Globally, private credit reached $2.1 trillion in 2023, according to the IMF.[1] It’s a staggering amount of investment fueling a highly nontransparent market. There are many contributing factors to the rise in this asset class; however, less is understood about the operational complexities that come with managing these assets. During Hedgeweek Private Credit US Summit 2024 this fall, Nicholas Nolan, Managing Director, SS&C Advent, participated in the panel “Volume Control: Monitoring the boom in credit portfolios.” Coupled with his perspective as a technology and operations partner, the audience also benefited from the perspective of three fund managers that are active in the credit space.
The lively panel explored key areas, including whether transaction complexity is inherent to private credit and whether standardization can support firms as they manage higher volumes. They also discussed the data collection process, what should be prioritized, and any risk potential for expanding portfolios. Among the takeaways from the conversation is that firms should focus on working within the confines of this market by leveraging the powerful combination of people and technology.
The LP/GP Dynamic
The growth in private markets is creating more competition, and as a result, LPs are requiring more transparency and investor due diligence in their GP relationships. As one panelist noted, LPs are looking for increased amounts of data in a timely fashion. Managing this data is critical to the LP and GP dynamic; firms should leverage a single-source solution that can manage both closed and open-ended funds and handle loan lifecycle events.
Much of the conversation centered on how firms can use technology to scale, streamline, and automate processes to create competitive advantages. Investors require more insight into their investments, so firms can provide more details will fare better than their peers.
People & Technology
People matter. Regardless of a firm’s tech stack, it still involves people to employ and manage the systems. Therefore, where you recruit and how you manage people are key components of your success. Firms often prefer to co-source or outsource certain tasks to third-party partners to mitigate key-person risk and prioritize high-value tasks. The breadth and depth of the vendor’s knowledge in performing those selected tasks matters. For those that choose to fully outsource to an all-in-one solution are still responsible for the output and investor reporting. It’s key for the fund manager and vendor relationships to maintain a transparent partnership.
A strong operational infrastructure is foundational to investing in credit. Firms should have their operations and technology in order and have the right people who can understand what the data tells you; technology can only take you so far.
Managing the volume to achieve operational alpha
There are plenty of technology options to evaluate, with many specializing in key components of a firm’s business - whether it’s deal pipeline management, accounting, or fundraising. However, while smaller tech providers may have a slight edge in specialization, there is a significant risk that disparate systems will not speak to each other in a meaningful or seamless fashion. Overall, there is no one-size-fits-all approach; partnering with the right providers can help you find the best fit for your firm.
This conference presented attendees with many actionable insights into the dynamic asset classes of credit. As this asset class expands, creating a strong operational infrastructure will help firms manage the volume and investor relationships. For fund managers evaluating third-party technology and managed service offerings, contact us to learn more about SS&C Advent Geneva® and its suite of solutions and how it supports credit fund managers’ operations as they diversify strategies, visit our website or request a demo today.
[1] Cohen, C., Ferreira, C., Natalucci, F., Sugimoto, N. International Monetary Fund (IMF). Fast-Growing $2 Trillion Private Credit Market Warrants Closer Watch. (2024, April 8). Retrieved from: https://www.imf.org/en/Blogs/Articles/2024/04/08/fast-growing-USD2-trillion-private-credit-market-warrants-closer-watch
