Non USD RWA logistics/inventory financing

How are we thinking about Non USD RWA Asset finance? Specifically I am thinking about freight/inventory financing in emerging markets, which have significantly higher origination yields, inclusive of the FX related yield, however the risk is broken down into the risk on the FX and the risk on the credit component. Gross yields of 20-30% are reasonably available on 2-6 week assets (typically something like 2% of each shipment with varying maturities between 2-6 weeks), the FX related yield typcially accounts for 5-10% of the 20-30%. The more volatile the currency typically produces higher gross yields in credit and FX space, but in emerging markets the FX risk is a meaningful component of the return.

I think that not everyone would want the FX risk, and likewise not everyone would want the credit risk, and some might want both (think efficient risk frontier from investing in stocks, the risk of the fx+credit is less than just the fx and credit seperately since the correlation isn’t 1)

Is this something CFG would look at/consider - specifically financing emerging market freight forwarding, with and without an FX hedge. The total amount of origination supply is quite large for this type of asset, most of which is financed by local banks at very high interest rates


Interesting thoughts. Maybe @thespaceacatjr and/or @ctcunning can share their opinion

My take:

It’s an interesting question and FX risk is undoubtedly part of the consideration when transacting cross-border, of course there is broader stablecoin/crypto risk to consider as well as we’ve all seen with UST.

The FX question is actually a solution that asset managers who manage Pools of assets need to consider.

The investor is ultimately transacting in DAI, which is pegged to USD. As managers use DAI to finance RWAs, ultimately you convert that DAI into whatever currency you’re lending money, wherever that may be to various businesses of the world.

The responsibility of paying the loan of course is in DAI, which again is pegged to USD.

A good example of a Pool managing cross-border transactions is Consol Freight: Pool Overview: ConsolFreight Series 4 | Tinlake | Centrifuge

For the investor, of course they have to be concerned about FX, but they’re most likely evaluating a Pool Manager’s ability to handle that, as they’re not taking that risk on directly themselves.

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