Private credit operations adapt to growth

The private credit markets are rapidly changing, in tandem with an evolving credit landscape of high inflation and rising interest rates. Portfolio managers are looking to diversify at the same time as investors are seeking new opportunities. As a result, the ability to source reliable data, manage technology, and build efficient operations is key.

This topic, among others, was discussed as a part of a panel at Interact, S&P Global Market Intelligence's annual conference on technology, data, and operations in asset management. Kevin McPartland, Head of Research, Market Structure and Technology at Coalition Greenwich, moderated a panel of private market participants to get their take on current private market operations.

The market has grown exponentially in the past few years. A number of the panelists admitted that the fast pace of investment growth had caught them off-guard and forced them to look at streamlining their operations in order to remain successful. "It was a big mindset shift, and we focused on standardizing as much as possible," one panelist noted. The huge increase in data, in particular, prompted portfolio managers to seek out tools to improve data collection--and make better decisions.

Technology hacks

The increase in deal volume became the number one catalyst to look for new tools to address workflow problems, a panelist noted. "Initially you have to throw bodies at it, but at some point, you need to look to the technology side to see how you can be more efficient," according to another panelist.

Yet off-the-shelf technology is not always available to suit the needs of private credit. The data needs of the asset class set it apart from others, and often require specialized platform integration that is bespoke to an individual firm's needs. Striking the right balance in technology is difficult. "You don't want to have 12 different systems that do one thing well," noted a panelist. While it is hard to find a general-purpose solution, tools with the right flexibility and configurability can offer firms big efficiency gains and improved data accuracy.

One item on the panelists' tech wish list is for better common identifiers. That would allow portfolio managers to maintain siloed information but have the ability to bring that information together. Consistency in collecting data from similar but inconsistent wording in credit agreements is also critical for collating information into cohesive reporting.

Changes in the valuation process

The time-consuming review process for valuation has also changed, panelists noted. With increased market volatility, investors and limited partners are much more focused on getting insight into valuation inputs and seeing more frequent updates. This has in turn put a sharper focus on workflow efficiency and the technology available to support valuation processes. Panelists discussed how software systems like iLEVEL (an S&P Market Intelligence product that helps centralize private credit portfolio data) can cut down the time required for a process that might otherwise have included extensive modeling and a team of six or seven analysts for each deal.

A more transparent future for private credit

Across the topics discussed, the major theme that emerged was how the growth in private markets has fueled demand for more transparent, reliable data. Firms are moving towards a future where private credit operations are more efficient and the asset class achieves more of the transparency familiar in the liquid credit markets.

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