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Commodity Musings:

Work Experience Musings – Ludmila

Kimura Capital – 

My week at Kimura
Written by:  Ludmila (Student)

During my studies for my university degree in corporate finance, I got the amazing opportunity to do work experience with Kimura in order to get some insight on commodity trade finance. Spending time with financial analysts, portfolio manager, compliance officer, alongside office meetings, I had the chance to enrich my academic skills, expand and apply my knowledge to the real and imperfect world.

While every stage of an investment process has its great importance, risk analysis and mitigation is one of the most significant steps undertaken by all players within the financial services. Getting to know Kimura’s investment strategy has helped me gain a much broader perspective of how managing financial and operational risk can decrease chances of future threats and protect the company from negative financial impacts due to internal or external factors. Identifying the risks a company may pose could be done by analysing its financial position over the last couple of years through balance sheets and cash flow statements alongside forecasting future performance. Another step is having a pledge over or full ownership of the commodity which could then be sold on the market if the client company fails to pay back their loan. However, even if there is an LTV ratio of 70-80% always present and adjusted if needed, the risk of decreasing quality over time is always present for commodities like wheat.

Transporting the commodity or financing the process is another significant part in risk management where both parties should agree on incoterms, insurance policies and prepare for any unforeseen events, quality of goods risk, etc.

After an investment committee application is completed with a more in-depth analysis of the fees structure, company background and any other supply chain threats if present, there is an onsite visit done by financial analysts. The purpose of this visit is to confirm the existence of the commodity pledged to Kimura, getting to know the whole process of production, quality checks and learn more about the commodity in general which could help discover and understand new risks in play. Furthermore, onsite visits help create relations with clients which can build up trust overtime and benefit future deals as beside all risks, trusting a partner eliminates the biggest one.

Overall, my interest mostly shifted towards the structure of the deal including transaction flows as I got to expand my knowledge on the significance of an LTV ratio which is not protecting just against price fluctuations. There are many costs involved in cases when Kimura would have to take over the commodity and sell it on the market. Furthermore, legal actions need to be taken mostly regarding clients or insurance companies when any of the parties do not act upon initial agreement resulting in further costs which is another risk managed ahead of time with a purpose to set a seal on the initial investment.

Ludmila Iatco