Hedge fund Tradeflow Capital made money amid Singapore commodity turmoil
[SINGAPORE] As Singapore was roiled by troubles at two commodity trading firms that may spark billions in bank losses, one hedge fund eked out a small gain. Tradeflow Capital Management returned a half percentage point to investors in April, just as it did the month before, and the month before that.
Hardly dramatic advances, but for the Singapore-based fund, that’s entirely the point. Tradeflow has returned about 5.5 per cent over the past 12 months, with steady, bond-like returns derived from financing trade for commodities – among the world’s most volatile industries after the coronavirus sent prices for everything from crude to coal tumbling.
Tradeflow has skirted the turmoil by not lending directly to buyers, sellers or trading firms like Hin Leong Trading, the failed oil company that owes HSBC Holdings and other banks almost US$4 billion. Instead, it acts as a middle-man in small trade-finance deals, taking ownership of the commodity and getting it delivered. Even if one party fails, Tradeflow has the goods to sell in the open market.
“Having ownership of the commodity means we’re not relying on the balance sheet performance or the credit risk of the end buyer,” said Tom James, Tradeflow’s co-founder and chief executive officer. “We’re relying on the quality of the transaction; the commodity. If it all goes wrong we can sell that commodity quickly to someone else and get our money back.”
After some 300 transactions for commodities ranging from diesel and coal to red beans and cashews, the fund hasn’t been stuck with a boatload of cargo yet.
While it runs the risk of a plunge in price for the goods during its typical “ownership” period of up to 90 days, it builds buffers of as much as 30 per cent into the contracts to cover any declines. It’s been forced to tap those buffers on only three deals – when diesel prices cratered in February, and to cover steep falls for cashews and sesame seeds in China.
Original article at https://www.businesstimes.com.sg/energy-commodities/hedge-fund%C2%A0tradeflow-capital-made-money-amid-singapore-commodity-turmoil
