Unlocking Alpha: The Role of Credit-Insured Factoring in Trade Finance.

Insights Articles | 20 July 2023

In the intricate world of trade finance, alpha is paramount. Despite sharing commonalities with other investment types like alternative investments and fixed income, trade finance has unique features. As a private debt variant, it offers a promising route for steady returns, risk management, and portfolio diversification. Alpha is therefore crucial in highlighting the performance and proficiency of fund managers in this sector.

Challenges in Capturing Alpha in Non-Insured Trade Finance

Non-insured trade finance brings hurdles in capturing alpha’s potential. The lack of credit insurance leaves investors vulnerable to possible buyer defaults or insolvency risks, complicating the accurate evaluation and measurement of alpha. Performance assessment becomes difficult without safeguards against non-payment or insolvency, blurring the line between astute investment decisions and external influences on outcomes. Yet, credit-insured factoring offers a solution, providing investors with a simplified benchmarking process. Incorporating credit insurance allows for establishing dependable benchmarks, enabling a more precise alpha measurement and a more transparent comprehension of investment performance.

Unlocking Alpha in Trade Finance with Credit-Insured Factoring

Alpha’s full potential in trade finance comes with credit-insured factoring. This innovative strategy provides a transformative solution to the hurdles encountered in non-insured trade finance. The integration of credit insurance allows fund managers to reduce risks, improve performance evaluation, and set reliable benchmarks for alpha measurement. Credit-insured factoring equips investors to confidently navigate the trade finance terrain, enabling informed investment decisions and seizing opportunities that fuel alpha generation.

Insights from Leading Institutions

The Milken Institute’s enlightening report, ‘Trade Finance: A Catalyst for Growth in Asia” highlights these intriguing investment avenues that offer remarkable alpha returns in trade receivable assets, not to mention reliable performance, minimal volatility, and a lower default risk than traditional interest-bearing assets. These assets are robust investments in the ‘real economy,’ exhibiting resilience against market volatility. This presents a unique, rewarding opportunity for savvy investors.

Our investigation also encompasses insights derived from Eurekahedge’s research, ‘Trade finance fund managers outperformed major hedge fund strategies amidst the COVID-19 pandemic.’ This study emphasizes the capacity of trade finance to generate substantial positive alpha. For a decade, between 2009 and 2020, trade finance hedge funds consistently outperformed, yielding 0.55% and 0.53% alpha against leading bond indices. Despite slight fluctuations between 2009 and 2019, alpha remained positive even during the most harrowing financial crises, testament to the hardiness and reliability of this underexplored asset class.

Further endorsement for trade finance comes in a 2017 report by the renowned market intelligence firm Greenwich Associates. This research underlined that trade finance did not suffer a single month of negative returns even during the worst financial crises.


With the rise of trade finance as a unique asset class, alpha calculation gains increasing importance. The challenges inherent in non-insured trade finance can be effectively addressed through credit-insured factoring, thereby unlocking the latent potential of alpha. The incorporation of credit insurance allows investors to accurately assess performance, establish trustworthy benchmarks, and confidently navigate the trade finance industry. Ultimately, trade finance represents a promising path for investors seeking attractive yields and consistent returns. We invite interested investors to explore this opportunity and delve deeper into the potential of trade finance as an asset class.