Hedge-Fund Firm EFA Starts Fund for Commodity Traders

  • The EFA Real Economy Income Trust targets 10% return per year
  • Trust to finance commodity traders' expansion into processing

EFA Group is starting a debt fund to take advantage of loan demand from traders expanding from trading commodities into processing them.

The EFA Real Economy Income Trust will provide senior secured loans mainly to its existing borrowers, Xavier de Nazelle, head of corporate and asset-based finance, said in an interview. The trust completed its initial phase of fundraising and seeks to raise as much as $150 million by the first half of 2017, he said.

Singapore-based EFA Group in 2006 started its flagship LH Asian Trade Finance Fund, which focuses on financing the trading activities of commodity traders through highly secured short-term lending. Many of the fund’s existing borrowers are seeking to branch out from trading commodities into processing them, which requires further investments, de Nazelle said.

“It’s the evolution of the business model of traders,” he said. “Instead of buying and selling coco beans, they integrate some sort of process along the supply chain. So they buy coco beans, crush them into coco butter or coco powder and then sell it.”

The trust’s loans range from $2 million to $20 million, de Nazelle said. The investors, mainly institutions, family offices and wealthy individuals, will commit their money for four years and will receive semi-annual payouts. The vehicle targets net returns of 10 percent per year. 

The LH Asian Trade Finance Fund returned 3.6 percent last year and 0.26 percent in January, according to a fact sheet. EFA Group, with assets of more than $800 million, also manages the EFA Dynamic II Fund, which returned 4.1 percent in 2015 and 0.3 percent last month.

(Corrects date in second paragraph.)
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