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Factoring Investment In Colombia: I Was Sold Immediately

21 Apr
Doing the math for factoring investment in Colombia is as easy as pie.

A Unique Low-Risk, High-Yield Opportunity In My Favorite Market

One of the presenters at our Live and Invest in Colombia Conference taking place in Medellín this week is a colleague in this city who has put together a factoring investment opportunity that has its basis in the struggles this country has faced over the past few decades.

Many Colombians have been affected by their country’s past troubles, and some have sued their government. In some cases, it’s families that have been displaced or have lost family members as a result of FARC actions. In others, it’s Colombians who have been affected adversely by actions or inactions of the Colombian government.

For the investor, the reason for the suit doesn’t really matter.

The point for the investor is that it can take years for these suits to process through the courts. It takes five to eight years on average before a judgment is passed down. Once a judgment has been made, it can take another 12 to 24 months for the government to pay out. Many of the families can’t or don’t want to wait this additional year or two before getting their money.

My colleague’s firm offers the families cash today in exchange for their judgment money due from the government.

The benefit to the family is that they get some money today. However, taking the payment early means they don’t receive the full payment. That’s the trade-off… and the opportunity for the investor. The investor pays out the family at a discount and then collects the future cash payment from the government in full.

In addition, the government is required to pay interest on the amount owed from the date the payout is stipulated by the court until the date the payment is made.

When my colleague detailed the program he’s packaged for me for the first time in early 2014, I was sold immediately. I’ve known this colleague for more than six years and have come to trust him completely. Plus, what he was presenting seemed like a no-brainer investment.

I told him I was in on the spot.

Investment Payment Period

Over lunch here in Medellín yesterday, my colleague updated me on my investment. My payment from the government of Colombia is officially scheduled for May 20… one month from now.

The range for getting paid on one of these factoring deals is 10 to 24 months, with 15 months being the average. I’m not certain why mine ran close to the outer range, but I’m happy it did, as I’ve been accruing 12% interest the entire time.

An annual return of 12% sounds like one of the Ponzi schemes I’ve heard about in Costa Rica and Ecuador over the years—that is, too good to be true. In this case, though, the program is real and has a track record.

Now that my payout is imminent, I’ve instructed my colleague to roll the funds over into a new claim as quickly as possible to get the interest accruing again.

Factoring Isn’t A New Concept

Factoring isn’t a new concept. Companies factor their receivables at a discount all the time to bring cash flow forward. The buyer of the receivables takes the chance that some of the clients in the portfolio won’t pay their invoices. Thus the discount.

In this case, the government of Colombia is the debtor and has a legal obligation to pay the claims. And they are paying the claims; it just takes time.

The bigger risk with these judgments is making sure you’re getting a real claim for which a judgment has already come down. You don’t want to pay a plaintiff before his judgment has been passed down from the courts and registered with the government. That’s where the group my colleague has formed comes in. The group’s attorneys review each potential claim to make sure it’s legitimate and far enough along to be a reasonable purchase for an investor.

The other risk is currency. When I first invested almost two years ago, the Colombian peso was trading at about 1,850 to US$1. The peso today is about 3,000 to the dollar, meaning I’ve suffered on the exchange rate.

Still, though, I will have about 24% more pesos when I get my payout than I did when I invested… and I’m not planning on converting my pesos back to U.S. dollars, but rather reinvesting them in another claim.

I expect the Colombian peso to recover at some point, so my currency loss will likely reverse. Moreover, it’s not actually a loss for me until or unless I convert those pesos into U.S. dollars.

I don’t intend to do that. I intend to continue accruing more pesos and earning an excellent interest rate for some time to come.

For someone investing today, the current currency exchange rate gives you the opportunity to earn that great interest rate with the possibility of currency upside over the holding period of your claim.

In High Demand...

The real problem with this opportunity is the demand.

While there are many claims available for my colleague’s factoring program, the volume of interested investors is also sizable and growing. My colleague’s group has a half-million dollars of investment capital on the sidelines already waiting for the next round of claims to be reviewed. The good news is that they expect to be able to source three times that amount over the coming months.

As a current investor, I’m already in the queue. That’s why I’ve asked my colleague to roll over my payout when it comes; I don’t want to lose my place in line.

If you’d like more information immediately and a chance to get in on the next round of opportunity, you can contact my colleague directly here.

Colombia is one of the most appealing investment markets in the world today. It’s not every day you get this kind of diversification—of market, currency, and asset type—in one buy along with such a high rate of return.

As I said, I’m yielding 12% on my investment of the past 20 months. However, in Medellín today my colleague is presenting a next round with a 13% return.

If you invest now, you can be on board for the 13% return, too.

Minimum investment is US$50,000.

Lief Simon

Mailbag

“Lief, someone was telling me that Colombia banks pay high interest on deposits? Is that true?”

M.K. on Facebook

It was true. As recently as a year ago, some banks in Colombia were offering money market accounts paying 4% and more. However, right now money market accounts at the bank I work with in this country are paying around 2%… which is still more than for comparable instruments in the United States.