Asian institutional investors are turning to receivable financing in the private debt market because of the growth potential of the underlying assets, according to Altive, an alternative investment manager based in Hong Kong.
Companies typically use receivable financing for short-term funding by selling invoices issued for payment of goods to an intermediary in return for loans.
The growing push into this market underscores the global hunt for yield amid rock bottom interest rates as investors look to alternative or non-mainstream assets for better returns.
“There is an observable trend of large institutional investors and banks, such as DBS, BNP Paribas, Citigroup, and Credit Suisse, engaging in the receivable finance asset class investments,” Cheney Cheng, managing partner of Altive, says in an interview with Asia Asset Management.
He says the appeal lies in growing demand for short-term corporate financing, especially in Asia, and particularly among small and medium-sized enterprises.
He cites figures from US research firm Reportlinker which predicts the receivable financing market will expand at a 7% compound annual growth between 2020 and 2024.
Mr. Cheng says there’s a huge US$2.1 trillion-$2.7 trillion funding gap in the global SME market, with East Asia expected to account for over 40% of the shortfall.
“Hence, there is great market potential for investing in the Asia Pacific financing market in the foreseeable future,” he says.
The rise of e-commerce is another major driver of receivable financing assets, with Asia Pacific accounting for over 64% of global online spending.
“Surging online retail sales are likely to force e-commerce operators and their suppliers to apply for more receivable financing in order to maintain cash flow under operation,” Mr. Cheng says.
