the peaks and troughs of the market. Its vehicles include a liquid alternative credit UCITS strategy, on the Lyxor platform, that was among the top performers in 2017, and has continued to profit amid weaker credit markets in 2018. It also has two London Stock Exchange listed funds and CLOs. Expertise spans distressed debt, risk retention and risk transfer transactions involving regulatory capital. As one of the first credit hedge funds that expanded in the private credit space in 2011, the manager also runs USD 2.2 billion in a growing spectrum of illiquid credit strategies that encompass a wide range of European private credit investments: consumer finance, specialty finance, direct lending, real estate lending, and trade finance.

Risk and return profile

In this article, we focus on trade finance, one of the private lending strategies that Chenavari has been running since 2015 as a separately managed account, reaching capital of circa $320 million. The return profile from this strategy is similar to some of Chenavari’s other strategies, in that yields are related to floating interest rates. But expected gross returns, somewhere between LIBOR +4% and LIBOR + 10%, are somewhat lower than other private credit strategies for several reasons, while the liquidity offered to investors is higher due to the short-term nature of assets financed. In addition, because of this liquidity profile, some fixed income investors may find the trade finance strategy attractive as an alternative to capital markets investments due to a lower volatility.

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