One of the attributes most valued by investors in recent years is liquidity. Both in Chile and in the world an atmosphere of uncertainty prevails. First the social crisis, then Covid, and then the war in Ukraine. Volatility has reached historically high levels in the traditional asset markets of stocks, currencies and fixed income. Some potential safe havens such as gold have also not performed as they used to. Commodities and metals in general have had high volatility due to the possible global recession, and as a consequence of the conflict between Russia and Ukraine.

On the other hand, one of the assets that has appreciated the most is the dollar, which has strengthened against most currencies, but is still highly volatile.The dollar, which has strengthened against most currencies, but is not immune to great volatility.

In this regard, one of the best performers in recent years, maintaining positive returns and avoiding volatility, has been Private Debt, one of the best performers in recent years, which has maintained positive returns and avoided volatility, has been Private Debt.. Mixing this good performance in uncertain periods with the precious attribute of liquidity is what alternative asset managers are looking for, generating new investment alternatives in recent times.

One of the assets that meets these requirements is the investment in Invoices.. A higher risk-adjusted return than traditional fixed income, stable returns, short duration (under 60 days) and higher liquidity than Private Debt alternatives, are some of its advantages.

In the last three years, funds investing in bills have more than tripled in number, attracting the attention of a large number of institutional investors and family offices who are looking for predictable returns and stability. who are looking for predictable returns and stability.

Invoice funds provide short-term financing, with an average term of 40 days, by purchasing invoices from companies dedicated to financing SMEs, called Factoring.They buy invoices from companies dedicated to financing SMEs, called Factoring.

What is Factoring?

Factoring is preferably oriented to small and medium-sized companies, and consists of a contract whereby a company transfers the service of future collection of existing receivables and invoices in its favor. a company transfers the service of future collection of existing receivables and invoices in its favor, and in exchange it immediately obtains the money from these operations, albeit at a discount, with the factoring company keeping the difference.The factoring company keeps the difference.

Factoring plays an important role in providing short-term liquidity to companies, especially SMEs. These SMEs that provide services to other companies -generally larger ones- receive their payments for services rendered in an average of 40 days. In the meantime, they have to pay salaries, supplies, etc., so they need a source of short-term financing while they are being paid for their services.

Factoring companies, at the same time, seek resources from the banks and, to an increasing extent and, to an increasing extent, to invoice investment fundsto finance the large number of SMEs with working capital needs.

Low risk alternative

The risk of invoice funds is low if they are managed correctly. First of all, the duration of the portfolio is on average 40 days, which allows for continuous monitoring of the portfolio's status.. In addition, in general the portfolio is very atomized, and each financed invoice has 3 sources of payment:

1. The payer of the invoice is responsible for the payment of the invoice.
2. If payment does not arrive, the factoring company is responsible for paying it or to pay it or to change the invoice to the fund.
3. The SME which in the first instance went to seek financing also has the responsibility to comply with the obligations.

Therefore, for each financed invoice, 3 companies must fail in order for there to be a loss for the fund.

For these reasons, the option of alternative bill funds is gaining more and more traction among investors. These funds are a very good alternative to avoid high volatility and take advantage of the high nominal rates within the market. Today, a fund with these characteristics can offer returns close to 14% - 15% nominal annual returns with low risk, which makes them very attractive.

Matías Castro

AGF Team