Factoring Investment In Colombia: I Was Sold Immediately

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 years for the government to pay out. Most families can’t or don’t want to wait to get 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 packaged 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.

Over lunch here in Medellín yesterday, my colleague updated me on my investments. My first one (made back in 2014) was paid out in 2016. I rolled that payout into another suit and added additional funds to purchase a third.

My payment from the government of Colombia is pending for these last two investments. There’s a backlog at this point, as the annual budget allotment for paying the judgements hasn’t kept up with the annual volume.

This is fine with me, as meanwhile, the interest continues to accrue.

The volume of new judgements is slowing.

Since the peace treaty was signed with FARC, the rate of related crime and violence in this country has fallen by 97%. Thus very few new suits are being filed.

Therefore, the annual budget will catch up, and eventually all payouts will be made. Meanwhile now is the time to get in, as there are fewer and fewer suits available.

The effective interest rate that you can earn on these factored judgements is 13%

An annual return of 13% 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.

Factoring isn’t a new concept. Companies factor their receivables at a discount all the time to bring cashflow 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.

This is 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 five years ago, the Colombian peso was trading at about 1,850 to US$1. The peso today is about 3,200 to the dollar, meaning I’ve suffered on the exchange rate.

Still, though, I’ve been earning 13% a year… and I’m not planning on converting my pesos back to U.S. dollars. I intend to reinvest them in another claim if one is available. If not, I’ll find another opportunity in Colombia.

I’m all in on this country long term.

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.

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.

The real problem with this opportunity is the demand.

With the volume of quality judgements slowing down and likely to run out in the next few years, more people are competing for judgements as they become available.

Now is the time to get in if the idea interests you.

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.

Minimum investment is US$50,000.

Lief Simon