December 9, 2020
The year 2020 is coming to an end. At the same time, it will go down in history as a year of great uncertainty. Even 2021 will bring only little more certainty. The major problems – exacerbated by the corona pandemic – will remain: international recession, political and economic tensions, social divisions, growing nationalism. All these factors make cross-border cooperation and communication difficult.
Looking at the stock markets, one might think that these sometimes-monumental challenges do not exist. However, the rise in share prices is directly related to the current situation. Since politics seems to be failing, the traditional, time-honored custom of using liquidity to drown the problems is back, with far-reaching consequences.
Interest rates are at record lows or even negative. Risk premiums are ignored – despite constantly increasing risks. Money is too cheap and available in abundance, but it is not channelled into the economy to create jobs and prosperity for all, it is rather used to buy real assets. Their prices are constantly rising. Not a good time for investors who are forced to invest conservatively. It is also a difficult time for companies that are striving for growth but do not have direct access to public capital markets or have already exhausted their bank limits.
Investment opportunities for investors and financing for companies in private debt offers attractive alternatives in this environment. It makes economic and investment sense to bring investors together with companies directly and thus finance growth and jobs in a targeted manner. Liquidity is allocated where it is needed, and liquidity providers are compensated with fair risk premiums. One segment in this private debt market is of particular interest: The financing of accounts receivable. From an investor’s point of view it is an investment into real assets but with interest-bearing characteristics; from a company’s point of view it is an effective source of liquidity that helps to accelerate growth and improve the balance sheet. An obvious win-win situation. The complexity lies in the transmission mechanism.
This is where the European Securitisation Law introduced in 2020 comes into play. With this clearly defined legal framework, risks can be securitized in a controlled manner and made tradable as securities. The result are investment instruments that give investors direct and cost-efficient access to investment opportunities in companies, providing them flexible access to liquidity.
It is the mission of Pactum AG to build these bridges and create stable connections. With the Pactum Corporate Capital Fund (PCCF), Pactum is making this transition. An attractive investment with investment-grade quality for investors with a currently expected annual return of 3% after costs. The return is achieved by generating risk premiums – a combination of premiums from complexity, liquidity and credit components – based on a broadly diversified portfolio of Swiss and Western European receivables.
Different approaches to receivables financing have existed for a long time. Often, however, the potential is not fully exploited by companies or investors. It is thus worthwhile for everyone involved to take a closer look at this intelligent form of liquidity management.