Risk Reward of Trade Receivables versus Comparable Investments

"Know what you own, and know why you own it." - Peter Lynch

When investors evaluate short term fixed income options, its all about what decision rights they have and what they are capable to do.

For example, in the corporate world, its a policy decision by senior management to decide to pay suppliers early using their own cash and the limits to do that. We have enough cash resources that we will are prepared to offer $10M in cash for early funding if suppliers will pay us enough. That's a policy decision. But in the world of investing, making a portfolio decision is executing an authorization.

There is certainly a limited universe of what you can buy in trade receivables. I wrote two recent posts here and here on the subject.

If I am an investor and I am looking at the risk / reward of trade receivables versus other things, the question really comes down to is there significantly better returns given what is transparent in the market.

For example, I could go out and buy 1 year or 90 day trade receivables from Vodaphone or I could buy a bond from Vodaphone maturing in 90 days or 1 year. What is the yield difference?  What are the mark to market implications?  Does the fact that one is illiquid and the other is not make a difference? How much does it cost to execute if I need liquidity?

These and other questions matter deeply.

I would bet my last dollar that the yield on private placement illiquid trade receivables from Vodaphone will yield significantly better than a comparable bond for those reasons. Unfortunately, unless you are investor and have the opportunity to see private deals, you can only see one side of that trade.  Private placement assets are very different than the public assets like the Vodaphone bonds.  Trade receivables are illiquid.

Investors that provide money to trade receivable asset structures agree to whatever restrictions are proposed by the likes of Crecera, Greensill, Bluecrest, PrimeRevenue Capital Management, and other broker/advisors in this space.

As more opportunities become available for non banks to invest in Trade Receivables (believe me, there is more Demand than Supply), comparable investment return analysis will be critical to perform.

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First Voice

  1. Luca:

    It’s Vodafone, by the way 🙂

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