Yield-hungry investors pile into Credit Suisse supply-chain funds

Global investors’ search for yield is taking them to far-flung places, including a waste management facility on the outskirts of Newcastle and a start-up business in Chester that provides support to people with special needs.Financing provided to these companies and others is packaged up in three Credit Suisse funds that promise professional investors an enhanced yield over more traditional investments.The three funds, linked to a controversial SoftBank-backed start-up, have ballooned in recent months, with assets soaring from about $2bn a year ago to about $9.2bn now, according to data from the Swiss bank. The boom in the funds, whose assets are primarily sourced by Greensill – a supply chain finance company that has received about $1.5bn in funding from SoftBank’s giant Vision Fund – underlines investors’ appetite for risk at a time of low returns in more traditional asset classes. Demand for the investments, termed supply chain finance funds, is so strong that Credit Suisse recently imposed a temporary freeze on inflows of cash to control their growth. The Credit Suisse funds, which were all launched in the past three years, mainly invest in securities backed by short-term financing to pay off companies’ suppliers. The companies, or obligors, are legally bound to repay the financing later. Investors can withdraw their money with between a day’s and a month’s notice, depending on the fund. Almost all the assets in the funds are sourced by Greensill, a supply chain finance company founded in 2011 by Lex Greensill, an Australian banker. The company was involved in controversy last year when a portfolio manager at Swiss asset manager GAM was suspended and then fired following an investigation into alleged misconduct that focused in large part on his relationship with Greensill and investment in Greensill-sourced assets. Greensill has previously declined to comment on the issue, saying it was a matter for GAM, while the portfolio manager has consistently denied any wrongdoing. Credit Suisse said in an email that supply chain finance is “a fast-growing asset class for qualified and professional investors, who are looking for short-term credit exposure with an attractive risk-reward profile”. The email said the funds are “regulated and have a thorough investment and due diligence process in place, resulting in strong performance with zero credit events since launch of the funds”. In the Credit Suisse funds, many of the obligors are blue-chip companies. According to the most recently published detailed fund data, from April, hundreds of millions of dollars were tied to AstraZeneca, General Mills, Sprint and Telstra, for instance. Other obligors are less well-known companies. The April data show more than £50m related to Catfoss Renewables, a loss-making waste-processing business in the north of England, and associated companies. Catfoss did not respond to requests for comment. Also, in one of the funds, there is about £9m related to Special Needs Group, a Chester-based company whose website says it provides “bespoke, personalised services, including finance solutions for school-age students who have learning disabilities”. The company, which was founded about 18 months ago, had net liabilities of about £1.6m at the end of January, according to its most recent accounts. The company did not respond to requests for comment. Some obligors have longstanding ties to Greensill. The funds provided about $30m to a British Virgin Islands company called Atlantic 57 Consultancy. UK court filings link the company to Andy Ruhan, a one-time property tycoon who has spent much of the past decade entangled in complex legal battles with his former business partners. Ruhan, who once sat on the board of the Lotus Formula 1 team, was also the largest shareholder in NordFinanz Bank, a decades-old German lender, when it was bought by Greensill for about $25m in 2014. Ruhan could not be reached for comment. There are also tens of millions of dollars related to Tower Trade Group and Deal Partners. These two companies, which share senior executive leadership, both provide supply chain financing solutions. Tower Trade is one of the longest-standing Greensill partners, according to a person familiar with the matter. On the company’s website, several of the top articles under “Latest News and Insights” are copied from Greensill press releases. Tower Trade and Deal Partners did not respond to requests for comment. As of the detailed April data, the Credit Suisse funds also provided about $200m in financing to companies within the GFG Alliance, a steel conglomerate run by Sanjeev Gupta. Financial News previously reported that Gupta was a shareholder in Greensill for several months in 2016, and also reported that GFG assets sourced by Greensill were a key focus of the probe into alleged misconduct by a portfolio manager at GAM. A spokesperson for GFG declined to comment. One of the largest obligors was Vodafone — about $200m of financing was related to the company as of the latest available data. Vodafone has a lengthy relationship with Greensill. The company had more than $1bn invested in a supply chain finance fund run by GAM and Greensill earlier this year. The telecoms company has since exited that position. Also, Vodafone’s former treasury head, Neil Garrod, joined Greensill as chief financial officer in June. Vodafone did not respond to a request for comment. Credit Suisse said in an email all the assets “are fully in line with [the] prospectus, investment guidelines and marketing material”. The bank also notes that, in the largest fund, all the underlying securities are insured. Data from June showed that 42% of the underlying credits were covered by a single insurer, Insurance Australia Group. The trade credit business at IAG was sold to Japanese insurer Tokio Marine earlier this year. A person familiar with the Credit Suisse funds said they had recently introduced a rule that no single insurer could provide cover for more than 20% of the underlying credits. In some cases, Greensill also has a charge over the assets of the obligor, meaning it has the right to seize the assets in the event of a default.

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