CFE Finance business development manager Duccio Duranti and CFE Finance UK md Giuseppe Leppi answer SCI's questions

Q: How and when did CFE Finance become involved in the securitisation market?
DD: CFE Finance was founded by Mario Cordoni in 2001 to support the trade of commercial transactions both to and from emerging markets, including pre-export finance and export credit agency (ECA) financing. As a metals trader, Mario often faced credit risk exposure when dealing with emerging market buyers, which meant he turned to credit insurance from export agencies. With the backing of Banca Lombarda (now part of UBI Banca), Mario created CFE with trade finance expert Massimiliano Piunti, with the aim of developing relationships with export credit insurers in Italy, France, the Netherlands, Switzerland, Austria and Japan.

Since then, the firm has built up a reputation as a leading non-bank player in the origination of trade finance opportunities, with over €2bn of AUM deployed across private credit and special solutions strategies. In 2014, we began offering trading and execution services through our London and Monaco offices, in addition to investment advisory.

The firm began using securitisation in 2015 in connection with our Italian factoring business, as the technology is an efficient way of raising money for such assets. Securitisation is an ideal instrument for transforming illiquid assets: invoices and letters of credit are difficult to trade in and out of; securitising them enables the resulting notes to be traded.

Over time, the firm has established 15 securitisation vehicles domiciled in Italy and Luxembourg, four of which are dedicated to trade credits and the remainder to Italian public administration credits.

Q: What are the firm’s key areas of focus today?
GL: Securitisation is one of the reasons why CFE was able to grow: it is a transparent and institutionally viable instrument. We require a mandate to put together a securitisation and they are bespoke vehicles, each with different risk characteristics.

Typically, the minimum size of commitment from one or more investors is €20m. Some vehicles are structured as single tranches; others have multiple tranches. We usually retain the junior tranches.

The investment parameters – geographical and sector exposure, types of merchandise, duration and so on - are set out in the offering memorandum. The underlying pools are granular, since we try to minimise portfolio limitations to avoid reducing the investable universe too much.

Together with the SPVs, we have two funds. One is the GMS Sovereign Plus Fund, a segregated portfolio company offering different tailor-made compartments investing in strategies with differing characteristics. It was created in 2004 and focuses on investments in liquid and illiquid credit that offer low volatility and diversification.

The other fund is the Debt Opportunities Plus Fund Ltd, which was established in 2005 and invests in global trade finance assets from flows of imports/exports between OECD and developing countries. Our main client base is composed of high net-worth individuals, family offices and asset managers mainly based in Italy, Switzerland, the UK and the Middle East.

Q: How does the firm differentiate itself from its competitors?
DD: Our cost of funding is 4%-5% and we invest at rates of 8%-plus. Not many banks can achieve this in the trade finance space: it is a niche asset class, from which banks are stepping back, leaving more opportunities for firms like CFE. Although competition is growing from other funds and supply chain finance houses, it is such a big market that there is plenty of business for everyone.

Q: Which challenges/opportunities do you anticipate in the future?
DD: Looking ahead, we’re seeking a partnership with a group that’s complementary to us in the private debt space to help us with distribution. We have a strong origination function, but we need to improve our distribution in order to keep raising capital. We’re hoping to finalise such a partnership by end-2021 or the beginning of next year.

Corinne Smith